November 28, 2017

The most efficient supply chains are those that are built on trust, transparency and reliability between the various partners in the trading partner community. Buyer’s that don’t work with trustworthy, or well-vetted, suppliers are subject to consumer safety and brand risk — an e. coli outbreak or massive product recalls, and shippers that don’t work with reliable carriers face shipment delays and variability, to name a few examples. Global supply chains function with such complexity, and multi-party dependency, they are replete with risk. The supply chain represents all the connections involved in creating and distributing goods, from raw materials to the finished product that goes into the hands of the consumer. Supply chains can span hundreds of stages and dozens of geographical locations, which makes it very hard to trace events or examine incidents. It takes weeks to facilitate payments between a manufacturer and a supplier, or a customer and a vendor. Contracts must be handled by lawyers and bankers, which means extra cost and delay. Products and parts are often hard to trace back to suppliers, which makes it difficult to pinpoint the sources of any quality issues. Whether for industrial equipment, consumer goods, food products, or digital offerings, supply chains have a lot to deal with. Blockchain could be the answer to many of these issues.

So, what exactly is a Blockchain? Well according to the logistics bureau “A blockchain is a distributed, digital ledger. The ledger records transactions in a series of blocks. It exists in multiple copies spread over multiple computers, which are also called nodes. The ledger is secure because each new block of transactions is linked back to previous blocks in a way that makes tampering practically impossible. As it is decentralized, it does not depend on any single entity (like a bank) for safekeeping. The nodes connected to the blockchain network get updated versions of the ledger as new transactions are made. The multiple copies of the ledger are the “truth” about every transaction made so far in the blockchain. Trying to falsify the ledger would mean having to falsify the copies at precisely the same moment. The chances of being able to do this in blockchain networks of any useful size are negligible.”

That definition is comprehensive, but dense. Medium.com has a simpler definition, one that considers blockchain as a piece of paper. If I write my name on that piece of paper, and others around me write their names on that piece of paper, and we all acknowledge that we wrote our names on that piece of paper, then our names stay there. The list of names cannot be erased, or altered from their original state. There can be additions of new names or added information from the original group of individuals that wrote their names, but otherwise, the information remains untouched and that piece of paper can never be destroyed. When using Blockchain the ledger can be public or private.

So, what are some ways supply chains can utilize this new technology? It can be done through agreement, meaning all individuals in the chain agree that each transaction is valid. This could be payment, warehousing, transport or delivery. Blockchain can be used for background information, meaning the individuals in the chain know where each asset came from. Assets could be anything from wheat to money, machines and copyrights. It can be used to make sure things are set in stone, meaning no individual can alter with an entry in the distributed ledger. This means payments cannot be made-up, neither can records of inventory, warehousing conditions, delivery times, dates and etc. Lastly, blockchain can be used to make sure all copies of the shared ledger all hold the same version.

As is relates to supply chain, today’s blockchain solutions focus more on process definition, ownership and compliance, as well as a historical record of all the transactions related to the aforementioned processes. And while some people believe blockchain is synonymous with ‘visibility,’ blockchain does not offer real-time visibility of the movement of goods between nodes within a supply chain, nor does it offer visibility of or predictions related to the risks surrounding supply chains, wither assets at rest or in motion. So, while a promising transaction based technology, blockchain is most certainly not digital supply chain management, as we define it.

In the next part of this series we will discuss how some companies are using blockchain today and where it can be used in the supply chain.

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