Introduction:Blockchain is creating a lot of buzz in this transforming world which has often been described as ‘VUCA,’ i.e., Volatile, Uncertain, Complex andAmbiguous.
Often people confuse blockchain with bitcoin which is not so, asthey are not synonyms. The blockchain is a concept whereas bitcoin is anapplication. Bitcoin is an unregulated shadow-currency and was the firstpopular blockchain application.Contemporary Business ModelCurrently, most businesses operate on either on publicor private networks. Tangible and intangible assets are transferred across networks to network participants.
Ledgersare used to document all those transactions, and networks are governed by a contract. Business networks today areoften inefficient because each participant in the network keeps records of alltransactions between all the parties that the supply chain interacts with on adaily basis. Maintaining and Auditing multiple ledgers is a challenge forbusinesses in Supply Chain Management which makes it inefficient, error-prone,and insecure.Blockchain as a conceptAt the highest level, a blockchain is a trusted,distributed ledger with shared business processes.
It is a chain of the information storing blocks wherein every blockcontains information such as transactions, parties involved, date and amount. Ablockchain database retains a completehistory of all the assets and transactions executed. Every transaction authenticity in blockchain is validated by a network ofusers often called as miners.
This distributed validation method makesit transparent and trustworthy.When we talk about Blockchain implementation inthe business process we emphasize on the three factors, which are:a) Identity over anonymityb) Selective endorsement overproof of work c) Broad set of assets Blockchain Components: Any blockchain has majorly six majorcomponents. Messages: A message is a submission of data in a transaction for cryptographicallyverification by participants’ computers(nodes).
Once it’s verified, it becomesa transaction record.Blocks: When messages related a transaction arebundled together, it gets stored in a software generated containercalled node.Blockheaders: It isformed by combining messages in ablock, it refers back to a hash of the most recent block.Time stamp: It represents the point of time when the messages under a blockheader were listed.Hashing: A unique number is given to agroup of data after processing it.
It’seffectively a digital Chaining: The block header for a new block contains a reference to the hash for theprevious block, and the process continuesmaking it a chain. To change one block of thechain, it’s necessary to convert all the blocks which will come afterit. This results in indelible records Blockchain & Current supply chain – A permissionConundrum The change in permission given to a particularnode and whether or not there exists a centralized authority divides theblockchain into three different parts;public blockchain, private and hybrid/consortium blockchain.
A bitcoin is established over permission-less or publicblockchain where protocol to build that trust. But in the most supply chain, the parties are known andtrusted. Moreover, supply chains will not want to reveal their proprietydetails like demand, orders, capacities, margins, etc. to the public. Hence a privateblockchain where the access is governed centrallyso that it is restricted to known andtrusted parties is more likely to be adopted by supply chains.
Blockchain’s value addition to supplychainThe requirements for a Blockchain for businessare a shared ledger, smart contract, privacy, and trust. Here shared ledger isan append-only distributed system of the record shared across the businessnetwork. Privacy ensures appropriate visibility, transactions being secure,authenticated and verifiable.
Smart Contract is the business terms embeddedwith transactions which link the information collected in a blockchain to itsconsequence. It’s the actual progression of blockchains from a financial transaction protocol to anall-purpose utility. Smart contracts are pieces of software that extendblockchains’ utility from simply a record of financial transaction entries toautomatically implementing terms of multiparty agreements.
The last aspect is atrust which means that the transactions areendorsed by relevant participants. Blockchain helps participants tostore price, date, quality certifications and location of the materials. Theseinformation increase traceability of the materials, prevent losses fromcounterfeit products, improve compliance and reduce administration paper work. 1. Traceability:Material traceability feature originates manyapplications in food and cold supply chain industry. The famous case of Chipotle Mexican Grill outlets which left 55 customersill and company couldn’t trace the contaminated food which hugely impactedtheir reputation and shares fell overnight tells us about the need to bring ina more transparent system where the traceability of the ingredients is easier.According to a survey by Deloitte, 90% of theconsumers consider food product transparency as a critical factor in decidingfood products. The journey towards this change in food industry starts with theregistration of farmland on theBlockchain.
This’ll make it easier forthe consumers to track the origin of their food and helps in improving foodsafety while reducing the potential for frauds. Thiswill also help in increasing demand for organic farming as producers will knowthat customers have visibility of theirname and product and same goes for customers. Currently, it takes up to twoweeks to track down the source of contaminated foodstuffs, but latest blockchain implemented methods cangive its members access to a constantly-updating ledger of food, from source tostore. For the growing supply chains having multiple suppliers to deliver theparts and ingredients, traceability becomes even more important. Provenance, asupply chain transparency startup, recently completed a six-month pilot fortracking responsible sourcing of tuna in Indonesia via blockchain. Similarly,Walmart in partnership with IBM has already run two blockchain experiments totrack Chinese Pork and Mexican Mangoes.This provenance tracking through blockchain is findingits way into pharmaceuticals industry as well.
Drugs giants like Pfizer and Genentech havecompleted a successful pilot to track drugs last year and are now working onproject MediLedger which will imbibe the delivery of drugs from drugs maker towholesalers to the hospital to the customer in the blockchain.1. Counterfeit Prevention Blockchaincan also help in fighting the scourge of counterfeiting. Counterfeit goodsaccount for 2.
5% of global trade or $461 billion. In fact, Amazon has beguntaking counterfeit resellers to court. Most common counterfeits items arefootwear (18%), electronics (15%) and eyewear (13%). Even the e-commerceplatforms aren’t untouched by thesecounterfeit items. According to INTA, global e-commerce platforms like Amazon, eBay and Alibaba also have 23% cumulative sharein selling counterfeit products among top 10 global e-commerce platform. Usingblockchain, retailers can provide their customers with unchallengeable proof ofthe origin and authenticity of their products at every step in the supplychain.
The diamond industry is working with Everledger to verify the originsof precious stones, and they havealready added over 1.6M gems to a ledger. One sneaker manufacturer is usingblockchain and 3-D-printed smart tags to prove product authenticity. 2.
Improve Compliance Businessescan effectively maintain more compliance withthe outsourced contracts since it can reduce communication and data transfererrors. Even though supply chains can currently handle large, complex datasets, many of their processes, especially those in the lower supply tiers, areslow and rely entirely on paper—such as is still common in the shippingindustry. With the implementation of the blockchain, less time can be spent on verifying the data and more timecan be spent on improving quality andreducing cost. Maersk And IBM havecompleted the first test of a system last year that would improve the company’scargos process efficiency using blockchain.3. Reduction ofAdministration cost & Dispute resolverProcesses involving manual checks for compliance or credit purposescurrently takes weeks. Not only this causes a delayin process completion, but it also is thecause of many disputes in supply chainmembers.
As per IBM there exist more than 100 million dollars of invoice worldwide which arein dispute between buyer and supplier at any given time and takes and an averageof 44 days to be resolved. Witha contract, proof of origin, receipt,delivery, and payment transmitted throughblockchain this all can be avoided up to 90-95%. Synergy betweenBlockchain & ERP Blockchaincan work in collaboration with other enterprise applications like ERP, CRP, and WMS. Using blockchain will only increasecapabilities of existing ERP in multi-echelon and multi-staged supply chain of the organizations. Walmart-IBMHyperledger based blockchain has been integratedwith their retail corporation’s safety system that tracks the shipment of fresh produce mangos. Much of theinformation about mango shipment is taken directly from Walmart’s ERP system.Challenges: In-spiteof many tangible and intangible benefits of blockchain in the supply chain, the road to wide acceptance insupply chain management has some challenges for blockchain.Data privacy – These counterfeit combating systems need to find a right balancebetween privacy and transparency.
There is a need of stronger authentication, privatetransaction channels and granular authorization for large acceptability.Performance – increasing number of traded products and the requirement togenerate unique id at the point of every transaction will lead to the huge chuckof data, and the performance ofblockchain with this high chuck of datais another challenge. Cost – The cost of providing the processing speed to deliver instanttransaction in bitcoin is also one of the reasonsthat it’s not getting accepted as it should have been and currently most of theblockchain application is in high-value assets not in high volume assets. Conclusion:Undoubtedly,the expectations are high from blockchain but in order to have a massacceptability in supply chain, this technology has to evolve further to mitigateabove challenges. In-depthtransformation of supply chains isn’t going to happen overnight.
But the futurecombination of blockchain, IoT, predictiveanalytics and machine learning can bridge the gap of trust based informationwith portable solutions brought to complex structures of global supply chains. Blockchainmay still be down the road, but its potential demands attention now.