By Max Ward, OpenPort
Blockchain technology can address current inefficiencies within the supply chain space, bringing new levels of traceability to logistics processes hindered by current paper-based solutions. Using blockchain’s distributed and decentralized ledger, records of transactions can’t be erased, boosting overall transparency, increasing efficiency and improving cash flow for logistics operators.
Supply chains are the foundation of industry
The need to move goods has been with us since the earliest forms of trade were created. From the merchant’s ox to a fleet of caravans to modern-day ships and trucks, the core concept of supply chains and logistics has stayed much the same, with only its complexity and the scope and breadth of operations growing to meet globalized demand.
The problem is that the exponential growth of industries throughout the years meant that scalability problems became inevitable for the supply chain industry, particularly regarding traceability and visibility. As time went by, the global nature of today’s manufacturing processes fragmented the supply chain into complex parts, each with their own sets of management systems.
The rise of cloud, IoT, and automation technologies and the digital transformation of transport management systems helped alleviate some of the operational pains of the delivery process such as storing data and securing files. Transport processes can now be managed remotely, helping unite portions of fragmented supply chains by providing platforms for communication and collaboration. Still, even with modern solutions catering to the overall productivity of the supply chain industry, the core problems are still rampant. According to Forbes, it’s still incredibly difficult to determine the value of goods because of lack of transparency and traceability in our current systems — a problem that blockchain conveniently solves.
The need for traceability and visibility
According to a study from Deloitte, companies are struggling when it comes to mastering procurement and information flows within their supply chains. In some cases—food and car manufacturing, for example—inefficiencies result in recalls and sales losses amounting to US$100 million. From a common standpoint, all supply chains are said to require a set of solutions catered to solving productivity problems such as remote access and management. Thinking so overlooks the entire point of having these processes: the verification of information.
The sheer amount of different divisions plaguing the modern supply chain is enough of a headache even without considering the amount of verifications needed for each shipment. A transport management system can only do so much against the sheer volume of verifications needed for a single delivery. What the industry needs right now is the utilization of blockchain’s distributed and decentralized ledger to provide a holistic form of verification—drastically reducing the number of manual verification steps in any given process.
Technically, a blockchain is a digital and distributed record of transactions stored and maintained by multiple systems owned by multiple entities sharing the identical information. This creates a network that has a shared responsibility of storing, maintaining, and most importantly, verifying transactions. Today, we even have smart contracts that go along with blockchain, which are sets of protocols that can digitally facilitate, verify, and enforce any contract between parties without the need of an intermediary.
Consensus as trust
Simply put, blockchain not only revolutionizes the way we create trust, it aspires to remove the need for it. In relation to this, Wired.com paints a clear picture of how stock trades handle trust in an old fashioned way: phone calls, emails, and even fax machines are still utilized. Due to this, it can take up to three days for stock trades to take effect—a process appropriately termed as “settlement lag.”
The blockchain can cut the entire process due to its public nature. A transaction added to blockchain cannot be altered and falsified under any circumstance and the record of transaction is always available to network participants. Furthermore, any updates or correction to the data recorded would require another entry into the blockchain, producing a flawless system of traceability without any central power that can fall into the risk of manipulation or alteration.
In summary, the phone calls, emails, and fax needed to verify a transaction are replaced by executable smart contracts, speeding up the entire delivery process and consequently improves cash flow.
The road ahead
According to The Wallstreet Journal, roughly 1.1 million items on sale at Walmart are on a blockchain. This helps the company trace the journey of goods from manufacturer to store shelves. This is just a sample of what’s to come. As of today, IBM, Oracle, and SAP have all built their blockchain platforms to cater to different end users. Forbes even claims that blockchain can possibly manage an end to end supply chain management process which will include more business logic (supported by smart contracts) and IoT possibilities.
Experts and industry leaders closely associate blockchain with Industry 4.0 and with good reason: both go together in empowering and innovating supply chain management from the ground up. Truth be told there are still challenges but the same can be said for any emerging technology. For one, there’s a need for multiple entities to collaborate for a blockchain ecosystem to make sense simply because it relies on community consensus as a trust system. There’s also the challenge of scaling not only resources but also manpower from top to bottom which can potentially incur expenses.
For us in the supply chain industry, it would be wise to focus on use cases that involve multiple parties using transactions to synchronize ledger information and use cases that requires immutable records — both exciting challenges that demands the major industry players to collaborate and create a solid foundation for a community.
Max Ward, is the CEO of OpenPort, the digital logistics platform that uses blockchain technology to transform domestic distribution in emerging markets.