Blockchain drives supply chain transparency
Editor’s note: This article is the latest in a series looking at how supply chains, warehouses and manufacturing facilities are investing in technology. Here is the previous story.
While blockchain is often talked about in relation to cryptocurrency (and grabs headlines for it), it is already being used in supply chains to create greater visibility and transparency.
“If you think about the supply chain today, and the volume of paper and faxes and email and data exchanges and phone calls that actually support the process, it seems pretty obvious that if you could get enough people to streamline these things using a common system and a common application, you can get a lot of value out of that process,” said Scott Buchholz, managing director of technology research at Deloitte.
In “Innovation-Driven Resilience,” the MHI Annual Industry Report for 2021, MHI and Deloitte surveyed more than 1,000 supply chain professionals worldwide about supply chain innovation investments. They found that 10% of companies surveyed plan to invest in blockchain and distributed ledger technologies over the next three years. They also found that 12% have blockchain in use today, and 41% predict it will be in use within the next five years.
While its utility has already been seen in areas such as grocery and luxury goods, blockchain – and that level of true transparency – is not an easy sell. However, as technology grows, it could completely change the definition of supply chain visibility.
Blockchain increases traceability
Blockchain gained a foothold in the grocery trade, where knowing the source of a product can be a matter of life or death. The technology allows retailers to quickly find the source of outbreaks of pathogens such as E. coli.
Walmart, which uses IBM’s blockchain platform, says it can trace the source of mangoes in one of its stores in 2.2 seconds. Before, they needed six days. Not only does blockchain help a retailer quickly know where the outbreak started, but it also means they know which foods need to be destroyed, and which can remain on the shelves.
While important for consumer safety, if grocery stores allow consumers to access blockchain via a QR code, it could also give grocery stores a marketing boost.
“You see coffee beans on their own, and via a QR code you can see that these coffee beans came from this location during this type of activity. It gives you a story,” said David Furlonger, vice president and Gartner Fellow in Gartner’s managing director and Research group Digital Business Leaders.
Blockchain has also found a foothold in luxury goods, especially those where customers seek authenticity.
Hong Kong-based jeweler Chow Tai Fook sells diamonds certified by the Gemological Institute of America as meeting the requirements of the UN’s Kimberly Process, meaning they are ethically sourced. They use blockchain to digitize the diamonds’ certifications. “This is how we protect our customers,” Jade Tin Hei Lee, general manager of business analytics and technology applications at Chow Tai Fook Jewelery Group, told Deloitte for its “Tech Trends 2022” report. “With blockchain, they have full transparency about the journey and quality of their diamond.”
Who manages a decentralized system?
For the blockchain to work across the supply chain, everyone involved must add information about products to it, and make that information available to everyone else. “Not every organization feels comfortable sharing data with others,” said Arthur Carvalho, assistant professor of information systems and analytics at the Miami University Farmer School of Business.
Blockchain also faces the challenge of governance, he added, and must work through various fundamental issues. Who will own the blockchain system? Who will pay for it? And when the blockchain owner wants to make an upgrade, how does it work and how can it be coordinated across each supplier in the supply chain?
A company like Walmart can implement blockchain – as it did for 2019 for suppliers of fresh leafy greens – because of their dominance in the market. A supplier can say no, but then they could lose Walmart as a customer. “Walmart has so much power and influence and influence that they can go down to farmers and packers and say please adopt my system,” Carvalho said, and also provide software and subsidies to adopt it.
Successful use cases can build trust in the technology and lead to its adoption in other areas, Buchholz said.
“There will be waves of adoption that start with things like high-value jewelry or high-value items like food, and work their way down as costs fall and standards are adopted,” he said. “If you look at the history of adoption, it starts somewhere and grows from there.”
This story was first published in our Operations Weekly newsletter. Sign up here.
