Why Blockchain is Stalling in Supply Chain Management

    Posted by Sean Elliott, CTO on Dec 12, 2019 9:00:00 AM


    Blockchain technology has the potential to drive efficiency and transparency in the supply chain — so what’s the hold up?

    Blockchain technology first emerged over a decade ago as a tool to support Bitcoin.[1] Managed by a peer-to-peer network, it serves as a digital ledger for verifying and recording transactions. The “chain” is made up of a series of time-stamped, immutable “blocks” of data with no central authority. In this way, blockchain is a uniquely democratic and transparent record.

    Since its creation, the technology has gained traction and is now being recognized as a tool capable of revolutionizing a wide array of industries, including manufacturing, transportation, retail, healthcare, and beyond. 

    The benefits of blockchain are vast and varied. From a supply chain standpoint, blockchain technology provides an unparalleled sense of transparency and trust. Today’s products pass between dozens of supply chain partners before they land in the hands of consumers. To remain efficient and cost-effective in this type of environment, manufacturers need access to verifiable data pertaining to their products’ status at any given point in time. Blockchain provides manufacturers with these in-depth insights as well as highly-secure information regarding payment processes, SLAs, and beyond. If there’s a datapoint manufacturers need, their blockchain supply chain will have it.

    So which industries are making the most of blockchain technology, and why are others holding back? Let’s examine a few blockchain supply chain use cases to find out.

    Putting Blockchain into Supply Chain Management

    While a host of industries can benefit from blockchain technology,automotive industry the — characterized by its highly complex supply chain — may have the most to gain. In fact, an estimated 62 percent of automotive executives believe blockchain will disrupt the industry entirely by 2021.[2]

    Every day, the automotive industry relies on thousands of parts to produce a vehicle. These parts pass between five, 10, and even 12 different inter-continental hands before a final product is sent to market. It’s easy to lose track of data during such circumstances, and even more difficult to ensure that data surrounding shipping and delivery dates, tariffs, serial numbers, and beyond is accurate. With blockchain, automobile makers can securely trace each and every transaction, gaining a complete picture of their supply chain landscape. That means they no longer have to question whether the shipment dates they’ve received for a particular part are accurate or whether the port clearance information is correct. Uncertainties of this nature can bring productivity to a grinding halt.

    Current food industry supply chain management practices also stand to benefit from blockchain technology. Take the 2017 and 2018 romaine lettuce scares, in which hundreds of individuals were impacted by an E. coli outbreak.[3] Pinpointing the exact source of the contaminated lettuce proved near impossible during these outbreaks. In an effort to protect more people from harm, the FDA banned all romaine lettuce harvested and processed within a specific time period. Profits plummeted as a result, but, without access to in-depth, accurate insights into the exact source of the contaminated produce, it was the only way to keep consumers safe.

    Incorporating blockchain technology into food industry supply chain management processes provides distributors, manufacturers, and the FDA with an unparalleled level of transparency. It lets them know which farms their products come from, the processing plants they ship to, and the retail floors they arrive at. Being able to track each product’s journey in this way helps supply chain partners hone in on the source of a contamination outbreak, reducing the number of individuals impacted and helping protect the bottom line.

    Barriers to Blockchain Implementation

    So if blockchain can boost profitability, keep consumers safe, and increase efficiencies overall, why aren’t more manufacturers jumping on board?

    Blockchain is an ecosystem technology, meaning that its value hinges on the number of supply chain partners that implement it. For example, if a major automaker brings its raw materials manufacturer into the blockchain, but not its sub assembler, then the blockchain can’t display a complete picture of the automaker’s supply chain. For blockchain technology to truly be effective, every participant must be integrated into the process.

    Part of the challenge is that, unlike electronic data interchange, blockchain is not driven by any external standards body. There are no laws requiring supply chain partners get involved and, as a result, far too few are. It falls on the shoulders of major corporations within the supply chain to push blockchain technology into the spotlight. Because the value of blockchain is only relevant if all supply chain participants are in the network, it’s up to large corporations like Walmart and Amazon to select suppliers, resellers, transportation partners, 3PLs, and other partners in their respective supply chains based on blockchain capabilities.

    The Future of Blockchain in Supply Chain Management

    As blockchain continues to advance, many companies are also turning to this tool to drive sustainable supply chain management. In fact, blockchain technology can be used to identify and eliminate unnecessary waste within the supply chain — especially when it comes to the food industry. It also allows manufacturers to cite, with accuracy and honesty, the origin of their products — a data point that many sustainability-driven consumers are now demanding to know.[4]

    But that’s not all for the future of blockchain. As international trade agreements continue to evolve, blockchain technology serves as a powerful tool for evaluating the effectiveness of each new wave of regulations. These platforms provide trusted transparency surrounding the financial circumstances of those supply chains, making it easier to report on their macroeconomic impact.

    Blockchain has also seen success as an intraorganizational tool. For instance, companies like Amazon, Microsoft, and IBM are using the technology to build authentication and identity verification solutions. This enhanced security is increasingly important to consumers as the threat of hacking continues to rise. In addition to identity verification, blockchain has the potential to establish transactional integrity for companies like Unilever that regularly transition products across different business segments.

    It’s clear to see that the path forward for blockchain is bright. Companies like Walmart and Cargill are beginning to embrace the technology — and inspiring others to follow suit.[5] These businesses are reaping the benefits of a blockchain revolution, improving supply chain execution and driving greater value. Now it’s up to other innovators to follow their lead.

    Topics: supply chain, blockchain