Blockchain in Supply Chain. Useful or Overkill? An Analysis
For the last year it’s been Blockchain, Blockchain, Blockchain! It’s a word we all started hearing around the end of 2017 when Bitcoin began it’s steep climb to it’s all time high of $20,089 per token. But does it also revolutionize the supply chain industry? There are plenty of companies that have come out with ‘revolutionizing’ technologies centered around blockchain that are designed to revamp an industry be it ARVR, healthcare, or supply chain infrastructures. But what are some use-cases for blockchain in the supply chain infrastructure?
I’ve spent the past few weeks researching this question for a client. This client wanted us to explore the possibilities of integrating this new crazy thing all the kids were talking about into their existed infrastructure. Blockchain.
You may be wondering: Why use a system designed to handle money to coordinate real world assets? It’s because this system relies on a technology that is both transparent and secure, useful characteristics in many fields.
There are many different use cases for blockchain in supply chain with the most popular being asset tracking. IBM released an article detailing their expedition into seeing if blockchain in supply chain was practical. Here is a quote on their findings:
A blockchain would capture all transactions and state changes that occur as an asset moves from manufacturing to deployment, including those actions that occur outside of IBM’s systems. This blockchain would provide a single source of truth for core information about each asset. This way, no matter what happened to an asset as it moved through the supply chain, all stakeholders and systems would know its status.
The secure ‘single source of truth’ aspect is key and perhaps the most powerful incentive to build an infrastructure with with blockchain as a backbone. But how can you leverage a transparent single source of truth and how does that look like in real life?
After studying how other companies have embraced this technology and discussing with experts in supply chain I’ve identified these use cases that leverage the advantages of blockchain in the supply chain business.
- The Asset Tracking Use Case
- The SKU Handling Use Case
- The Electronic Data Interchange (EDI) Use Case
The Asset Tracking Use Case
IBM pioneered and popularized the asset tracking use case with Hyperledger, an IBM programmable blockchain product. Since then various other projects and initiatives have popped up the most successful being VeChain and Walmart’s partnership with IBM to integrate blockchain in it’s fresh produce supply chain.
VeChain Thor (Formerly VeChain) is a Chinese based company whose product line is centered around enhancing supply chain management by leveraging blockchain technology. This company is interesting because aside from IBM’s Hyperledger partnership with Walmart, they are the first credible company to enter the supply chain space with functioning products. However when delving deeper into VeChain and how it’s system worked, it seems like the company had a high emphasis on goods produced from the ocean: clams, fish, oysters and other related goods. It is important to note a partnership with BMW was recently announced however the details are not public and therefore cannot be taken into consideration.
Walmart’s partnership with IBM in China was an interesting one to look at. It does not cover all of Walmart’s goods but only their fresh produce. Vegetables and Fruits. There was a real problem in ensuring the authenticity of produce. Walmart could not easily see where produce came from, how long it had been in the supply chain, or even when it was harvested. The initiative is based on ensuring that safe and fresh produce was being served on the shelves by cutting down time to verify if a product/shipment had been sourced by Walmart’s standards from days to weeks to mere seconds.
While both of these projects are exciting and gaining traction, both of their use cases center around perishable goods, specifically proving/enforcing their authenticity as fresh. From what I can tell, if the goods your supply chain are carrying are not time, or environmentally sensitive utilizing blockchain may not make the most sense for you.
An argument could be made to attempt to standardize the farmers and producers of a region and have all the smaller companies that buy the initial harvest participate in a certain blockchain protocol. By doing so one could interlink the participants of many supply chains in an area and strengthen the trust of that area since everyone is reporting good and credible statistics from the initial reporting. The cons of this would be the cost of laying that initial infrastructure. Farmers and industries in a small have historically competed with each other or may not be in a place with easy internet access.
The SKU handling Use Case
In my research, I’ve spoken to some supply chain experts and sat in on some calls. SKU (Stock Keeping Unit) generation and handling always seems to be a bit of a messy pipeline. Everyone want’s to own SKU generation and be in charge of it hoping the rest of the infrastructure abides by these rules. In the system I studied the SC (Supply Chain) division maintained the infrastructure for SKU handling while the Storefront division operates the infrastructure by adding/updating/deleting SKUs. However, from what I understand the situation is a bit more complex than this as many different parties are vying for ‘ownership’ of the SKU system. A possible use case for blockchain would be to take advantage of it’s consensus benefits and use it as a consensus management apparatus for SKUs.
If anyone has any information on SKU generation in a large complex business, please leave a comment below! I don’t have that much information on this topic but it seems to be a common source of friction.
The Electronic Data Interchange (EDI) Use Case
While speaking to friend about blockchain uses in supply chain, he mentioned the EDI use case. Currently, many automated supply chain systems rely on an EDI to store and relay important records such as shipping or financial documents.
So what is an EDI? An EDI is any system that’s used to manage the automatic transfer of important documents. Normally you’d have people send, receive, and manage these documents in large files. An EDI replaces all of that and is magnitudes more efficient.
A blockchain database would make sense as a data store for record keeping, and with immutability and event based transaction architecture, it would be easier to store documents in relation to the events they represent rather than organizing by document or alpha-numeric as most shelve system would.
Conclusion
Does Blockchain reinvent Supply Chain by providing a centralized ‘single source of truth for the whole network’? No. Everything blockchain does for a single company can be replicated with a traditional system architecture.
However, a company building a new infrastructure from the ground up might want to look at blockchain as a basis, for it does provide some interesting benefits.
Accuracy and Security are guaranteed out of the box. If there is data on the blockchain database, it can be guaranteed that the data is accurate as every write is backed by something that guarantees it’s existence (IBM calls this ‘proof of existence’). With a distributed ledger, you (the owner) control who gets access as every party must be known in order to transact on the network, and in the case of Hyperledger you can even construct channels to prevent one party from viewing particular data.
This isn’t to say these features cannot exist with a traditional system, but it should be noted that distributed blockchain technology solves these problems out of the box versus having to architect a large system with varying levels of access. This is all part of the blockchain package.
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