The Future of Blockchain in Supply Chain

APICS Magazine August 2018
Jack Shaw

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.