Every day my inbox has at least one reference to blockchain and how it is going to revolutionize supply chains. There is no denying that blockchain technology will radically change the way global supply chain information is managed. But, and I think it is a major but, it is important for supply chain professionals to understand what blockchains do and where in the supply chain they will have an impact.
I wrote several months ago on the blockchain (Your Supply Chain and Blockchain: Understanding the Relationship). But with all the on-goimg announcements around blockchain I feel it necessary to revisit the topic and shed a more sobering perspective on the breadth, depth, and limitations of this great technology.
Blockchain - What does it mean for the Global Supply Chain?
In the past six months it appears that the global supply chain has been radically transformed by blockchain. It appears that blockchain solutions are ubiquitous and are driving supply chain transformation at an incredible rate. Large companies from information solutions providers (IBM, Microsoft, Oracle, etc.) to carriers (Maersk), to retailers (Walmart), to manufacturers are all getting on board. Many smaller IT providers are launching solutions (or promising to launch solutions) that will revolutionize the way supply chains are managed (see shipchain.io and sophiatx.com).
The reality is that there are many consortia being created to do R&D and explore the viability of blockchain as a truly commercial solution for the global supply chain. However, as of today there are no broadly implemented blockchain solutions in practice.
Is Blockchain in the Global Supply Chain really Prime Time?
The answer is definitely not. The fact is that there are many large, medium and small IT companies that are exploring how to commercially introduce blockchain for broader supply chain use. There are many organizations that are spending lots of money on research and development to determine the viability of blockchain across the broader supply chain. But blockchain is still in its infancy and not truly commercially implemented.
Will Blockchain revolutionize the Global Supply Chain?
There is no doubt that blockchain technology holds significant promise for managing global supply chains. There are a growing number of examples of how blockchain is delivering solutions that have the promise on a commercial scale and will transform the way supply chain information is managed and controlled. There are many presentations on line that help explain the value that blockchain will deliver.
These arguments have previously been made with EDI, which took 30 years to get going, and never really made the leaps forward that were initially promised.
In order to understand the blockchain revolution it is necessary to get a handle on what blockchain does and does not do.
What does Blockchain deliver?
Without going into the mechanics of blockchain (see blog posts here, here, and here) it is fair to say that blockchain will truly revolutionize and streamline transaction authorization, validation, and authentication. This has exceptional benefit in reducing the amount of time that is currently required to execute inter and intra company transactions. For those companies that are involved in handing-off information that requires validation the efficiency gains are very promising.
It is estimated that the ability of blockchains to use its distributed ledger and smart contracts to automatically ensure transaction authenticity will result in organizations validating international payments, documentation, and product integrity as much as 80-90% quicker and with as many as 50% fewer employees. This promise is already evidencing itself in the insurance and banking, transportation, pharmaceutical, and high end consumer goods sectors here transaction validation is important, if not critical. Microsoft published a great paper on "How blockchain will transform the modern supply chain" which provides a meaningful primer.
The benefits of blockchain will be significant if streamlining operations, reducing costs of operation, increasing cash flow, and freeing up cash. The financial benefits will be meaningful and provide organizations with real tangible value.
What Blockchain doesn’t deliver.
- While blockchain holds out significant promise for transactional, validation, and authentication across many aspects of the supply chain, it is not a replacement for operational and trade compliance information systems.
- While it will greatly increase the amount of validated inofrmation it will not provide the context that is necessary to provide the perspectives that enable meamingful decision support.
- While blockchain will provide visibility into transactional data, it will not provide visibility or visualization of product inventory across the global supply chain - at rest or in-motion.
- It will enhance decision processes by ensuring much more timely and accurate data. However the operations and trade compliance systems necessary to communicate and translate the data into meaningful and actionable information to insure that product moves unhindered through the global supply chain will not be revolutionized.
At the risk of being proved wrong, I would say that based on the current uses of blockchain, its ability to shorten the physical supply chain is limited. The lead times and transit times necessary to prepare and move goods are limited by real physical constraints that the blockchain cannot address. Like all new technologies there is much promise. However, that promise will only be recognized when the major industry players - and you can read very large industry players - coalesce around the technology and force its application across its supply chain community. This will take years.Should a company be interested in the promise of the blockchain for the supply chain? Absolutely. Should a company be following the trajectory of the implementation of blockchain in aspects of their industry? Without question. Does a company need to get on board now to participate in the blockchain revolution? Unless there are clear commercial reasons to jump on board the blockchain express I would move with measured caution and speed.