The future of supply chain transparency

Blockchain technology was created as a response to the problems with trust that we saw in 2008 due to the financial crisis.

Blockchain-based systems such as Bitcoin were presented as an alternative to existing financial institutions and a potential solution to the erosion of trust in online intermediaries as the technology eradicates the need for trust between parties.

Not only that, there is general mistrust among organisations, this includes fear of confidential information being passed on to competitors which in return has led to organisations refusing to share data.

Even if the information is shared it is not completely trusted. Using blockchain to improve supply chain efficiency and speed will allow companies to only share limited data such as inventory and shipment data.

Blockchains were originally created for cryptocurrency networks creating permanent records of every transaction that is associated with an asset which results in an unbroken chain of trust. However, if we take this technology and apply it to the supply chain, this can enable faster and more cost-efficient delivery of products.

Yves Richard, 29 from London who has been working with blockchain for three years told us: “Blockchain technology is making huge progress in general but when it comes to supply chain management we are seeing some promising results that make me excited for the future”.

Walmart in Canada has started using blockchain with trucking companies that transport the company’s inventory. In addition, IBM and Maersk joined forces in 2017 and have used blockchain to transform the cross-border supply chain.

This trade solution will help track and manage the paper trail of millions of shipping containers across the world by digitalising the supply chain process from end-to-end transparency and the secure sharing of information among trading partners. This will potentially save the industry billions of dollars.

For example, bulk shipment of products such as flowers requires a lot of certified paper documents, sometimes in the hundreds, to make sure the product is hygienic and has not been tampered with.

This has to be signed and stamped by various different agencies which then has to be transported separately by air to the import destination as custom agents require original documents to prevent fraud. The smallest error on these paper documents can result in delays that can hold up payments and spoil a shipment.

Mistakes such as missing shipments, duplicate payments and inventory discrepancies are near impossible to detect in real-time, so when the problem is discovered it is expensive and difficult to pinpoint the source and try fixing it by the sequence of activities that have been recorded.

This is particularly the case with large organisations that are engaged in thousands of transactions on every day across a large network of supply chain partners.

Blockchain technology can remove such complexities from this process. When documents need to be shared with multiple institutions, putting these records on blockchain initiates real-time updates that are visible and can never be altered or be tampered with, creating substantial savings when it comes to time and cost whilst ensuring a strong level of trust.

Emma Davidson, 32 who owns her own start-up told us: “We’ve been discussing how we can use blockchain to support our business needs. When it comes to supply chain, blockchain technology is still relatively new which is why seeing big corporations take on blockchain for supply chain gives me great confidence with regards to switching to blockchain technology as opposed to the traditional method.”

The technology not only provides visibility with regards to where things are but it also provides traceability and shows where things have been in the past.

Let’s use a T-shirt as an example. The cotton used to create that garment can be traced from the farm to the shipment containers to the factory floor to the finished product on the shelves of a retail store.

But it doesn’t stop there. If you decide to buy that T-shirt and resell it to another consumer it will automatically leave a stamp in the blockchain.

This can give the purchaser peace of mind that the product you are selling is authentic and not counterfeit as it will all be visible in blockchain. This tool is particularly useful when it comes to tackling counterfeit products and as we live in an age of constant buying and reselling, for example Stockx sneakers.

If there is any concern about the authenticity of a product, blockchain will be able to detect them as counterfeit goods as they would lack a traceable history.

The technology provides a tracking system that is trusted and respected, and goes from the beginning of the supply chain right down to the very end. Consumers can shop with confidence and are assured that the product they are buying is authentic.

One industry that blockchain is really helping is healthcare, where service providers are now using the technology to control and track healthcare products from production all the way to delivery and it is enabling pharmaceutical companies to reduce the level of illegal activities such as counterfeit drugs and unlawful production of medicines.

Blockchain technology naturally supports environmentally-friendly and eco-conscious globalisation. As it is not always possible for consumers or companies to know where exactly the product is coming from and how it is transported. With the help of blockchain, it will now be easier for organisations and individuals alike to implement ethical procurement practices.

Josh Anderson, who works as a lead business developer at a major corporation told us: “Blockchain brings trust, accountability and transparency. When it comes to supply chains, blockchain can help improve the quality of a product and save businesses a lot of headaches. It can help businesses understand where the products come from.

“Blockchain acts as a validator for truth, it can provide proof that the information that is given to the consumer about a specific product is accurate and not fraudulent which we are seeing a lot of in the age of buying and reselling products on the internet.”

Tracking goods on the blockchain reduces risk and helps improve quality in production and distribution by producing real-time synchronisation of decisions with various supply chain partners.

With access to a continuous real-time chain of events a supply chain can operate iteratively, and by being aware ahead of time that a supplier’s shipment is a partial order, organisations can come up with a plan to reorganise internal inventory and even adjust pricing. It can also re-route containers to a different warehouse in order to optimise efficiency.

When you use blockchain for record-keeping, assets such as orders, loans and inventory are assigned unique identifiers which serve as digital tokens. In addition, participants are provided with digital signatures which they use to sign the blocks that they add to the chain itself. From there, every single step of the transaction is recorded on the blockchain as a transfer of the token from one participant to another.

To put it in simple terms: A retailer creates an order and then sends it to its supplier. At this point there has been no exchange of goods or services. and there would be no entries in the financial ledger, so this is also known as the ‘blind spot’.

However, with blockchain, the retailer would record a digital token for the order. In return the supplier logs the order and confirms with the retailer that the order has been received – the confirmation itself is also then recorded on the blockchain without creating an entry in the financial ledger.

Next, the supplier requests a loan from a bank to finance the production of goods. The bank then verifies the order on the shared blockchain with each participant, approves the loan and then records the digital token for the loan on the same blockchain. So on and so forth.

Furthermore, each block is encrypted and given to all participants involved who keep their own copies of the blockchain and because of this blockchain provides complete transparency, trustworthiness and a tamperproof trail within the supply chain.

Since each participant has their own copy of the blockchain, they can all identify any errors, review the status of the transactions and hold other participants responsible for any mistakes or delays made at any stage. The benefits we are seeing are quite clear. If a company finds out that a product is faulty, blockchain would enable the firm and its partners in the supply chain to trace the product, identify production including all the suppliers involved associated with the product and efficiently recall it.

As soon as the supplier receives an order, the bank that is within the supply chain will have access to the blockchain and will be able to immediately provide the supplier with the working capital that is needed. Furthermore, when merchandise is received by the buyer, the bank can obtain payments. Since things like audit trails are readily available, conflicts between the banks and borrowing firms can be eradicated.

[pullquote align=”right”]“When it comes to supply chains, blockchain can help improve the quality of a product and save businesses a lot of headaches.”[/pullquote]Smart contracts can also be used to verify when these contractual obligations have been met and in return, payments can be released. These contracts or ‘computer codes’ can be programmed to check the status of a transaction and take action accordingly such as automatically releasing a payment, recording entries and flagging up any errors that might require manual handling.

According to analysist CapGemini, 87% of organisations are at early stages of using blockchain for supply chain; 10% are at advanced stages and 3% are already using the technology. Unilever, Nestlé and Dole are also some companies that have integrated it, while Lynx has successfully incorporated it for their cross-border logistics operations.

Unlike blockchains that are used for bitcoin, which is open to anonymous users, supply chains require private blockchains among known parties, and only they will be able to join the blockchain meaning they would need permission to join the system. This makes blockchain for supply chain a much safer space to operate in.

Participants need to be vetted and approved in a very selective process, and this is due to the ‘open’ nature of blockchains which can be a potential risk to data privacy.

Companies that post transactions on a blockchain can be accessed by any of the participants and as the volume of data increases within a blockchain it can potentially be misused to trade stocks, gather intelligence and predict market movements.

Last year, the UK government’s Office for Product Safety and Standards (OPPS) published a report on using ledger technology for supply chains and the report clearly highlights how blockchain can be a useful tool for overcoming supply chain management challenges.

Furthermore, when you look at the potential market size on a global scale, it was valued at $93.16 million in 2017 and is projected to reach $9,853 million by 2025.

David Anderson, 33 who is a lead manager at a tech firm in London told us: “Businesses need to get comfortable with blockchain and all it has to offer as it will be great for both the business and the consumers in the long run. If we shy away from new technologies instead of embracing them we will never achieve all the great possibilities that technology has to offer. Supply chain management has been struggling for a while now and I honestly believe introducing blockchains will help make things less complicated.”

Supply chain managers who are comfortable with where they are need to seriously consider blockchain for supply chains, as IBM and Lynx have done. They need to make an effort to develop new rules, build ecosystems with other firms and experiment with different technologies available to them.

Yes, the transition may not be easy at first but it will be worth it as the investment promises to generate a significant return.

As with every new up and coming technology, there is considerable room for improvement when it comes to supply chains operating for end-to-end traceability, coordination, financing and speed of product delivery.

However, blockchain has become a powerful tool with regard to addressing deficiencies that businesses are facing within the supply chain.

 

 

 

---

Featured image by Ilya Pavlov via Unsplash CC.
Edited by Will Drysdale.