Blockchain and supply chain: an introduction
When chains meet: redesigning supply chains and traceability in the name of efficiency and data quality.
In today’s difficult times, focusing on issues that foster ideas, suggestions and useful indications aimed at tackling crises can be of great help. When it comes to blockchains and supply chains, data quality and traceability have become of utmost priority — especially in the pharmaceutical industry, as we will see below.
Giving fintech a run for its money, the supply chain sector is one area where companies are increasingly experimenting and adopting the application of blockchain technologies. Supply and distribution chains are complex, involving numerous actors: suppliers and sub-suppliers, freight forwarders, producers, distributors, resellers, banks, brokers, customers and so on. Often, rather than chains, they are interconnected and globalized networks.
As EY’s Paul Brody points out, “At its most basic level, the fundamental logic of blockchains means that no piece of inventory can exist in the same place twice.” This basic requirement makes the technology particularly suitable for supply chains, taking into account the benefits of other characteristics such as the decentralized and shared nature of blockchain, and the immutability and validation of data through consensus protocols and the traceability of the information entered.
Currently, supply chains are often inefficient, plagued by fragmentation, lack of standards, complex payment and reconciliation procedures, redundancies and limited digitization. It has been estimated that the mere lack of coordination and optimal communication between suppliers and manufacturers creates losses of up to $60 billion.
A business network of varying stakeholders connected via a supply chain would stand to benefit from blockchain integration, particularly in having newer, more innovative and efficient interaction models. The blockchain design of a supply chain would require a profound study of its current state, including thorough analyses of its structure and critical issues, so as to harmonize data and information, adopting shared standards by all participants of the network — the aforementioned stakeholders. Data quality remains the order of the day, in order to ensure accuracy, completeness and timeliness within a complex network.
Just this phase alone can produce significant benefits.
Using blockchain for a “single source of truth” brings about, at least in theory, a series of benefits, some of which include:
- a general reduction in costs, through fewer intermediaries and decreased disputes
- more positive impact on the environment, for example, through diminished inventory waste or inefficiencies
- more reliability and transparency for clients, partners and end-customers
- enhancement of traceability in supply chain processes and the subsequent certification of products
- better stock management
- improved and provable compliance with conformity regulations
There has been a marked development in the application of blockchain technology in the sector. In 2018 alone, there were submissions of over 750 patent applications of various types associated with blockchains and supply chains. IDC Manufacturing Insights expects that a quarter of OEMs (Original Equipment Manufacturers) will leverage blockchain technology to procure spare parts by 2023; an improvement in the accuracy of usable parts is expected by 60% with a cost reduction of 45%.
The industry isn’t, however, quite there yet. Gartner believes that 80% of Supply Chain-Blockchain projects will remain in the Proof-of-Concept stage until 2022. Mass adoption of the technology still has to overcome obstacles such as scalability, interoperability between different blockchains, full integration with IoT devices and control of off-chain activities, as well as data entry within immutable data structures.
All things considered, the supply chain sector’s interest in blockchain is undeniably increasing, especially in areas such as the agrifood, pharmaceutical and shipping industries. For instance, IDC has predicted that 85% of container shipments will be tracked via blockchain by the 2023. A Jupiter Research study has also forecast savings of 31 billion dollars in the agrifood industry by 2024, from the decrease in food fraud due to the adoption of blockchain and IoT.
Another research conducted by Cointelegraph Consulting and the Swiss company Insolar has calculated a potential savings of 450 million dollars in logistics-related costs, for businesses in Western Europe alone.
Here’s a look at some examples of supply chain projects past the Proof-of-Concept phase, or at least at an advanced stage in their blockchain experimentation.
Pharma
Correct storage during transport of medicines and their components is a primary problem, alongside the fight against counterfeiting. This year, Swiss multinational pharmaceutical company Novartis announced the release of a blockchain online in cooperation with a consortium uniting them with other pharmaceutical companies, universities and hospitals. In light of the current COVID-19 situation, Novartis’ Sandoz division — a top player in generics and off-patent antibiotics — has pledged stable pricing for certain essential drugs and antibiotics amid the crisis. With complete traceability and data immutability as some of its key features, blockchain is precisely how companies can back up such promises with technology.
In the United States, startup Mediledger recently published the results of its FDA-driven pilot project. Involving a consortium of leaders from 25 pharmaceutical companies, the project’s goal was to achieve traceability at an individual package-level of medicines via blockchain technology. Participants included all three major US wholesalers, seven out of ten of the world’s largest pharmaceutical companies, large distributors like Walmart and logistics companies such as FedEx.
Diamonds
The diamond industry — from extraction to processing to sale — was among the first to understand the potential of blockchains in tracing the product, guaranteeing its authenticity and legitimizing its origin. For long, the notorious “blood diamonds” we’ve all come to hear about have been a plague in profits, resulting in extra effort (and costs) for many working in the trade, in order to prevent the ruin of their brand through illegally-sourced diamonds.
In 2015, Everledger implemented a platform based on IBM Hyperledger, providing safe and transparent grading reports issued by the leading independent diamond classification authority, the GIA (Gemological Institute of America). Subsequently, they offered the same service for other types of gems, before moving on to other luxury products, and then finally extending to the food and wine industries.
Renowned diamond corporation De Beers created its own blockchain in 2018, tracing diamonds from mine to seller. Its platform Tracr assigns each diamond a sort of identity card, a Global Diamond ID, permanently inserted into the blockchain. Numerous other diamond manufacturers are now using the platform, including Alrosa, the largest Russian producer of rough diamonds. Currently, tens of thousands of stones are registered every month.
Early last year, the Russian government itself also started experimenting with a different blockchain solution for diamond traceability.
The Aviation Industry
In the aviation industry, the trade of used or spare parts is a market worth 4 billion dollars a year. Honeywell Aerospace’s platform GoDirectTrade acts as a B2B e-commerce site: you search, choose a piece, buy it. Through this platform, it takes an average of 4 emails and two phone calls to order a spare part — quite a feat, considering aviation isn’t renowned for its digitization. The advantages of such a solution are evident, in terms of speed and savings. Moreover, every document pertaining to the sale — such as the list of images and quality certifications — is registered on blockchain.
A few weeks ago, tech company Sita (jointly owned by most operators and carriers in the sector) announced the launch of the MRO Blockchain Alliance to track, trace and register aircraft parts.
Several other companies, such as Rolls Royce (the aircraft engine division), Boeing and airlines (like Air New Zealand) are also implementing blockchain solutions for spare parts and maintenance. SITA has released a report stating that 72% of all airlines are already involved in blockchain projects.
Large-scale distribution and agrifood
Walmart was among the first in its industry to believe in blockchain. Since 2016, Walmart has commissioned projects for the tracing of products all the way up to manufacturers and suppliers. With IBM’s Hyperledger Fabric, its pilot project tracked the origin of mangoes from 5 different suppliers, decreasing the origin-verification time from 7 days to mere seconds. The project then extended to suppliers of other agricultural products. Walmart Canada has also announced a blockchain-based solution for its logistics: the system will track deliveries, verify transactions and automate payments from its couriers, which deliver stock inventory to Walmart’s 400 retail stores across Canada.
Walmart China and VeChain, a blockchain platform specializing in supply chain, have started a project named the Walmart China Blockchain Traceability Platform, aiming to track 100 products and provide customers with detailed information via their smartphones.
In 2018, Carrefour was the first large-scale retailer in Europe to develop a blockchain project to track meat, milk and fruit and providing information of these products to their customers through a simple scan of each package’s QR Code on their smartphone. After one year, sales of these products increased. Carrefour initially experimented with Ethereum, a public network, before deciding to move their projects to IBM’s Hyperledger Fabric and finally onto the IBM Food Trust program.
IBM Food Trust is a blockchain-based SaaS solution, created by the Cupertino multinational specifically for the control and traceability of agrifood supply chains. Numerous large companies, like the aforementioned Walmart, and other giants such as Nestle, Dole Food and Unilever, have come on board.
TE-FOOD is another blockchain-based food traceability solution from producer to consumer, operating mainly in emerging countries such as Vietnam. TE-Food’s first goal is to guarantee food safety and combat food fraud. Often in consultation with local authorities, they’ve declared transaction volumes of more than 400,000 operations per day.
Transport
Many of the solutions addressed so far are based on private blockchains (generally Hyperledger Fabric). Interestingly enough, however, when it comes to shipping, two of the most promising startups are based on Ethereum.
Via the Ethereum blockchain (selected for its apparent neutrality), CargoX provides services for the digital transfer of bills of lading issued by every freight forwarder worldwide. The system completes the transfer of digital document ownership securely and reliably in minutes, compared to the turn-time of days or even weeks that paper documents entail.
ShipChain has developed an end-to-end tracking system of commercial shipments from the production plant to the end-customer. They’ve chosen Ethereum, adding “public networks don’t mean public data”.
The cases mentioned in this article represent but a small fraction — a sampling, of global blockchain projects in the supply chain sector. Here in Italy, there are numerous companies, ranging from agri-food to luxury fashion, putting the focus of their blockchain projects on traceability, all in the name of protecting the name that is “Made in Italy”. Mangrovia Blockchain Solutions, one of the nation’s forerunners, offers BaaS (Blockchain as a Service) solutions and API/REST interfaces for these enterprises’ various business units in a wide range of areas.
References
Gonczol P., Katsikouli P. et al. “ Blockchain Implementations and Use Cases for Supply Chains–A Survey” (survey full of interesting information)
The European Union Blockchain Observatory And Forum, “Blockchain In Trade Finance And Supply Chain” (report on the initiative of the European Commission)
Stinnes A., “Is blockchain perfect for the supply chain?”
Rees J., “How Blockchain is Revolutionizing the Supply Chain Industry”
