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The Future of Blockchain in Supply Chain

  • Jack Shaw
  2018

It’s a beautiful spring morning in Paris just a few years from now. A passenger jet sits on the runway at Charles de Gaulle Airport before receiving clearance to take off on a nonstop flight to Chicago O’Hare. Three hours later, over the North Atlantic Ocean, a sensor detects that a jet fuel injector has reached a critical point of wear. It will function properly for the rest of the current flight, but must be replaced before the plane can take off again.

Today, this situation would keep the aircraft out of service for a day or more while the repair is made, at great expense to the airline and inconvenience to customers. But for this future flight, internet-of-things (IOT) circuitry notifies the aircraft’s autonomous maintenance system, which alerts the airline’s global maintenance system to replace the part on arrival at O’Hare. The airline’s procurement system then assigns an intelligent procurement agent to identify prospective suppliers of the required part and negotiate the best pricing, terms and conditions. The order is confirmed via a legally enforceable online smart contract, and the airline’s global maintenance system is authorized by that vendor to download the design file for the part. It is then printed by a 3D printer at O’Hare and delivered to the appropriate gate.

Meanwhile, the airline’s global maintenance system notifies the airline’s senior director of technical services procurement that she will need to engage an authorized provider to make the replacement part. The system also tells her the time and gate at which aircraft will be unloaded, serviced and reloaded. Then, it identifies several prospective engineers to do the work.

The selected engineer has installed this part and worked on this aircraft before; however, he hasn’t installed this specific part on this particular model of aircraft. But the technical services procurement director knows this won’t be a problem, thanks to the augmented reality goggles the engineer will be using. Upon arrival to the gate, he activates a video of the step-by-step process for removing and replacing the fuel injector. The video is 3D-projected directly onto the actual parts on the aircraft. He then executes the process as demonstrated. The 3D goggles also record the part’s replacement for airline and Federal Aviation Administration records.

When installation is complete, IOT-enabled circuitry initiates an automatic self-test to verify that the part is working properly. When the part successfully passes, that information is sent to the airline’s global maintenance system, which then delivers it to the airline’s global procurement system. In the end, the aircraft takes off on time and with a brand new fuel injector in place to help ensure many more safe and reliable trips.

This may not be the way your organization handles planning, sourcing, production and delivery currently. But dramatic supply chain transformation is coming as a result of Industry 4.0 technologies, including the IOT, artificial intelligence, 3D printing, and augmented and virtual reality. Importantly, there is another emerging technology that ties together all of these pieces and makes possible the digital transformation of entire ecosystems. The Economist described this technology as the most important advance in recordkeeping since the invention of the double entry bookkeeping system in 1494. It’s called blockchain.

Understanding blockchain

Blockchain is the underlying technology that enables the digital currency Bitcoin and others, but it can do much more. In effect, blockchains make it possible to do four important things simultaneously:

  1. Create permanent, immutable, signed and time-stamped records of identity, ownership, transactions or contractual commitments.
  2. Permit two or more entities — people, businesses, governmental agencies, nonprofits, regulators and others — to share that information without having to keep accurate records themselves or pay a third-party service to do so.
  3. Provide complete transparency for authorized users to see data and update it easily.
  4. Benefit from thus-far unhackable security. (In the nine years since its inception, hundreds of billions of dollars of blockchain transactions have occurred; despite the concerted efforts of the world’s most cunning digital criminals, the users have never been hacked.)

Blockchain technology is producing extraordinary results in supply chain, transportation and logistics. Walmart is using blockchain to track shipments of seafood and pork from China to its retail store shelves down to the second. Maersk’s use of blockchain is demonstrating that the administrative costs of shipping flowers from East Africa to the Netherlands can be drastically reduced. In international trade, blockchain is making it possible to process paperwork, transfer ownership, and pay sellers and freight carriers in a matter of minutes. Wine is traced from the Napa Valley to China. Diamonds are monitored from South African mines to retails store shelves in order to eliminate the scourge of blood diamonds. Health care providers verify that pharmaceuticals have been kept at the proper temperatures throughout the shipping process. All this, and more to come, is possible through the power of blockchain.

In the next five-to-10 years, global, autonomous supply chains will encompass parts, materials, products, services, information and funds that flow between and among organizations without any unnecessary human intervention. This will happen according to goals, objectives and rules established and agreed upon by the stakeholders and documented with smart contracts that are stored permanently and immutably with blockchain. These will not be simply blockchain-based records of a traditional contract created with a word processor; they will be dynamic computer programs that can enforce their own provisions.

For instance, a smart contract could be structured so that the download of a 3D printing design file can take place only after the contract has been approved by all relevant parties. Or it could enforce payment for parts and services immediately upon verification of successful installation. The possibilities are limited only by the imagination, creativity and willingness of the stakeholders to agree.

Digital transformation

Over the last 30 years, many organizations have gone through a process of reducing their supply chains to a more manageable number of participants. This may happen because a business doesn’t have the systems in place to intelligently track participants and keep records up to date. Or there may be a tremendous amount of overhead involved in finding new business partners, whether they are upstream suppliers, downstream distributors, customers or end users. Negotiating and agreeing on terms and conditions and executing the necessary contractual documentation can create even more overhead. The result is that many decision-makers feel they must live with the limitations of having just a few suppliers or other partners.

Over the next decade, however, supply chain will enter a new world. Networks will become much more flexible, dynamic and fungible. In the blockchain-enabled, self-configuring business ecosystems of the future, intelligent technologies will dynamically source new suppliers, distributors and even potential customers. And these tools won’t have to limit themselves to dealing with only the few partners who have been manually and laboriously set up in their systems.

Getting there

When embarking on a blockchain journey, it’s important to keep in mind that digital transformation is not about force-fitting new solutions — even one as powerful as blockchain — into an existing system; it’s about rethinking entire models and using any and all technologies needed to implement the new vision. An effective way to achieve this is via third-horizon planning. Traditional (first-horizon) planning is about the current core business, including enhancements and extensions, advancements to operational efficiencies, near-term process improvements, and so forth.

Typically, the first horizon encompasses the next six-to-12 months. Second-horizon planning addresses the intermediate future, looking out 12-to-24 months. The third horizon is generally three-to-five years, or more, depending on the size and complexity of the organization and its network. Whereas traditional business planning involves incremental changes to systems and processes, third-horizon planning starts with a longer-term vision of the future, providing a time cushion for changes to existing systems, processes, assets and infrastructure.

With third-horizon planning, the people and teams involved work backwards to determine what changes are needed to achieve objectives. This also enables them to rethink business models and processes in terms of what could be enabled by emerging technologies and to identify multiple possible future states. For blockchain-

related scenarios, they can determine what aspects of current business models will be retained, albeit updated and more highly digitized; what things they are doing today that will no longer be necessary; and what new things will add value for customers and markets in the near future.

In second-horizon planning, resources are diverted from current operational activities to fund intermediate term activities. The purpose is to develop necessary new business processes and technical capabilities to add to existing core operations. In this way, the evolving first-horizon (current) functions can merge with the emerging second-horizon (new) capabilities. Effectively integrated, this fulfills the third-horizon vision.

Finally, a strong vision of the desired future is essential to drive an organization forward with blockchain. To accommodate change, it is critical to revolutionize everything from mindsets, systems and processes to business models and ecosystems. Successful transformation will help ensure that the network will not merely survive the transition to blockchain, but also dramatically cut supply chain costs, reduce cycle times and increase efficiencies. Organizations that achieve these goals will be the leaders in the blockchain-enabled, digitally transformed supply chains of the future.

 

Jack Shaw is cofounder and executive director of the American Blockchain Council and an expert on the strategic business implications of blockchain technology. He has worked as a technology futurist for more than 30 years, helping others understand the impact of emerging technologies, particularly on supply chain management. He may be contacted at jshaw@americanblockchaincouncil.org

Shaw will present “The Blockchain Transformation of Supply Chain Management” at APICS 2018, which takes place September 30-October 2, in Chicago. Learn more and register at apicsconference.org.

Comments

  1. César August 24, 2018, 11:14 PM
    I'm very interest in learning abou blockchain.
  2. Chen Shu Ming September 07, 2018, 03:09 AM
    looking forward to seeing more reuslts delivered from the implementaiton of block chain. the previous automatic system like SAP, which could give strong function, but sometimes, they still can't reflect the real situation of market, the manual intevetion is needed to correct the system which still occupy resouces.
  3. Seung Soo September 27, 2018, 07:48 PM
    Expecting extended real time visibility for a  blockchain-based in Supply Chain.
    Currently, ERP such as SAP, Oracle, etc. has some legacy systems to get more information for logistics, manufacturing, warehousing and demand planning.
    But, sometimes we are faced with system problems such as I/F error, slow data transaction, security and so on.
    Blockchain in SCM could lead to help solve these issues

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