Today’s supply chains are poised for a major disruption because of the evolving potential of blockchain technology in increasing efficiency, reducing liabilities, fighting counterfeiting, improving compliance and providing ability to do precise targeted recalls. Thanks to a variety of use-cases in every stage of the supply chain, the industry is looking to unleash a slew of blockchain-based solutions in their operations in the next three years.
The explosion of transactional data collected and analyzed in today’s modern supply chains has created an inherent need to vet and validate the veracity and origin of the wealth of information that is now available. If not properly handled, this data can misdirect supply chain operations and expose organizations to some serious risk. Blockchain—the transparent distributed ledger technology initially popularized by its cryptocurrency applications—is poised to bring a new level of integrity and transparency to the supply chain industry.
A question that is commonly asked is: Can blockchain really deliver on its promise, or is it just a glorified database? Clearly, blockchain is over-hyped today. However, there are several very real and legitimate blockchain use cases around tracking products, resolving issues in big, complex, multi-tier supply chains and reducing the cost of resolving disputes by 30-50%—all of which can significantly save business costs. According to a recent report from ABI Research, demand for blockchain will push revenues for the technology to $10.6 billion by 2023.
For instance, Alpha Acid Brewing, a Northern California small batch brewer, recently implemented a blockchain application to track materials and ingredients from its suppliers while also monitoring its manufacturing processes to optimize its business and ultimately provide higher quality beer.
In spite of real-world deployments of blockchain-based applications, many professionals are still hesitant to implement new technologies like blockchain into their supply chain. In this article, we will take a closer look at the benefits of blockchain and recommend best-practices for effectively implementing blockchain into the supply chain.
Building a Community of Trust
The most fundamental value that blockchain provides is that it creates a new underlying layer of trust between trading parties. It helps establish a single source of truth and implements a system of checks and balances for all parties within the supply chain. With blockchain, multiple participants have their copies of the ledger, making it difficult for any single party (or even a small group of colluding parties) to manipulate the transactions. Each one can check their copy to see who did what and when, creating an environment where everyone is accountable, and every transaction is inherently trusted.
The value of such a system increases exponentially as more parties in the ecosystem—from suppliers to manufacturers to distributors to logistics providers—join the network.
While today’s supply chains are fairly mature, there are a few opportunities where blockchain-based solutions help significantly. Modern supply chains are quite complex. We often see two or three tiers of suppliers and multiple tiers of distribution channels. The workflows between these institutions are inherently highly transactional with little visibility beyond the immediate level of relationship. This creates a perfect opportunity for a blockchain-based application to provide trusted transparency and visibility in the entire supply chain.
There is a significant cost of recalls in today’s supply chains. Just in the past few years, we have witnessed several brands being eroded due to the excessive cost of recalls. The well-publicized recalls of faulty airbags, cell phone batteries, and fresh produce such as lettuce and spinach remind us of what is at stake. On average, a typical product recall costs several million dollars. And the global supply chain loses billions of dollars due to broad-based recalls every year.
In addition, today’s informed customers are looking for end-to-end traceability of the products they consume. For example, customers want to know if the expensive wine was really produced in France, or if their handbag was made with ethically sourced materials, or if their lettuce came from particular regions with E.coli outbreaks.
Regulatory and compliance requirements are also pushing supply chain professionals to adopt blockchain-based solutions. New requirements for serialization in pharmaceutical markets are an example of governmental mandates requiring adoption of blockchain technology.
Further, counterfeiting is very common in some industries. In the high-tech manufacturing world, manufacturers are worried about counterfeit components or subassemblies. Automobile spare parts such as brake pads are often counterfeited, and so are several expensive pharmaceutical products.
Benefits of Blockchain in Supply Chains
Blockchain-based applications offer several benefits to today’s supply chains. They vary from simpler benefits of improving the bottom line through increased efficiencies and improving operational compliance and audits, to increasing customer satisfaction and even innovating newer business models.
Blockchain-based applications, such as a track-and-trace application, provide transparency and visibility throughout the entire supply chain. This provides several benefits such as better operational monitoring, quicker settlements of transactions, improved detection of counterfeit products, and automated orchestration of the supply chain finance to reduce the need for high working capital.
These solutions can also help when something goes wrong. Supply chain professionals can perform root-cause analysis quicker and can settle disputes between the trading partners faster because of the inherently trusted single source of truth agreed to by all parties. In the event that a product recall is necessary, equipped with the exact records of which products are affected, manufacturers can issue a precise targeted recall just to the affected customers.
Blockchain applications also help with compliance and regulatory audits. Thanks to the inherent trust that underpins every transaction in the supply chain, it is easier to create verifiable audit logs.
And lastly, newer business models such as servitization, or selling products-as-a-service, are possible because of blockchain. The manufacturer can open up these new revenue models because they can trust the usage-data collected from the end-customers and can rely on that data for billing or for maintenance of the products.
Onboarding Blockchain into the Business
Implementing any new technology into an organization can be daunting, but it doesn’t have to be. Blockchain enterprise applications can help reduce many of the barriers of adoption and provide immediate business benefits, such as a transparent business network and a more innovative supply chain. Here are three success factors that enable quicker onboarding of blockchain:
● Start with the business outcome—especially your biggest pain point. For example, a large consumer electronics manufacturer decided that they wanted to start with monitoring quality through their multi-tier suppliers since the lack of consistent quality from second- or third-tier suppliers was impacting the reliability of their product. Similarly, a European fragrances company started with monitoring of the end-to-end supply chain to ensure compliance, quality and provenance.
● Start with a pre-built application. It is obvious that starting with blockchain toolkits and platforms takes much longer for implementation—eroding your ROI. Pre-built blockchain apps can get you started quickly, delivering faster time-to-value, and lowering ongoing maintenance costs.
● Start with a company that understands supply chain software in general, and manufacturing in particular. A successful implementation of blockchain in supply chain requires knowledge of blockchain as a technology, and of the supply chain domain.
Having the right software is only half the equation; you also need to have properly trained staff and technology partners with the right blockchain offerings that work for your business.
Lastly, the supply chain professionals can reduce cost of experimentation as well as that of deployment by consuming the blockchain applications as software-as-a-service (SaaS). This eliminates the need to hire staff to deploy and maintain the IT infrastructure. The SaaS model also allows for quicker proof-of-concepts to validate the benefits of blockchain technology.
Blockchain technology is disrupting today’s supply chains by adding a layer of trust in transactions. Various use cases such as tracking and tracing through the supply chain, improving compliance, deterring counterfeiting, and increasing operational efficiency are fueling adoption of blockchain.
If your organization wants to create or join an extended business network, simplify complex supply chain processes, and enhance business relationships with suppliers and distributors, then it’s likely that you’re ready to invest in blockchain. Starting with pre-built, purpose-built blockchain applications on the cloud can accelerate time-to-value from your blockchain project.
Atul Mahamuni is vice president, Internet of Things and blockchain cloud applications with Oracle, a provider of cloud applications and platform services.