Blockchain Solutions to Supply Chain Problems

Blockchain Solutions to Supply Chain Problems

The modern supply chain is facing incredible strain from increased demands from the digital ecosystem. We explore how blockchain could impact this

By Adrian Clarke

Trade, shipping, and supply chains are making the news a lot lately. A robust and quickly escalating tariff war between the U.S. and other countries is drawing attention to the often forgotten collection of couriers, shipping agents, and warehouses that bring goods to market and fill factories with raw materials.

Each blustery Tweet from the U.S. President serves as a reminder that the global supply chain is the lifeblood of the digital age, the heart of the economy, and the facilitator of virtually every other industry – and it’s not in great shape.

Unfortunately, supply chains aren’t just vulnerable to a tepid Tweetstorm. The modern supply chain is facing incredible strain from increased demands from the digital ecosystem. For instance, Amazon alone shipped more than five billion items in 2017, and, during certain shopping periods, online sales actually surpass in-store purchase. All of this has an immense impact on the supply chain’s overall capabilities. As McKinsey & Co. notes, “Many of today’s retail supply chains are simply not set up to handle this demand for speed and convenience in a cost-effective way, and are already creaking under the strain of the new multichannel world.”

When coupled with concerns about item originality, security, and integrity, it’s evident that the supply chain is in need of a makeover.

Companies are not lackadaisical in their pursuit of better, more efficient supply chain management, and many are implementing powerful technologies to try and root out malfeasance. In fact, a 2017 Deloitte study revealed that, despite a growing prominence of supply chain analytics and forensics, fraud, waste, and abuse still stubbornly persist as 30% of the 3,200 survey participants report instances of abuse in the supply chain.

One of the senior managers overseeing the study concludes: “Unfortunately, increased vigilance doesn’t translate into lower instances of fraudsters trying to perpetrate their schemes — even the most advanced analytics users should work to constantly evolve their efforts to stem supply chain fraud, waste and abuse.”

Increasingly, it’s becoming clear that the evolution and vigilance that Mr. Pearson advocates for is found in the latest technological development, the blockchain. 

Pursuing the best solution

The blockchain is not an entirely novel technology. Introduced alongside Bitcoin in 2009, the blockchain was initially intended to facilitate digital currency transactions using a decentralized ledger that boasted security and usability features that made a digital currency practically possible.

Of course, as Bitcoin and other digital currencies rose to prominence and ballooned in value, the blockchain gained ancillary notoriety as well. Since then, the blockchain has received near unanimous support and investment from industry leaders, entrepreneurs, and government officials. As The New York Times Magazine wrote in January, “The Bitcoin bubble may ultimately turn out to be a distraction from the true significance of the blockchain.” This is undoubtedly true for supply chain management, which is poised to uniquely benefit from the blockchain’s unique capabilities.

Indeed, while the blockchain is frequently touted as the third iteration of the internet with disruptive potential for virtually every industry, perhaps none is more prepared to benefit from the blockchain than supply chains and the shipping sector.

In general, the blockchain will impact supply chain management in three profound ways:

1. Collaborative Technologies

The rise of the blockchain coincides with another technological revolution: the introduction of the Internet of Things (IoT) and artificial intelligence (AI). These technologies are making an imprint on everything from self-activating vacuum cleaners to autonomous vehicles, and they have an obvious and important role to play in supply chain management.

For example, cheap and accessible IoT devices can be secured to packages or shipping containers to provide real-time, actionable data to supply companies. This high-quality, reliable data can equip companies to more effectively manage and assess all aspects of the supply chain while also facilitating data-driven best practices for continual innovation and improvement.

In a June expose on the integration of IoT with supply chain management, Forbes observes that this combination will also "place cybersecurity and the safe handling of data at a premium.” That security layer is where the blockchain is poised to make a dramatic impression. When companies integrate blockchain technology into their infrastructure, IoT devices can record information to the blockchain’s immutable and decentralized ledger, ensuring its validity and protecting its integrity.

With GDPR and other government regulation placing increasingly onerous security requirements on companies, this is both a tangible benefit and a practical necessity.

2. Clear and secure records

The blockchain’s ledger was created to be an unchangeable, public record of transactions, and that feature applies to supply chain ecosystems as well. With multiple stakeholders all working towards a singular goal, the real-time data provided by IoT devices is accessible in the shared ledger.

Moreover, these public records provide a measure of accountability for an industry frequently cloaked in confusion and opacity. This transparency can improve the credibility of the supply chain while simultaneously improving its functionality and efficiency.

In short, when everyone is privy to all the necessary information, everyone wins, and the end product improves. 

3. Convenient smart contracts

Supply chains are complex, always in-flux, and extremely reliant on speed, efficiency, and trust. The blockchain’s built-in smart contracts are a clear next step for enhancing companies’ ability to securely and automatically transfer payments and data to disparate members of the supply chain.

By reducing lag in the system, supply chain networks can operate more efficiently and expediently. In an exhaustive report on the blockchain’s role in supply chain management, Deloitte concludes, “Real-time tracking via smart contracts gives supply chain stakeholders the flexibility to make rapid decisions and update inventory levels on a continuous basis, thereby reducing working capital inactivity.”

In addition, companies can use smart contracts to remit immediate payments that correspond to predetermined conditions. In this way, couriers and other supply chain participants can automatically be compensated when their products reach a destination or pass a checkpoint. 

A solution already at work

Perhaps most importantly, the blockchain’s contributions are not theoretical. They are already practical with many companies finding ways to immediately implement the technology.

Perennial tech juggernaut, IBM, is using the blockchain to make food transportation safer by applying the distributed ledger to the food supply chain. Meanwhile, high-stakes products like diamonds are being verified and tracked using the blockchain’s records.

In other words, for a relatively novel technology, the blockchain is already making significant improvements to the supply chain.

These upgrades cannot come soon enough. The modern supply chain is enduring a transformative moment. It’s one that will enable it to best accommodate the contemporary economy, and it’s a transition that is aided by the latest technology, so the blockchain will play a key role in its improvement. 

About the Author

Adrian Clarke, a former Microsoft CTO, is founder of tech startup Evident Proof – a blockchain-based platform that turns documents, transactions, and data events into immutable, unhackable proof. Evident Proof delivers evidence that can be used to meet compliance, provenance and other data verification requirements.