Use of Blockchain within Supply Chain
Regardless of the industry, supply chains are a complicated affair, rarely providing visibility and transparency for stakeholders looking to improve operational efficiency. The logistical opacity that has permeated within supply chains presents a high risk for both the stakeholders and the end consumers — as the sustained lack of systemic validation can lead parties to lose trust in the whole value chain.
Much of this has to do with data, which has largely remained siloed within operations due to the absence of trust between stakeholders. Though supply chains are considered the lynchpin of modern economies, they have been slow in the technology uptake. Market fragmentation has played a major role in this, with small- and mid-tier stakeholders lacking the know-how to implement digitalisation in their workflows.
COVID-19 crisis has created an unprecedented need for improving efficiency within supply chains. Increasing cross-border trade makes it harder for stakeholders to trace the product through different bearing and processing points. Conventional processes like paper documentation and excel sheet-based workflows are both inefficient and seldom retractable, making it harder for supply chains to be flexible.
Blockchain technology could be the missing piece to the data fluidity problem. Being a decentralised ledger with data immutability, blockchain offers trust to all involved parties within the supply chain — thus guaranteeing full transparency and visibility.
Decentralisation of data ownership within a blockchain network essentially lets stakeholders own their data, while also being privy to information from other parties in the system. Editing or altering data would need explicit permission from every party within the network, bringing in the much-needed trust to value chains.
Provenance tracking is critical to supply chain visibility
In theory, blockchain can bring visibility and transparency into logistics operations. However, achieving it requires extensive effort to ensure the blockchain network encompasses stakeholders from every node across the specific supply chain.
For instance, to gain true end-to-end visibility into a coffee supply chain, stakeholders from across the value chain need to be integrated within the blockchain network. This includes coffee plantation owners, coffee bean processors and packaging plants, distributors and intermediaries, and retail outlets — helping close the loop on the provenance of coffee.
Another essential factor in the equation is the increasingly skeptical end-customer. The long and inscrutable supply chains unsettle today’s consumers and make them question sourcing methods and the supply chain pipeline.
Blockchain technology can help make provenance and shipment processes of products visible and comprehensible. This way, the end consumer can not only understand the product better but also secure a fairer trade. The inequality due to intermediaries and bad practices could be reduced — for example, coffee farmers could get paid more reasonable prices for their product.
That said, though blockchain can help with verifying information within its network, data must be vetted before it gets pushed into the network. Considering the previous example, a blockchain network that monitors end-to-end coffee supply chains would require every stakeholder to enter reliable and trustworthy data into the system.
Internet of Things (IoT) sensors work well in this context, as improvement in technology has made sensors smaller, cheaper, and more accessible. Thanks to IoT, it is possible to get real-time data on provenance and product movement — information that can now be put on the product’s packaging.
Coffee trade secured within a blockchain network can have QR codes embossed on coffee packaging, which can provide consumers with trustworthy data on its provenance when scanned.
Such provenance tracking is critical, especially in supply chains prone to ethically questionable and fraudulent practices. Global food and fashion supply chains stand to gain the most out of a blockchain-powered value chain, as they historically suffer from issues like wilful mislabelling, counterfeit products, and even forced labor.
Data standardisation is the need of the hour
Envisioning a blockchain-powered logistics ecosystem brings the need for data interoperability to the forefront. Logistics operations are complex and highly unorganized across the value chain, with companies recording data across excel sheets and paper logs. This creates a chaotic environment, where data from individual stakeholders fails to make sense to the network at-large.
Data standardisation is needed to foster functional and efficient networking between all involved partners across a blockchain network. In many ways, data standardisation is the bedrock of interoperability. Without proper standards, data arising from different stakeholders cannot be put together to make sense over a blockchain network, rendering them unsuitable for interoperability.
In that effect, several data standardisation organisations have sprung up — like BiTA and GS1 US, which look to create open data standards that can be adopted by all stakeholders. Once data is being collected and fed into the network gets streamlined, it is easier for disparate blockchain networks to interact, glean insights, and improve efficiencies across the board.
Blockchain consortiums and pilot programs are taking off
Within commercial transport, major freight forwarders and shipping companies are joining together to create consortiums, which can reduce trust-related complications involved within transportation and expedite the hauling process by weeding out redundant documentation.
Blockchain-based end-to-end logistics startup ShipChain introduced its Mainnet, which provides complete supply chain transparency and trust to users in its network. ShipChain’s mainnet is public and made openly available, thus combining the trust of public blockchains with the throughput and scalability required by enterprise supply chains.
As regulators become more involved in logistics processes, we will also see the mandate of “more data” coming without trust mechanisms in place for all that extra data – and public blockchain networks will be seen as the industry backbone for trusting and validating all of that extra data.
Another example would be IBM that runs the IBM Food Trust, which is an ecosystem of producers, suppliers, manufacturers, and retailers that look to create sustainable and transparent food supply chains. The idea of the Food Trust is to rejuvenate end consumer trust in food supply chains, while propping up food safety and shedding light on its provenance.
The first step to pushing blockchain into mainstream use would be to increase digitalisation within the logistics ecosystem. Data should be made more accessible while existing archaic ways of storing and analysing data get revamped to cloud-based systems. Data standards would help democratise information, as companies following universal standards can interact seamlessly with each other.
In the next few years, as digitalisation becomes ubiquitous and innovation like automation, edge computing, and IoT gain more relevance and even required use, blockchain as technology would strengthen its use case within the supply chain ecosystem. Over time, stakeholders will graduate from reflecting on blockchain’s potential from a distance to actively participating in blockchain projects —realising blockchain’s evident promise transcending transport modes and disparate markets.
ABOUT THE AUTHOR
Chief executive and co-founder of ShipChain
John Monarch is chief executive and co-founder of ShipChain, a blockchain startup focused on the freight, logistics, and shipping industry. He is a serial entrepreneur with multiple previous ventures and has a background in physics and computer science.