Supply Chains Demand Blockchains
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Supply chain management is a complex, cumbersome process. The current supply chain paradigm is slow, unwieldy, and highly centralized, with relationships between manufacturers, suppliers, vendors, and customers facilitated by third parties at almost every step. Contracts between supply chain entities are handled by lawyers and financial institutions, adding extra costs.
Friction between supply chain entities transforms what could be simple transactions into multi-step procedures that impede efficiency. Blockchain technology, however, offers a potential solution to the issue of supply chain friction, enhancing transparency, traceability, and interoperability.
But is blockchain technology mature enough yet to decentralize supply chain architecture? We’ll proceed to examine the current state of distributed ledger technology in the global supply chain industry and investigate some of the most promising platforms that are bringing the supply chain onto the blockchain.
From Bitcoin to Business
Cryptocurrencies such as Bitcoin are one of the most visible applications of blockchain technology, but they are far from the only use case— distributed ledger tech can be used to conduct any kind of exchange. The smart contract functionality offered by blockchain networks such as Ethereum, for example, can be used to execute “trustless” contracts between entities without the need for third-party arbitrators.
Security, immutability, and transparency— The same key blockchain features that make cryptocurrencies so attractive— are the same features that make it an ideal solution to the issues that currently address the supply chain industry.
In a cryptocurrency blockchain network such as Bitcoin, network participants agree on the current state of the ledger in order to ensure transactions and balances are valid. In the case of a distributed ledger focused on supply chain management, consensus is used not only to confirm payment, but also track transport, warehousing, or delivery status.
The transparent nature of a distributed ledger also streamlines provenance. Every entity involved in the movement of an asset is able to identify where and who it came from in an immutable provenance chain. Blockchain immutability also allows supply chain entities to operate with secure confirmation that remittance between organizations has occurred, or deliveries have been fulfilled.
Smart contracts, however, are the most disruptive element of blockchain technology as far as supply chain management is concerned. A smart contract is able to trigger an event based on ledger information, such as triggering delivery of an order as soon as payment is received.
The potential applications of blockchain-based supply chain platforms are diverse. US food retail giant Walmart is already using a blockchain solution to track pork meat purchases in China, improving food safety with immutable provenance techniques. Australian vehicle manufacturer Tomcar has been using blockchain solutions in order to pay suppliers in Israel and Taiwan in order to circumvent high fiat transaction fees since 2013.
RFID tags are already used to track products throughout the supply chain ecosystem, so why not integrate them into blockchain-based smart contracts to establish an open market in which logistics partners are able to bid for delivery contracts?
Is blockchain tech able to withstand the large-scale demands of established supply chain solutions, however? What is driving the adoption of blockchain solutions?
Supply Chain Network Effects & Blockchain Adoption
By eliminating third parties and automating processes that require manual checking, blockchain based supply chain solutions can considerably lower cost to serve. Supply chains are built, however, through network effects— in order for a supply chain solution built on the blockchain to deliver value, it would need to provide a solution that would immediately be adopted by a large number of industry participants.
A recent study conducted by the Department of Marketing & Logistics at the University of North Florida provides a detailed insight into the rate at which blockchain solutions are being adopted in the supply chain industry. The study, entitled “The Supply Chain Has No Clothes: Technology Adoption of Blockchain for Supply Chain Transparency”, references Professor Michael D Williams’ unified theory of acceptance and use of technology, or UTAUT, as the primary driver of blockchain tech acceptance in supply chain.
The UTAUT model identifies a positive feedback loop between performance expectancy of a new technology and the rate at which it is implemented. The increased transparency offered by blockchain technology allows asset managers to respond and adjust supply management techniques in response to improved information accuracy, as evidenced in a 2015 study on the impact of “phablets” in the supply chain industry.
By providing asset managers with a trusted single-source of distributed information, blockchain based supply chain solutions deliver the opportunity to scale and deploy resources in a far more efficient manner.
Widespread Adoption is Already Here
There are already a number of large-scale distributed ledger based supply chain management solutions operating in the industry, with the Blockchain in Transport Alliance, or BiTA, leading the way in catalyzing widespread adoption.
BiTA boasts an impressive roster of supply chain juggernauts on its member list, such as FedEx, UPS, and JD Logistics. The alliance is currently working toward solving the issues that are impeding the adoption of blockchain technology in the industry, which include a lack of technical talent, standardization, and scalability.
North American transportation management company Hub Group has recently joined BiTA, with Chief Information Officer Vava Dimond commenting on the potential impact of blockchain technology in logistics:
“A growing number of companies are identifying compelling use cases beyond solving the traditional challenges of complex supply chains… Joining BiTA means we can help create blockchain standards as well as collaborate on industry applications that will help shape the future of our industry.”
While some logistics and supply organizations may be joining forces to assess the potential viability of blockchain solutions, several blockchain networks are already delivering operational, highly efficient ready-to-use platforms.
From ICO To IBM, Solutions Are On The Way
VeChain is a possibly the best-known of these at present, and a top-20 token according to CoinMarketCap. It’s a blockchain network focused on supply chain provenance that offers customized NFC chips embedded in luxury leather goods; these function as a blockchain-based anti-counterfeiting tool. Vechain also delivers food and drug provenance tracking, as well as a logistics solution that optimizes information flow between supply chain entities.
TE-FOOD is another blockchain-based supply chain solution that has created a farm-to-table food traceability network, responding to increased consumer awareness regarding food provenance. The TE-FOOD solution provides consumers with an app that reads product-based QR codes, drawing origin information directly from the blockchain. The company is preparing for an ICO at present.
Blockchain tech isn’t limited in scope to asset provenance, however. Eximchain is a blockchain platform that allows supply chain entities to verify remittance and finance within the industry, eliminating manual reconciliation and third party verification. Interestingly, Eximchain provides organizations with an SDK that allows for the rapid development and deployment of end-to-end supply chain apps with minimal difficulty, solving the issue of low blockchain tech literacy within the industry.
Eximchain is another ICO candidate – and in a move described by CEO Hope Liu as being due to an “unforeseeable global regulatory environment”, they recently canceled their public sale (and instead airdropped $500k to whitelisted participants). Such a move could highlight one challenge that emerging supply chain firms will all face – the very nature of their business requires international cooperation and compliance.
The blockchain revolution in supply chain is also delivering verifiable social benefits. Provenance is a blockchain based product tracking and tracing platform that allows producers to demonstrate their social and environmental impact at every point in the chain. The Provenance solution also allows non-profits and NGOs to access data from partners, allowing organizations such as FairFood to verify living wage payment to fair trade farmers. Other startups are tackling issues as serious as child slavery in Africa.
On the global blue-chip front, IBM has partnered with international shipping giant Maersk in order to develop a real-time shipping information pipeline, bringing the $4 trillion in goods carried annually by the ocean shipping industry onto the blockchain and demonstrating that blockchain innovation is no longer limited to the realm of ICOs and smaller startups.
The Future of Supply Chain and Blockchain Technology
Blockchain tech is beginning to take hold in the financial landscape— even established financial institutions that may appear to be losing out from the blockchain revolution are trialling blockchain solutions. Adoption in these sectors is slow, however, compared to the rapid rate at which blockchain solutions are entering the supply chain industry.
The compartmentalized, modular architecture of the industry allows organizations to begin using solutions such as smart contracts in small portions of their operations, creating fertile ground for the development of innovative new methodologies.
If BiTA and other industry proponents are able to solve the issues of scalability and standardization, it’s likely that we’ll see the supply chain sector become the first fully decentralized industry surprisingly soon.