Lars Magnusson, Business Architect, Deliver, Ericsson AB
Thomas Gaal, Supply Chain Innovation, RFS
Ray Ernenwein, Director, Supply Chain Strategy & Analytics, Walmart
Digital supply chains are the future and their data is at the center of value creation. The key element of digitization is to transition from a document-driven approach for controlling supply chains to a data-centric approach. However, if you can’t turn that data into something meaningful, timely, and trustworthy to a wide range of users, then it is just a vast, difficult-to-navigate sea of ones and zeros.
In the previous blog post from the Research, Innovation and Strategy Committee(RISC)’s Sensing Subcommittee, we discussed the internet of supply chains (IoSC). In the following post, we will address how blockchain can be the technology that enables the future of IoSC.
Enterprise Strategy View
Enterprises operating in the IoSC will require solutions to ensure the integrity and quality of the data used for controlling material flows. Monitoring will also be needed for the way data is used in application-driven processes and related infrastructure. The best approach to this is based on a distributed, hashed, and timestamped database: a blockchain.
Within a blockchain, transactions are chronologically recorded in a local, digital ledger. The ledger doesn’t exist in just one place. Instead, copies exist with and are simultaneously updated with every fully participating entity in the ecosystem. (Blockchain transactions can be more-or-less anonymous depending on how the technology is implemented, however.) The most recent set of transactions is known as a block, and each block is hashed and linked with previous blocks. The distributed, interconnected nature of the blocks is what enables the data to form an immutable chain.
A block could represent transactions and data of many types — currency, digital rights, intellectual property, identity, or property titles, to name a few. Some see blockchain as an answer to the internet’s lack of an economic layer that would facilitate payments, increase spending and allow for easier acquisition and transfer of digital content, but we see applications way beyond this.
The scalability of the blockchain solution has been proven, but we still do not see very many true public (open and distributed) blockchain solution platforms. The most known today is the Bitcoin application. Instead we see many private (closed and centralized) blockchain examples, limited to some specific ecosystems or enterprises.
Developing shared trust is the heart of blockchain. By giving an enterprise the ability to detect, withstand, respond to and recover from security attacks or breaches, data-centric security solutions provide the confidence to invest in digital industrialization. It provides enterprises with a way to answer some of the most difficult security questions in a networked economy - “Do you trust your data?” and “Do you trust the data provided to you by your supplier or partner?”
Supply Chain Strategy View
The main assumption for us is that we use the SCOR process and project model as the integration method to build an efficient supply chain solution. We describe this as Plan-, Source-, Make-, Deliver-, Return- & Enable elements, and use these to manage an applied flow of data for delivery of products and services.
Products and services primarily flow downstream. Finance payment primarily flows upstream. Globally, supply chains today encompass a total financial value of $40 trillion annually. Information flows in both directions, but many end-to-end information inefficiencies exist: data silos, incompatible systems, paper-based flows and uncertainty about the reliability of available data. Blockchain holds great potential to address these problems. Can it deliver?
The key challenges we need to address are:
- Information Security – How do I know that my data is untampered with?
- Information asymmetries – Why can I not get hold of all data?
- Lack of synchronization – We print, add/change information and re-type again and again?
- Uncertainty in event data – Did the planned event really occur?
- Unplanned flow disruptions – Why do my products not move?
A widely distributed, shared and public digital ledger technology, cryptography protected, with robust error and fraud resistance, would address part of this.
Supply Process View
Blockchain is a term used to represent an entire set of technologies. This will be described as a SCOR Version 12 Emerging Practice that is rapidly capturing the attention of many suppliers and buyers of goods and services. The technology is still in the early stages of its evolution and development.
A blockchain is more than just a decentralized digital ledger. It can contain data as well as transaction records. So, a blockchain can contain a contract, the mechanism for enforcing that contract, and a timestamped record of the contract’s execution without the help of a central authority.
Blockchain supports the building of trust by addressing confidentiality and availability of information. As the IoSC becomes a bigger part of daily life, a huge focus will be needed on preventing the loss of integrity of information, as well. Instead of being concerned about whether the data sent by a device is being observed by non-trusted parties, we are more immediately concerned with the question of whether it is being changed – can I trust the data?
Blockchain may also be the entry point for daring to move ahead with more advanced applications that use the data for control of my day-to-day business by predictive analytics & automation/robotics. If I do not trust my data, how do I dare to move ahead in moving into the data driven world of IoSC? How can I automate with self-executing processes and machine-to-machine communication if the data is not trustworthy?
The goal of automated supply chains depends on a smart contract enabling self-executing processes and machine-to-machine communication. How might we automate ordering, supplier negotiation, receipt and verification of material to invoicing?
Resource and Competence View
As with many internet-based technologies, there are a variety of obstacles to the widespread use of blockchain. The first and foremost is a lack of trust in new technologies and new unknown suppliers.
Many times, up-and-coming suppliers are young and very specialized, used to working in a bi-modal way, and are perceived as “untested upstarts” by the decision makers. A paradox in this is that supply chain management professionals routinely tolerate information inefficiency for lack of a practical alternative. Some may believe the new technology is too disruptive for today’s reality, but this should lead to questioning whether you can’t afford to not to take action.
Practical Examples of Blockchain Today
The RISC Sensing committee conducted some preliminary research into subjects to cover when prototyping IoSC solutions, and we have learned that the semantic approach based on SCOR creates data integrity, while blockchain solutions add trust. Bitcoin is among the best-known examples of an open, decentralized blockchain, but there are several other good examples the RISC Sensing team examined in our pre-study look into the state of blockchain technology implementation.
An important application of blockchain, especially within supply chain management, is the determination of product authenticity and origin. Blockchain helps to assure the customer that they are using legitimate products, helps validate the provenance of the source and ensures your company is using ethically acceptable materials. We can easily think about requirements for raw materials having a certain quality/grade, the spare part being genuine to your company or only using material from a factory certified to meet certain ethical standards. You can also prove the provenance of a product. At the source, you collect data and elsewhere in the supply chain the user calls up blockchain to validate data.
Walmart has piloted blockchain technology for product provenance when sourcing pork in China and mangos in North America. Prior to the blockchain implementation, it took the HQ procurement team more than six days to confirm the exact source on a package of mangos on the store shelf. After the implementing a blockchain solution in partnership with IBM, the entire farm-to-shelf history could be called up with two seconds.
There is work ongoing in the logistics industry called Trade Cargo Facilitation (TCF) to build applied use cases around the handling of critical data related to dangerous goods. The key element is the validation that mission critical or security data is not tampered with along the supply chain, as well as proving the authenticity of the issuer of certificates or documents.
The use of smart contracts is being proposed in the EU in a program named BAPISCO – “Blockchain-based Autonomous Processes for Industry 4.0 Smart Contract.” Its goal is to flexibly connect partners with data and contracts with an unprecedented level of automation.
Where May APICS be heading with Blockchain?
The APICS Supply Chain Council has a Special Focus Forum (SFF) group called, “Internet of Supply Chains” that was founded last year to create a learning platform and to run proof of concepts related to IoSC. The efforts were led by Nokia, Ericsson, Infineon, Rhode & Schwarz, SAP, Fraunhofer, and eccenca.
Has progress been made? Yes! The first proof of concept was developed for Semantic Web and Linked Data Technologies. Blockchain is high on the list for subjects to include in another upcoming proof of concept being developed. Also, the work products of this SFF are influencing the revision of SCOR now being developed. Future versions of SCOR will be an enabler and source of inspiration for creating data driven supply chain solutions.
With blockchain, intelligent and safe collaboration, rather than simple data exchange, through the internet of supply chains becomes possible and brings greater value to all supply chain partners.
Blockchain, Explained. MIT Digital.
Blockchain and Data Integrity. Ericsson.
Blockchain unleashed. IBM.
Smart Contracts. BAPISCO.
Why Everyone is Racing to Build Blockchains. Fortune Magazine.