Blockchain in Supply Chain
How blockchain technology can radically transform the global supply chain industry
In the future, the entire supply chain management infrastructure will likely be done on a blockchain, which will improve traceability and authenticity of assets as they’re distributed to the consumer.
In this article and video, we will cover:
- Why use blockchain for the supply chain – what limitations does it overcome?
- Current problems with the supply chain industry – how is it currently managed?
- Solutions such as how to use blockchain for traceability in supply chain
- Case studies of blockchains being used in the supply chain industry today
- Risks, concerns, and speculations on the future of blockchains in the supply chain industry
Problems with the Current Supply Chain Industry
Since the start of the industrial revolution, humans have become increasingly efficient at turning raw materials into products distributed around the world.
Combining both manufacturing improvements with increased trade due to globalization has lead to the emergence of a more complex global supply chain. Managing the various supply chains is a very complicated process, and businesses are willing to pay a lot of money to improve the process.
The supply chain management industry is experiencing double-digit growth year over year. According to Gartner, the Supply Chain Management (SCM) market will exceed $19 billion in total software sales by 2021.
While globalization has some downsides, it’s a net positive enabling more products to be delivered around the world at a lower cost. Improving globally trade has lead to a massive increase in the quality of life of the average citizen. To illustrate this point: the average person alive today has better access to food, clean water, shelter, safety, and medicine than the wealthiest elites from 200 years ago.
However, the current supply chain management industry is being run on archaic technology that simply cannot keep pace with the complexities of our growing global economy.
Let’s examine two of the biggest problems in the supply chain industry today.
#1 Stakeholders cannot maintain an adequate overview of their supply chain networks.
Currently, supply chain data is fragmented into various “data silos,” where very little data interoperability exists. In other words, it’s extremely hard to track products and ensure integrity as they flow through the supply chain.
Common challenges include: counterfeiting, contamination, and ensuring the provenance of goods.
Unfortunately, this lack of clarity disproportionately harms the environment, end consumers, and any organization that participates in honest and sustainable trade methods.
According to Ambrosus, a blockchain project working in the supply chain industry, the biggest challenge in the industry can be addressed by improving access to data for all stakeholders in a trust-minimized way. According to the Ambrosus whitepaper:
Until now, it has been difficult to gather accurate data about the state and integrity of materials and products along the whole supply chain. Even where data is available, it is challenging to collect it, aggregate it, disseminate it and, above all, ensure its accuracy and integrity.
#2 End consumers are demanding ever-higher levels of transparency.
Consumers are becoming more intelligent and demanding to know the story behind the products they buy. Look no further than the rise of “Fair Trade” products and consumers making buying decisions based on how environmentally sustainable a product is.
Unfortunately, it’s hard for companies to prove their product is actually “Fair Trade” and prove that their Prada handbag is not a counterfeit.
Benefits of Blockchain Technology in the Supply Chain Industry
Currently, the majority of the buzz around blockchain has been regarding cryptocurrencies. However, recently, blockchain-based supply chain management solutions have started to emerge.
Most blockchain-based supply chain solutions involve a tiny hardware device that’s connected to physical goods. This tiny sensor can automatically send time and location data directly to the blockchain. Combine this new automatic data source with blockchain immutability, and you can radically transform how supply chains are being managed.
This allows separate companies to share supply chain data in a trust minimized way, which increases efficiency while improving both traceability and authenticity of their products.
Real World Examples of Blockchain Projects Improving the Global Supply Chain Industry
All of these projects seek to fix the general pain points in the supply chain industry: fragmented data, lack of transparency, information asymmetry between stakeholders, and no data sharing standards or protocols.
Blockchain enables many benefits to the supply chain, including:
- Consumers with full visibility into the entire lifecycle of a product before it hits the shelf
- Improved efficiency of global trade
- Minimized fraud/counterfeiting due to quality assurance sensors tracking the location of materials in the supply chain
Several companies are building blockchain-based solutions for the supply chain industry. The differences between each project lie in their geographic location, underlying technology, and their unique approach to solving similar problems. While some projects have their own blockchain, others are blockchain agnostic data transport protocols. In some cases, blockchain projects supporting the supply chain industry can actually compliment each other.
It’s important to point out that this industry is just getting started. We’re seeing many pilot programs and small scale solutions. However, none of the current solutions are being used in full-scale production.
Let’s take a look at three blockchain projects focused on the supply chain industry.
#1 Tracking Tuna on the Blockchain
A company called Provenance recently completed a pilot program using blockchain technology for tracking yellowfin and skipjack tuna in Indonesia from catch all the way to the consumer.
The pilot program explored a new method for enabling traceability in supply chain management. They enabled a secure flow of information verifying important attributes of the fish, such as fishing method, vessel type, and compliance data.
This solution can be used to prevent fraud surrounding certifications and claims, which is otherwise expensive and relies on a “trust” third party.
#2 Enabling customers to verify a product is sustainably sourced from an app in-store
The same company, Provenance, also helped Martina Spetlova tell the story of her sustainable clothing brand, MWoven.
Essentially, the company inserts small sensors into the clothing, which is then connected to the blockchain. This enables customers to follow the product journey: from sourcing leather in the UK to production in Portugal.
This enables Martina to communicate the brand’s sustainable and quality-driven approach to fashion. While in the store, shoppers can access the supply chain tracking app from their phone, which enables Martina to showcase how she hires Syrian female refugees to create her products.
This pilot is an excellent example of how blockchain authenticity in supply chain management can improve the relationship between retailers and customers.
#3 Wabi minimizes counterfeit consumer products such as “fake baby milk”
The WABI token was created by Chinese-based company Techrock (previously Walimai) that develops solutions to ensure consumer product authenticity by placing anti-counterfeit labels on consumer products. Consumers then purchase Techrock-secured goods with WABI tokens in participating stores.
The genesis of Techrock stems from the 2008 Chinese milk scandal that killed 6 children and hospitalized more than 50,000. The team’s goal is to prevent consumers from death or serious hardship due to these counterfeit goods.
Techrock operates mainly in China, where counterfeit products such as baby formula, cosmetics, and alcohol are a growing concern.
The team created labels that are RFID chips and scannable QR codes. This enables consumers to scan the label of an item before purchasing to ensure the product has not been tampered with. If the geolocation data of a specific product does not match its intended route, the customer will be alerted to avoid the product, and the manufacturer will be alerted of the issue.
The Tael “smart labels” are currently being used in the liquor, baby food, and cosmetic industries today.
Risks, Concerns, and Speculations
While the supply chain industry is considered one of the most compelling use cases for blockchains (outside of cryptocurrency), there are still some risks and concerns. In this section, we’ll cover both the risks/concerns as well as speculate into the future of a blockchain-enabled supply chain industry.
Risks & Concerns
One big challenge remains, it’s often called the “Oracle Problem.” Which is the challenge of connecting real world items with their digital token counterpart.
It’s great that blockchains can store immutable data in a censorship-resistant, tamper-evident way. This makes blockchains very good at securing and transporting digitally native tokens.
However, it’s unsure if or how we’ll be able to digitally represent physical assets in a trust-minimized way. How do you verify the authenticity of the data that’s being input to the blockchain? Eventually, someone, or some machine, must assign a digital entry to an item. How can you prove the person inputting the data did it correctly?
Another challenge is getting separate companies to work together and share data. Data is a significant part of any business, and it’s rarely shared between companies. In a supply chain scenario, the benefits often come from the shared data.
On paper solving this problem, this is straightforward. However, in practical terms, it’s very challenging. Company strategies will need to evolve, employees will have to relearn new processes, and lots of compromises will need to be made between adversarial companies.
How do we prevent these companies from ending up in a “standards war” that erodes most of the benefits blockchain enables?
There’s still a lot of work to be done here. However, I have no doubt we’ll see some type of distributed ledger technology improve the supply chain industry in a meaningful way.
Most of the blockchain-based supply chain projects are heavily investing in internet-connected hardware devices to build into their products. This industry is called the Internet of Things (IoT). These tiny microchips can send data to the blockchain at various checkpoints as they move through the supply chain.
A combination of blockchain technology, smart contract applications, and integrated Internet of Things (IoT) sensors allow us to reimagine the core systems we use to manage our global supply chains.
In the future, it’s possible to have a global supply chain system fully automated and run by IoT devices paying each other, while a giant AI system coordinates and optimizes the entire system.
Blockchain for traceability in supply chain management is just one of the many use cases for this revolutionary technology. Imagine a future where stakeholders can view the entire lifecycle of a product before it hits the shelf. Imagine how leveraging blockchain will minimize counterfeiting, increase efficiencies, and enable a more transparent global economy!
We hope you enjoyed learning how blockchains can be used to revolutionize the supply chain management industry.
Do you think the supply chain management industry will benefit from blockchain solutions? What is your favorite project in the space?
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