Last week I wrote a blog: Blockchain - What does it mean for the Supply Chain?, and the response was quite overwhelming. Blockchain - or for the purposes of discussion distributed ledgers - seems to be topic of extreme interest for supply chain and trade compliance professionals. The click-through rate for the blog was well in excess of 14%, which is very high by industry standards. So, I thought I would follow it up with some additional thoughts on what it means for organizations.
The Blockchain benefit for the supply chain
The blockchain will have a dramatic impact on certain aspects of the financial and physical supply chains. Many smart people have considered (and are continuing to consider) potential use cases for blockchain technology where they believe meaningful results will be delivered. But, only the markets will determine which applications make commercial sense, and this won't be determined for quite some time.The area of finance, and particularly financial control, will be a big winner. The blockchain will help streamline the international payment process. Barclays Bank provided a real-life example of the benefit of blockchain with the settlement of a Letter of Credit transaction. Barclays reduced to 4 hours what historically took 7-10 business days to execute due to extensive manual intervention. Blockchains deliver enhanced financial performance and security by reducing opportunities for financial fraud and money laundering and vastly improving and simplifying the business to business payment processes. Validating and tracing ownership of a financial transaction reduce illegal financial activity. This, in turn, dramatically reduces the costs associated with validating transactions, dropping by a whopping of 30-40%. The benefits that blockchain brings to the physical supply chain fall more into the categories of “chain of custody” and “traceability”. These broad categories benefit from the blockchain because information currently maintained in silos across the breadth of the supply chain (across many tiers) when written to the blockchain become transparent to authorized users. In situations where product safety or ethical sourcing is critical to consumer safety or perception, the blockchain has significant impact and benefit to a corporation both in terms of productivity and reputational integrity. The jobs currently associated with validating supply chain information are significantly reduced when the blockchain is used.
There are many challenges ahead for Blockchain
Like all new technologies, there are many challenges to taking blockchain mainstream. There is a wonderful paper that helps explain the challenges: Integrating ERP with Blockchain for a Transparent Supply Chain. Some of the challenges highlighted are:
- Interoperability: How will enterprise systems, multiple databases, and the various blockchains operate? What are the standards that will govern all the blockchains so that they can operate collaboratively? There is no clear path at this time. These technological challenges will be addressed over time, if the past is any indicator of the future.
- Regulatory acceptance: Who will govern these blockchains? How will conflicting governing regimes mediate cross-jurisdictional issues?
- Validity of Information: How will the blockchain ensure the validity of information between partners and between blockchains? The entire success of blockchain technology depends on the confidence of the information stored on the ledgers.
- Latency of the blockchain: Currently blockchains are very slow to respond to queries for information. Enterprise systems deliver information in milliseconds while blockchains take 10s of seconds to minutes to respond. Latency in information accessibility influences the speed of technology adoption. The amount of computing power to overcome the latency challenge is substantial but given the speed of technological advances, this is not unthinkable.
So, what does the Blockchain mean for your organization?
The Blockchain provides opportunities for organizations to reduce their administrative cost associated with validating information or transactions.
- Whenever there is a need to validate information blockchain technology is invaluable. The blockchain automatically validates and executes information written to it without manual intervention. The costs associated with the eliminated manual process are a significant win.
- Traceable "chain of custody" financial, product, or equipment transaction ensure supply chain integrity. Traceable chain of custody results in a reduction of fraud, counterfeiting, and the sale of stolen merchandise. This eliminates 3 of the greatest controllable supply chain costs. Blockchains improve Food and Pharma supply chain integrity with traceable history of a product from source to consumer. Access to the blockchain streamlines product traceability to a matter of minutes from days and weeks.
- The information is tamperproof, and therefore reliable. Hacking and/or altering information contained on the blockchain is nearly impossible. Because of the distributed nature of the blockchain (distributed ledger) the information gets duplicated across all nodes in the network. Data integrity will provide a level of confidence across the supply chain community that will increase openness between participating parties.
The blockchain will not replace the ERP, WMS, TMS, or other enterprise solutions.
In fact, enterprise solutions will continue to be the backbone of the business for managing the actual activity of the business. Enterprise systems are critical for interpreting the information that resides on the blockchains and using it (the information) to support foundational business processes that support the operations and the reporting and analysis that enable optimal decision outcomes.Far from reducing the need for enterprise supply chain solutions, the blockchain will add demands on organizations to implement solutions that manage the physical supply chains and interact with blockchains. The fact that blockchains gather information from multiple supply chain participants is further evidence that the orientation for business is moving from the traditional enterprise perspective to a much broader supply chain perspective. The way a company manages its supply chain(s) is becoming increasingly important to its future success. As blockchain technology becomes ubiquitous, collecting and managing the vast amounts of distributed information collected by blockchains require solutions with a broad over-arching supply chain perspective. To effectively interact with blockchain ecosystems enterprises need supply chain-oriented solutions. These solutions have open architectures that facilitate communication with an array of blockchains. These supply chain solutions aggregate the disparate blockchain information and interpret that information into a single global perspective resulting in actionable activity.Can your organization meet the blockchain challenge? My next blog discusses a path that an organization can take, today, do set themselves up to quickly take advantage of the blockchain, however it evolves. Fortunately, the path to the blockchain is not difficult and the supporting solutions are available today.