Blockchain and the Supply Chain
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A brief history of blockchain
There is a lot of speculation – and a lot of hope – about the potential ways in which blockchain can influence the mechanisms of operation in the supply chain world. The genesis of blockchain was as the foundational technology behind bitcoin, an alternative to national currencies that quickly spawned new digital markets built around the exchange of decentralized cryptodollars. The idea was to build an option to the centrally controlled but globally fragmented banking system. I think most would agree that cryptocurrency, in all its various guises (there are currently more than 2,200 tracked by the site Coinlore), has transformed from an instrument that could potentially serve as a universal currency to mostly become a speculative commodity for investors, much like precious metals or stocks.
The blockchain itself is a revolutionary technology. It provides an immutable ledger that various parties can securely record information on. The Etherium and Hyperledger projects provide platforms for building applications that utilize blockchain. As with any technology, there has been an explosion of interest and resources poured into building distributed applications on these platforms. Some, while experimental and iterative in nature, have had success and others have shown to be expensive gambles gaining little adoption.
The potential for blockchain in the supply chain
The blockchain itself has the potential to solve many existing problems that involve trust across partners. Trust across partners – that sounds like a supply chain. Yes, there seems to be a good fit between blockchain and supply chain problems that can be addressed using the technology. One of the most well-known supply chain uses has been for traceability. This has gained popularity through Walmart’s application of distributed ledgers that utilizes blockchain to be able to quickly trace pork from stores all the way back to the farm in China where it originated. Walmart has extended the success with pork traceability to several types of fresh produce known for causing frequent public health scares.
Blockchain in the agricultural supply chain
The food safety use of blockchain allows for a swift and targeted reaction when contamination occurs in the food supply chain. The source of the contamination can be quickly determined by tracing back the product that caused the illness.
Walmart illustrated the potential gains offered by blockchain for this specific use case. Using traditional methods, it took approximately 162 hours to trace the source of mangoes to their point of origin – a lifetime when it comes to food safety. Running through the same scenario, blockchain took 2.2 seconds. Not only does this show the potential to save lives – alerting consumers who may have purchased items from the same batch – but for businesses that sell food, it limits the scope of recalls, increasing the bottom line through far more targeted recalls of contaminated goods, leaving safe foods in stores and available for sale.
Blockchain in the consumer trends
What about solving supply chain problems with blockchain that could potentially increase customer satisfaction and differentiate a product? The traceability application can be extended to allow the end customer to have visibility into the entire supply chain by scanning a QR code on the packaging. The potential advantage for businesses is to increase the authenticity of claims that speak to consumer trends influenced by social movements like fair trade, farm-to-table, and the organic movement.
In one example, blockchain could extend the value proposition of a product like fair-trade tea, where the product promise is that the tea grower is a small-scale farmer. By exposing the data stored in the blockchain, the consumer could see for themselves the farmer and location where the tea was produced – strengthening the authenticity around the source of the commodity and verifying the fair-trade designation.
Blockchain for wine
I fancy myself a bit of a wine connoisseur and over the years have become something of a collector. As a consumer, I am all too familiar with the challenges amateur buyers face due to factors in the supply chain. Two such problems that wine collectors face are unknown provenance and counterfeiting. Wine is susceptible to damage in the bottle (heat and cold) as it passes through transportation and warehousing networks. I am a bit suspect on how a bottle of wine has been handled when purchased through retailers whose business is specializing in many things besides wine.
By combining IoT and blockchain, the journey of the wine from producer too retailer can be captured. Location and temperature data can be collected and incorporated into the blockchain at the case or pallet level, enabling the ability to check the history of the wine as it passes through the supply chain and reject accepting the product and moving it forward if the terms of the handling contract have been violated.
Wine produced by certain wine vineyards or of particular vintages has become coveted by wealthy collectors. This has driven prices to the point where counterfeiting wine has become a big business and counterfeiters now target these ultra-collectible bottles. A blockchain project has been undertaken to capture physical attribute data at the winery and place that information into a shared ledger. When a would-be purchaser of one of these collectible bottles inspects the bottle for authenticity, they can consult the blockchain to determine the bottles’ authenticity prior to purchase.
Collectors are not the only ones who stand to gain from the blockchain advantage when it comes to wine. Through access to real-time insight into the supply chain, wine-makers can pinpoint flow disruptions, more rapidly address failure in product quality, and most importantly, leverage these insights to limit risk and mitigate erosion of margins in the cost of distribution.
Blockchain in the supply chain
Today, supply chains are complex networks of businesses that often have limited trust among them. Each is responsible for their small part of the supply chain and likely have little direct oversight from the other players. But this picture of a fragmented collection of businesses lacking a shared value chain is set to change.
By collecting data and storing it in an immutable blockchain as the goods flow through the supply chain, innumerable problems can be solved and benefits obtained that were not possible in the past. Problems such as what happened to the product at it moved through the supply chain, where did the raw materials come from, and how was it processed can be answered. This can improve supply chain efficiency, increase customer satisfaction, reduce risk, and strengthen product differentiation. This can translate into business results through reduced costs and increased revenue.
A great deal of focus and attention is given to many of the potential benefits of blockchain in retail interactions. The message is clear: Value created through blockchain often percolates to consumers. As such, as the blockchain experiences of the end customer continue to improve and proliferate, it is the businesses that are at the leading edge of technology adoption that will reap the most opportunities – increasing loyalty and level of trust in brands, as well as improving the trust and transparency among organizations whose business models predominantly require operating in supply chains.
For more on how blockchain works in the supply chain, check out this handy infographic from Harvard Business School’s Digital Initiative.