As a supply chain manager, wouldn’t you like to know everything about your products’ histories, including the origin of individual materials at the mine or farm, who fabricated or assembled each item, how and when the products were transported, who approved or certified their quality, and dozens of other bits of information? Of course you would. But most companies have too many products, and most supply chains are too complex, to track completely and with 100 percent certainty.
Some experts are heralding the arrival of a new technology— blockchain—that can potentially document and preserve data about a product as it travels along the supply chain. The first block-chain was conceptualized by Satoshi Nakamoto in 2008 and was implemented the following year as a ledger for the digital currency Bitcoin. Nakamoto, the alias for the actual creator of Bitcoin, dreamed of a system that would enable Bitcoins to be used as cash without being diverted into the wrong hands or spent twice. This requires a system that does not depend on the control of a third party, such as a bank. Instead, a mixture of mechanical subtlety and computational brute force are built into its “consensus mechanism,” or the process by which the parties involved agree on how to update the blockchain to reflect the transfer of Bitcoins from one person to another (The Economist 2015).
Gartner’s 2016 Hype Cycle for Emerging Technologies shows blockchains nearing the Peak of Inflated Expectations, wedged between connected homes and smart robots. Gartner predicts that blockchains will reach the Plateau of Productivity in 5–10 years. For now, applications are still very much in the trial stage. Bloomberg reports that more than 500 companies and governments started blockchain tests last year (Kharif 2016).
What is a blockchain?
Jason Busch, founder of Azul Partners, describes a blockchain as a peer-to-peer ledger maintained by a decentralized network of computers. As previously noted, this technology does not require a central authority or trusted third party. A blockchain consists of three components: a transaction, a transaction record, and a system that verifies and stores the record. Once the information is stored, it is difficult to change or delete it (Norton 2016).
“When someone wants to add to [a blockchain], participants in the network—all of which have copies of the existing blockchain—run algorithms to evaluate and verify the proposed transaction,” Steven Norton writes for The Wall Street Journal. “If a majority of nodes agree that the transaction looks valid—that is, identifying information matches the blockchain’s history—then the new transaction will be approved and a new block added to the chain.”
Marc Andreessen, inventor of the first widely used web browser, Mosaic, describes the importance of the technology this way: “The practical consequence [is that] for the first time, … one internet user [can] transfer a unique piece of digital property to another internet user, [and that] transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate” (Steiner and Baker 2016).
Advocates of blockchains argue that, if they can be used to transfer and track Bitcoins, other companies can use block-chains as public ledgers to track product attributes, including ingredients and history of production.
The cost of kinks
Even if a company can track all of these product details, is it worth it? Bryan Ball, vice president and principal analyst of supply chain management research practice at Aberdeen Group, thinks it is. He points out that rare events and disruptions—including shipment delays; damaged or misdirected products; product quality issues and recalls; carrier capacity issues; unexpected customs delays; port congestion and strikes; environmental catastrophes; and theft, fraud, and other security issues—are frequent occurrences in supply chains. Ongoing monitoring, adjusting, course correction, and occasional heroics are what keep a plan on track, and none of these actions are possible without visibility.
An Aberdeen Group survey found that, although 85 percent of the best-in-class companies reviewed had online visibility into in-transit shipment status, only 58 percent of all of the other companies reviewed had comparable visibility (Ball 2016). The percentages were even lower for visibility into data to make decisions, international event status, and supplier quality and manufacturing processes. Only 43 percent of best-in-class and 27 percent of all other companies reported having traceability and genealogy at the item level.
Another study by the Business Continuity Institute found that 66 percent of surveyed supply chain professionals do not have full visibility into their supply chains, 70 percent experienced at least one supply chain disruption during the year—41 percent of those occurred at the tier 1 level—and 40 percent do not analyze the sources of disruptions (Alcantara and Riglietti 2016). These disruptions all come at a cost. (See infographic).
Eric Johnson (2016), research director for American Shipper, also reports that supply chain visibility has moved from luxury to necessity for most multinational shippers. Visibility is a means of not only reducing cost, but also increasing supply chain agility, he says.
And the level of necessity will only increase. Business Insider reports that the growth of the internet of things will generate massive amounts of data, which companies will want to protect and manage (BI Intelligence 2016). Blockchains have the potential to provide the security and accountability that traditional databases don’t.
Decoding the possibilities
Blockchain enthusiasts are dreaming of the many ways the technology can be used to track and certify products as they move along their supply chains. IBM is working to introduce the use of a blockchain in the diamond industry. PwC has formed an alliance with BitSE, a Shanghai-based blockchain start-up, to integrate a block-chain into its professional services and deliver one-stop solutions for financial services firms, government organizations, and industry clients.
Wal-Mart Stores is testing blockchain’s capabilities to track the flow of certain food items (Kharif 2016). The Bentonville, Arkansas-based retail giant is especially interested in being able to quickly identify food items that may be tainted and subject to recall. More than 1,000 foodborne illness outbreaks are investigated by state and local health departments each year. These occurrences affect approximately 48 million people annually, hospitalizing 128,000 victims and killing 3,000. With better insight into its supply chain, Wal- Mart Stores leaders hope to reduce the adverse effects of unsafe food items and help the company deliver food to stores faster and reduce spoilage and waste.
Ben Dickson (2016), a TechCrunch contributor and founder of the blog Tech Talks, notes that blockchains will enable companies to register information about a product transfer and the product’s price, date, location, quality, and any other information that is relevant to managing it. The public aspect of a blockchain gives all users visibility into their supply chains, its decentralized nature restricts any holding party from manipulating the information to gain an advantage, and the encryption attribute protects data integrity. Companies can better comply with regulations, assure customers of product integrity, identify problems and weaknesses in their supply chains, and prevent major problems.
Of course, because this technology is still in infancy, there are many concerns about implementing it. Don Tapscott and Alex Tapscott (2016) note that blockchains are not developed enough, resulting in capacity problems, system failures, and unanticipated bugs as more people and companies start to use them. From an energy standpoint, hashing—the process of running pending transactions through secure hash algorithm 256 to validate them and solve a block— requires a lot of electricity, which might be unsustainable. In addition, leaders of large corporations, spies, and criminals might exploit the technology and available data.
But these concerns are not hindering progress by much. The World Economic Forum forecasts that 10 percent of global domestic product will be stored on a blockchain by 2025. Of course, in order for block-chains to become mainstream, they need to be accepted by people and companies too. Leaders of organizations must build supporting infrastructure and mold their companies’ cultures to accept and use the new technology. Early adopters also will need to handle system glitches and steep learning curves, but educational opportunities should help solve these issues and bring everyone up to speed. Lastly, organizations will have to carefully select where to best apply a block-chain in order to use it most efficiently and build a future in which blockchains can become a common part of business.
- Alcantara, Patrick, and Gianluca Riglietti. 2016. “Supply Chain Resilience Report 2016.” Business Continuity Institute. http://www.bcifiles.com/BCI_SupplyChainResilienceReport_2016.pdf.
- Ball, Bryan. 2016. “Supply Chain Visibility: Know Sooner, Act Now.” Aberdeen Group.
- BI Intelligence. 2016. “Blockchain and IoT Devices Could Revolutionize the Supply Chain.” Business Insider, November 28. http://www.businessinsider.com/blockchain-and-iot-devices-could-revolutionize-the-supplychain-2016-11.
- Dickson, Ben. 2016. “Blockchain Has the Potential to Revolutionize the Supply Chain.” TechCrunch, November 24. https://techcrunch.com/2016/11/24/blockchain-has-the-potential-to-revolutionize-the-supply-chain/.
- The Economist. 2015. “The Great Chain of Being Sure about Things.” The Economist, October 31. http://www.economist.com/news/briefing/21677228-technology-behind-bitcoin-lets-people-who-do-not-know-or-trust-each-other-build-dependable.
- Johnson, Eric. 2016. “A Clear View of Supply Chain Visibility Benchmark Study.” American Shipper, October. https://www.americanshipper.com/Uploads/Public/826%20ASREP%20Visibility%202016%20v4.pdf.
- Kharif, Olga. 2016. “Wal-Mart Tackles Food Safety with Trial of Blockchain.” Bloomberg, November 18. https://www.bloomberg. com/news/articles/2016-11-18/wal-marttackles-food-safety-with-test-of-blockchaintechnology.
- Norton, Steve. 2016. “CIO Explainer: What Is a Blockchain?” The Wall Street Journal, February 2. http://blogs.wsj.com/cio/2016/02/02/cio-explainer-what-is-blockchain/.
- Steiner, Jutta, and Jessi Baker. 2015. “Blockchain: The Solution for Transparency in Product Supply Chains.” Provenance, November 21. https://www.provenance.org/whitepaper.
- Tapscott, Don, and Alex Tapscott. 2016. Blockchain Revolution: How the technology behind Bitcoin is changing money, business, and the world. New York: Penguin Publishing Group.
Richard E. Crandall, PhD, CFPIM, CIRM, CSCP, is a professor emeritus at Appalachian State University in Boone, North Carolina. He is the lead author of Principles of Supply Chain Management, Second Edition. Crandall may be contacted at email@example.com.
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