Much like the transition from haul freight by rail to truck, or the emergence of the personal computer, blockchain technology is set to disrupt the way the global supply chain is managed. Blockchain technology, including the idea of a digital shared ledger, has the potential to increase supply chain transparency and revolutionize supply chain auditing.
What is blockchain and how is it connected to Bitcoin?
Let’s be clear, we are talking about blockchain in this post, which is completely separate from Bitcoin. Blockchain is a distributed way of verifying facts by breaking up sections of code and spreading them all around on the global network. This makes transactions impossible to hack, manipulate or outright fake.
One of the ways that blockchain developers have sought to incentivize engagement with the blockchain system is through the creation of cryptocurrencies such as Bitcoin. Essentially anybody in the world can set up a server and begin crunching highly encrypted data for the network. In return they get a tiny fraction of one cryptocurrency denomination. This is called mining, and it is a way to compensate people around the world who add value to the overall system.
Bitcoin, like the thousands of other cryptocurrencies is highly speculative. Blockchain technology, while still being fully developed, is a powerful tool that will lower costs, save time and make the complex business of doing business a whole lot easier.
Blockchain is the way business will be done by everyone, eventually
Industry giants in tech and shipping such as IBM and Maersk are already deploying blockchain-based shipping systems that will digitize supply chains and track international cargo in real time. Companies such as Walmart, UPS, FedEx, Unilever, Nestle, Dole, and Tyson are also testing blockchain technology in their supply chains.
IBM and Maersk have a joint venture to create a blockchain-powered shared ledger that looks poised to completely revolutionize the supply chain. IBM claims that their blockchain technology can add greater visibility and efficiency across the entire supply chain to deliver higher value to customers and trading relationships with IBM blockchain.
The companies announced their joint venture to pilot a shared digital ledger for international shipping. The IBM blockchain offers a shared ledger that is updated and validated in real time with each network participant. It enables equal visibility of activities and reveals where an asset is at any point in time, who owns it and what condition it’s in. This type of shared ledger may revolutionize the international freight industry which accounts for 90% of goods in global trade. IBM notes that transport remains highly dependent on a flood of paper that is never digitized.
Blockchain technology is disrupting logistics too
Blockchain technology—in the form of a distributed ledger—will have a big impact on the logistics industry. According to information from PwC, blockchain will have a number of substantial effects on the supply chain including enhanced security with the reduction of fraud, reduction in the number of bottlenecks as certification by third parties becomes more trustworthy and simple to secure, a large reduction in errors thanks the near elimination of paper-based documentation, and as a result, increased efficiency.
We should note that the IBM shared-ledger is already set to disrupt the international shipping industry as it can trace a container’s path through the supply chain with unparalleled transparency and security, reducing the potential for costly delays.
How blockchain will work in the supply chain
There are many applications for blockchain—a distributed, digital ledger—including applications which can be used for exchange, agreements/contracts, tracking and payment. Since every transaction is recorded on a block and across multiple copies of the ledger, that are distributed over many computers, it is highly transparent and highly secure as every block links to the one before and after it.
Blockchain can increase the efficiency and transparency of supply chains and positively impact everything from warehousing to delivery and payment. When ensuring provenance matters, blockchain can provide an easy way to certify that the backstories of the things we buy are genuine. Consumers increasingly want to know where their products come from and whether the claims companies make about their products are real.
UK-based Provenance offers supply chain auditing for a range of consumer goods. Making use of the Ethereum blockchain, a Provenance pilot project ensures that fish sold in Sushi restaurants in Japan have been sustainably harvested by suppliers in Indonesia.
Provenance.org has over 200 retailers and producers in the food and drinks industry using their software services to help prove the provenance of their products. Retail giant Walmart uses blockchain technology to keep track of its pork it sources from China and the blockchain records where each piece of meat came from, where it was processed, stored and when its true sell-by date is.
US shipping industry adopting blockchain
US shipping companies UPS and FedEx have recently joined the Blockchain in Trucking Alliance (BiTA), a group that hopes to push for increased transparency among all groups involved in the supply chain. The group is also working to develop blockchain standards for the freight industry.
When FedEx joined BiTA in February 2018 it had already launched a blockchain-powered pilot program to help solve customer disputes. The company hopes the program will clarify what data should be stored on blockchain to best remedy customer issues.
What the future holds for blockchain and the supply chain
Deloitte predicts that blockchain driven innovations in the supply chain will have the potential to deliver tremendous business value by increasing transparency, reducing risk and improving efficiency and overall supply chain management. And according to the World Economic Forum, the widespread adoption of blockchain technology in the supply chain could increase worldwide GDP by almost 5% and total trade volume by 15%.
Given the size and number of big players who are already looking to adopt blockchain technology in their supply chains and beyond, it seems silly to resist adopting it yourself. But there are a few things to know.
How to prepare for integration of blockchain in your supply chain
In many ways, the blockchain system is going to come to you. Big companies are going to hash out the details, and you can simply comply with requests to take part. But, it is a good idea to do some in-house testing first. Set up a company wide blockchain system to see how it impacts your operations—you never know, you might find some ways to increase efficiency and save money in the process.
You should also see how your vendors are using, or not using, blockchain technology. Once you understand how it will affect your operations, it is good to know if you are going to have problems with the vendor and partner network you currently have in place. This is also the time to start talking to them about implementing such controls. There are a lot of specific, but unfounded objections to blockchain, but you should probably have a plan B in place in case some of your vendors decide they won’t take part.
Lastly, don’t go it alone. Borrow great ideas from competitors and companies outside your industry. Get a partner to help you implement the changes—someone with experience in successfully applying blockchain systems in your industry. And don’t be part of the first wave of adopters. Let other people work out the bugs, and when it is proven safe and effective, jump in with both feet.
As always, thanks for reading.
John Moore – Founder
Packaging & Logistics Solutions (PLS)