Blockchain Technology in Supply Chain — How to change the Supply Chain forever!
The blockchain is like the DNA, an immutable record of everything that came before
We are in 2021 and half of the supply chain market, a market that moves thousands of kilotonnes and billions of dollars every day, still using legacy systems, emails and even paper to track the products.
Some people may argue that currently, we can already trace products have some level of transparency in the market. However, the best comparison is to say that we don’t need the email to send messages. I may argue with my grandma that email is better but she will always think that send letters or fax is more convenient and secure, which is the same saying that ERP systems running on the top of traditional EDIs are as good as blockchains.
Supply chain works without blockchain but blockchain is the last piece to complete the puzzle and bring the solution for some problems, as well as unlock billions of dollars locked in slow and inefficient processes.
Supply chain problems being solved by blockchains
So… which problems are blockchains able to solve? Blockchains are not silver bullets but a quite interesting solution to bring more trust and transparency:
- Delays in the supply chain cost a lot of money
- Sometimes there are more than 10 intermediaries on a blockchain
- OEMs spend a lot of time and money tracking their products
- Product recalls are slow, very expensive and inefficient
- Current food safety systems are slow and expensive
- Disputes are slow and lock down billions of dollars
- The counterfeit market is a multi-billion market
- ⅓ of the food produced worldwide is wasted
- Opaque procurement process
- Outdated technology
- Lack of transparency in current “traceability systems”
All these issues are important issues to solve and new technology solutions such as distributed ledger (another word for blockchain), can bring added value to the market but the 3 issues where I see the biggest financial gains are:
Reduce paperwork, human interactions and standardize data. In a recent study made by Maersk, Maersk has discovered that to ship a container with flowers from Kenya to Rotterdam it is required more than 200 interactions in the form of paper, e-mails, TMS (Transportation Management Systems) and other ERP software. It is calculated that half of the cost of shipping a container is related to paperwork and bureaucracy (!!!) and the World Trade Organisation already said that to remove Supply Chain barriers related to paperwork would have a positive impact on the world GDP by 5% (which represents a few Trillion USD).
For this reason, Maersk and IBM came together with a shipping solution.
Food safety: too many people already died due to slow recalls of contaminated foods. The US has already experienced several nationwide recalls of different contaminated foods with Salmonella and E.Coli that threatened the public health: the lettuce recall, spinach recall, peanut butter recall… and so on. All of them were too slow and too expensive. Unfortunately, it takes a few days to track and trace the origin of the product and discover that the problem was one single batch of contaminated product. However, the nationwide recall damage the industry with millions of USD in losses and lack of confidence from the consumer perspective.
For that reason, Walmart took a great step and in September 2018 sent an email to every Leafy Green supplier announcing that to continue to supply Walmart, the supplier has 1 year to fully adopt the IBM food trust. See more on Walmart is changing the supply chain here.
Recall management: did you see the Toyota recall at the beginning of the article? Crazy! right? 1.7 million cars need to be recalled due to defective airbags. These airbags can explode and hurt or kill people so it is extremely important to recall them. The problem here is that Toyota doesn’t know exactly which airbags are defective so they have to recall every car of that specific model produces in those specific years.
If Toyota had a single database (see below) with their suppliers, allowing to record every part, it would be possible to identify the batches with defective airbags and recall only those cars which have defective airbags. I’m sure it would save a few million dollars to Toyota.
Blockchain is adding more visibility, transparency and traceability to the supply chain and at the same time removing the trust issue.
Blockchain is the missing piece of the Supply Chain Puzzle
How do we know that the coffee we drink is fair trade?
How do we know that that Prada bag is original? How do we know that a painting is original?
How do we know that a t-shirt was manufactured in a specific country and that the tag was not simply added to it?
Blockchain removes cost and complexity for multi-party transactions with a shared, secure, synchronized and immutable ledger which allows removing the trust issue.
Value added by blockchains
- Saves time — can bring some transaction time from days to seconds
- Removes costs — cost with intermediaries and overheads
- Reduces risk — fraud, cybercrime, errors, misunderstandings, conflicting standards and 100% uptime
- Open new business models — reshape business networks, profit sharing, increased transparency to the market
- Ownership certificates (tracking ownership)
- Asset and Assembly tracking
- Trusted Maintenance Tracking
- Integrated Financial Transactions
- Collaborative product data
- Shorter cycle times
- Reduce the need to trust
- Performance improvement
- Integration in existing ERP systems
- IoT devices
- Asset management systems
- In the field interfaces
…contributing to ONE SINGLE SOURCE OF TRUTH
- To implement blockchain in the supply chain also allows the participants to come together and re-write the rules
- Blockchain integration is relatively simple and inexpensive
- Need little or no investment in hardware
Blockchain key attributes enable building powerful business applications on a shared ledger:
Shared — Syncronised and transparent — Secure and immutable — Consensus-based
Blockchain Brings Radical Transformation of the Core Process
Let’s take a look at the example of the car industry. there are different actors, the car manufacturer, 3PL’s, Lease companies, dealership, regulator, scrap merchant (and probably more entities). Each one of these actors is keeping their own ledger of the same asset (the car) which sometimes results in disagreements, it’s slow, expensive and inefficient.
Using a single database (blockchain) each actor is contributing to the same database and each actor, according to his business needs, can read or write new transactions or new assets.
In this situation, we are talking of course about private permissioned blockchains such as Hyperledger. This kind of solution brings huge value to the business network Saves time — can bring some transaction time from days to seconds as it removes costs, reduces risk (fraud, cybercrime, errors, misunderstandings and conflicting standards). Is also a solution that offers 100% uptime and opens new business models, bringing the intervenients together to discuss and reshape the business network.
Blockchain systems do not replace ERP. ERPs can sit on the top of blockchains
In probably most of the cases, organisations don’t really need to develop expensive software and ERP systems from scratch. It is possible to connect current ERP systems of different organisations to a single database, the blockchain.
ERP can be fed by better quality data is this data is a combination of local storage, blockchain database and smart contracts with the business rules.
Use case: Supplier Managed Inventory
Many times in the market, the final manufacturer actually never touch the product. This is very common for example in personal electronic products manufacturers.
The Original Manufacturer (here the customer factory) has different component suppliers (sometimes hundreds or even thousands) and needs to be able to check at any point the inventory. This is only possible if each supplier is feeding a normalised single shared ledger (blockchain). Payments to suppliers can eventually also be automated on the blockchain.
Use case: provenance and recalls
I already speak before about different recalls from food recalls to the Toyota recent recall.
Sometimes, some products may expose the consumers to high risks and they need to be recalled. Currently, it is almost impossible for companies to have a detailed record and they don’t have a single database with the suppliers that produced that parts. For that reason, if there is a defective part, it is necessary to recall 100% of the product when actually only a % was defective. This is expensive and inefficient.
The solution is a blockchain enabled database that is able to capture since day one manufacturing information of each part of the product from every supplier at multiple stages of the supply chain, linking the provenance of the parts of the product to the final product.
Use case: traditional processes
Blockchain can bring several benefits when we look for example at traditional processes. Currently, in these traditional processes, the Original Manufacturer (OEM) exchanges information with the suppliers using different methods — e-mail, TMS, web portals, fax, paper and smoke signals.
A blockchain can be used to exchange standardized data. Data can be normalised and be structured for easy integration with individual systems at client and suppliers. Because the solutions are permissioned, each supplier only sees its own data or the data he needs to see. OEM can view all.
Use case: supplier quality data
Routine data on parts and component production is low-quality data it uses different inconsistent sources: e-mails, TMS, ERP’s, file sharing, paper, fax and smoke signals. This data hard to verify and to analyse.
With a shared ledger, suppliers can feed the blockchain with standardise quality data as the parts or components are produced. The information is updated and can be analysed real-time to make sure it meets the business requirements.
Good quality data in a single ledger can also leverage data analytics and machine learning. Going one step further, I see also the possibility in plugging in banks for trade finance and loans and insurance companies as well.
Use case: Invoice dispute resolution
We know that any point in time, there are more than 100 million dollars trapped in disputes that take an average of 44 days to solve. IBM Global Finance is solving this problem and bringing those 44 days down to 11 days to solve disputes, improving capital efficiency and free flow of capital.
This is possible once more due to the transparency that DLT’s can bring to the ecosystem.
How to get started with blockchain
Blockchain is like the DNA, an immutable record of everything that came before
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Disclosure: views expressed are purely personal and do not reflect any organisation’s views or thoughts the writer of this book may be affiliated or associated with.