Despite the popular hype surrounding blockchain, it will likely be the humble blocking and tackling of supply chain management that proves the technology’s value to business.
Supply chains present an ideal case for the distributed ledger technology. They contain lots of complexity and waste, have multiple parties that need to contractually share information or multiple applications, and are tasked with increasing demands. To top it off, they come with financial and reputation ramifications should things go awry.
Business transactions and trading relationships are the building blocks of supply chains and what they need to work — transparency, trust, transactions — can be programmed and tokenized without third-party intermediaries with blockchain.
Blockchain-based ventures such as the one recently announced between industry titans Maersk and IBM could save the container shipping industry billions of dollars by removing business friction. Other projects are tracking the movement and importation of meat from overseas suppliers, such as China. In time, the technology can become an integral part of global trade as a whole.
Track and trace is the foremost use case. “Figuring out who has what and when is constantly challenging for goods that are in motion. Blockchain can bring transparency to systems,” Techonomy CEO David Kirkpatrick said in a recent discussion.
The ability to track and trace a product or input back all the way to the point where the raw materials were sourced is a compelling feature for risk mitigation and transparency initiatives. It also means end customers can feel certain that products marketed as, say, fair trade or conflict mineral free, are in fact as advertised.
One way the data model could work is by tracking event data through a delivery chain (and supply chain) and coupling it with business transaction data. Every time a product changed physical location or was aggregated it would be registered by scanning a unique id, and the resultant combination would then be recorded like a virtual handshake in a distributed ledger. Smart contracts would ensure the assets are not just tracked but would trigger further processes such as forwarding services. Additional telemetry collected through IoT sensors placed on pallets, crates or boxes could also monitor things like the temperature of goods. If too warm or too cold, the Smart contract can take appropriate steps to prevent the completion of the transport.
In this way, companies or customers could track a product from beginning to end to ensure authenticity. For tier-one suppliers and the large businesses where the final goods are assembled, such a track and trace capability could enhance and validate “know-your- customer-business” requirements.
“Keeping track of goods is a boring thing to do, which is perfect for blockchain. It can bring transparency to a lot of these data tasks, and in turn, things like a business’s reputation and creditworthiness can be reliably documented with record- keeping that is ironclad,” Kirkpatrick said.
Put another way, blockchain proves relative identity and integrity; it proves who you are as long as participants in the same network acknowledge that fact. At best, the technology can help expel counterfeiters, fraudsters, and other bad actors from the global supply chain, saving costs and regulatory compliance headaches.
Blockchain deserves exploration with ample experimentation and humility when it comes to business benefit expectations. Companies should not be afraid to make mistakes, advises Kirkpatrick. He also stresses that it is not going to evolve in a vacuum.
“5G networks, IoT, and blockchain can work together to build an intelligent world where data is alive in systems that are extremely real-time managed,” he said. “Blockchain could be the organizational piece of this connectivity. It is the interstitial tissue that creates transformation once optimized with cloud-based machine learning and big data analytics.”
Christopher Jablonski is the director of content and communications at Tradeshift, and lead global editor for supply chain, fintech, and digital business content.