Blockchain has been heralded as a revolutionary technology for Fintech. But it’s not restricted to Fintech. It also has many applications for supply chains. And some of these applications are potentially transformative.
Some media reports, however, would have you believe Blockchain can run your supply chain on auto-pilot. No more surprises. No data lapses or inaccuracies. And total data security with end-to-end visibility.
It sounds like it’s a complete enterprise solution. Almost like a magic bullet.
But let’s not rush headlong into investing in Blockchain. Let’s take a deeper look at what Blockchain can deliver. Let’s separate fact from fiction and look into the promise vs. the reality.
To start with, we need a clear definition of Blockchain. Put simply, blockchain technology is “ …a decentralized, distributed ledger that records the provenance of a digital asset”. (Blockchain.com). At its core, Blockchain increases visibility and transparency across a supply chain.
Blockchain is also known for tight security. One of the most famous claims is it’s un-hackable… we’ll get to that later.
First let’s see why there’s a groundswell of support for Blockchain. Who’s buying into it? What benefits can you expect? And finally, what you really need to know – what are Blockchain’s constraints?
Useful Blockchain Applications for Logistics and Supply Chain
As mentioned above, Blockchain started out in Fintech. And it’s had its ups and downs. But now it seems to be gaining ground in the Fintech community.
Now, businesses are considering other applications. And logistics seems to be an ideal fit. In fact, Blockchain has many potential uses in logistics. Here are a few key areas that could benefit from the application of Blockchain:
- Supply chain visibility – End-to-end visibility provides real-time status of a part/product. Protects the chain of custody for parts/products that move across borders. This includes identifying all segments of the supply chain, from origin to destination.
- Supply chain data – Since Blockchain is a decentralized, distributed ledger, data errors are significantly reduced. This reduces time spent on data auditing and data cleansing. This leads to enhanced trust in data accuracy. It also improves data availability making it more readily available, expediting transactional processing.
- Smart Contracts – Blockchain can improve contract compliance rapidly in a more secure and dependable way without third party intervention. It self-executes and fill gaps in procure-to-pay digital payments. And it makes payment immediately visible to all network members.
- Data Analytics – With improved data accuracy, you can achieve better analytics and reporting. Accuracy of data analytics data and reporting leads to better decisions. This can translate into better performance, reduced risk, and increased revenues.
- Cold Storage Warehousing – Working with the Internet of Things (IoT), you can track, regulate, and record temperatures of cold storage products. This can improve safety as well as accountability of food in the supply chain.
These are five areas that show promise for useful employment of Blockchain. Now let’s look at some of potential benefits.
Benefits You Can Expect from Blockchain
There are many hyped up benefits attributed to Blockchain. Here are some realistic benefits you can expect from Blockchain.
- Speedy and streamlined administration – can improve operational efficiency. This can enable reduced audit time of supply chain data by up to 85%. In one case, an audit of data declined from 1 week to 1 day due to near-/real-time data updates to the network. (Deloitte Report, 2017)
- Reduced administrative costs – can achieve of reduced costs from the elimination of third parties, such as lawyers, in executing smart contracts and timely data sharing.
- Risk Reduction – can enhance visibility and data accuracy throughout the entire supply chain network improving safety and security of each transaction.
- Enhanced trust – eliminate losses through increased transparency; OECD estimates revenue losses of $450 billion due to counterfeit trade.
- Improved Brand – can increase credibility and public trust. Benefits derive from reduced risk that come from higher data accuracy and availability.
Plus, these benefits also may help drive innovation. As you look for solutions to existing problems, Blockchain may offer new ways of solving legacy problems. It offers the chance to transform logistics best practices.
Instead of focusing on improving existing business processes, you can positively disrupt them. Blockchain might enable you to leapfrog competitors. In any case, Blockchain offers great promise in tackling issues plaguing supply chains.
Who’s Buying into Blockchain
Adoption of Blockchain requires cooperation of the stakeholders in your supply chain. It is not a technology that works alone. That said, many unique projects are underway to explore and adopt Blockchain.
Among the leaders are Microsoft-FEDEX, IBM -Maersk, and CargoX. All three are developing standardized Bills of Lading. The former two are private projects that will serve FedEx’s and Maersk’s supply chains.
The latter is developing a public supply chain that will benefit anyone. The difference is that CargoX is developing standards that the IGP&I or International Group of P&I Clubs. An international consortium, IGP&I shares insurance and liability information that include 22 of the top 2 reinsurers.
Another association leading the foray into Blockchain is the Blockchain In Transport Alliance (BiTA). Only three years old, BiTA is the industry’s largest commercial blockchain alliance. It has almost 500 members spanning 25 countries.
Headquartered in Chattanooga, TN, BiTA’s mission and membership are broader than CargoX’s. BiTA focuses on developing industry standards and education about blockchain applications/solutions.
Its members come from a wide variety of organizations. They include organizations from transportation, logistics, supply chain, freight, technology and blockchain. Members include BNSF, Daimler, Delta Airlines, JB Hunt, UPS, and many more.
Constraints to Consider Before Investing in Blockchain
Blockchain seems promising, given the many potential benefits. Also, the myriad of industry stakeholders engaged in testing suggests great interest. But before investing:
- Lack of Industry standardization – Standardization remains elusive. Yet it’s a necessary to successful adoption. Two primary factors serve as obstacles: the number and variety of supply chain partners and the number of data gaps in a supply chain.
- Fragmentation –Lack of standardization, has spawned many independent efforts by various industry stakeholders.
- Lack of maturity– Blockchain is still in testing. That means it is not yet a robust technology ready for industry-wide adoption.
- Control over Suppliers/Manufacturers – This helps ensure quality control and compliance with contracts. This is important as sustainability grows in significance in supply chain management.
- Integration with existing systems – To realize full potential, Blockchain requires end-to-end integration. Integration is not easy any way you look at it. It calls for integration with existing systems – yours and your partners.
- ROI – Stakeholder are still testing use cases via limited pilots. To date no one has provided solid evidence showing Blockchain’s potential value. Showing ROI as well as other potential benefits requires more testing.
- Requires stakeholder collaboration – This is not a solution that works independent of supply chain stakeholders. It is an interdependent solution that takes a team. This requires buy-in from many stakeholders all along the supply chain.
- Cybersecurity concerns – Although touted as un-hackable, hackers have cracked Blockchain’s code. It’s hackable! Since 2017, cryptocurrency theft has risen, totaling $2 billion in stolen crypto currencies. Also, hackers have exploited bugs in smart contracts. To assess Blockchain’s true security risks, these flaws demand further investigation.
Taken one by one, each limitation is hard to crack. Taken as a whole, these limitations put its potential into better perspective. To achieve the promise and the benefits, you need a strategic road map as well as a unified collective effort.
Blockchain Boiled Down: Fact vs. Fiction
In a nutshell, Blockchain offers promise but it has limitations. At this point, Blockchain is evolutionary rather than revolutionary.
It offers data sharing across a vast enterprise occurring in real-time/near real-time. Additionally, it would enable a high degree of data accuracy and transparency. That, in turn, would lead to increased trust among trading partners. And that would promote international trade.
Moreover, it must fit into a business strategy with benefits for all stakeholders. Yet, to date those benefits have been difficult to verify.
Blockchain technology, when properly implemented has the potential to create significant value. But it’s not as easy as the media hype would have you believe.
That’s because it’s not a simple, single technology solution. It’s a technology solution with various applications. And it requires a team to make it work. Finally, it will only work when you’ve identified the vision and strategy for your business.
American Global can help you reduce your risk through identifying a vision and strategy for your business. We make it our business to anticipate what’s around the corner.
Before jumping headlong into a Blockchain solution, contact us to see how we can help you maximize your investments? We’ll focus on your strategic objectives to give you an edge over your competitors in today’s uncertain and competitive market.