Supply Chain

Your Supply Chain and Blockchain: Understanding the Relationship

This is one in a series of articles focused on blockchain and the supply chain. It specifically discusses how blockchains will impact your supply chain organization, and how it does (or does not) affect your future decision making.

Ned Blinick

February 1, 2018

Following on the previous blogs I wrote about the Blockchain, [The Blockchain...What does it mean for your supply chain"; Blockchain - and your Organization. What does it mean?]I thought I would conclude with some thoughts about the impact the blockchain will have on most companies.

To begin I believe the blockchain is a transformative technological breakthrough and will have major direct impact for some business sectors. Sectors where product or service lifecycle tracking, verification, or auditing is critical will benefit significantly. As I, and others have written, financial institutions, pharma and biotech, food organizations, high value consumer goods companies, will take advantage of the blockchain’s distributed ledger to increase security in their supply chains (financial and physical). The human cost associated with verifying and auditing transactions across the extended supply chain is very high. Blockchains enable these activities to be streamlined and the associated labor materially reduced.

But...

For most organizations the blockchain will have no direct impact. In fact, I would go so far as to say that in many cases, organizations will find that it is a net cost and of limited benefit. The blockchain will not meaningfully change the way an organization currently manages its supply chains.

Current technology provides the visibility, traceability, and audibility to manage virtually all products, services, or financial transactions across its first level supply chain. This means from sourcing to sale, from supplier to customer, from cash to cash.

Managing an “n” tier supply chain requires the integration of information from many more actors in the extended supply chain. Creating visibility across the end-to-end supply chain requires a platform where all independent actors participate and download/upload the specific information that they control. The source for the information that enables collaboration and integration for the extended supply chain is the blockchain. But, for a company, its interaction with the blockchain will be limited to “writing to” or “retrieving from” the platform. At the point where information is required by/from other actors in the supply chain, the organization may be required to interact with a blockchain.

For day-to-day supply chain operations the blockchain will have limited, if any, impact.

In almost all instances, a company’s daily focus is on delivering product to its customers. Great companies focus on ensuring that their supply chain processes are optimized to align customer demand requirements with company strategic fulfillment objectives. This requires constant focus on understanding the position of inventory, anywhere in the supply chain, to ensure these strategic fulfillment objectives can be obtained.

Optimizing the supply chain does not depend on blockchain.

Supply chain optimization depends on 3 basic elements: Product/SKU visibility throughout the supply chain lifecycle; financial supply chain visibility; and, analysis and management of demand/supply signals. None of these elements require blockchain in order for a company to optimize its supply chain.

Product/SKU Visibility:

To achieve total product/SKU visibility requires a platform that enables data to be acquired from internal or external supply chain actors and presents the information in a meaningful and contextualized manner. Taken even further, when the information is properly contextualized it creates digital visuals of a product/SKU inventory status throughout the supply chain. Visualization is extremely powerful because it provides for much more information to be presented in a way that data reporting cannot.

  • Blockchains capture incredible amounts of detail about a product/SKU at a point and string that information together to form a linear presentation of the lifecycle of that product/SKU. But, they do not present a comprehensive picture of the aggregated position of the product/SKU to support inventory optimization across the supply chain network.

Financial Visibility:

The financial supply chain is parallel to and dependent on the what is happening in the physical world. A company that deals in products, as opposed to services, benefits when the product/SKU detail are converted into financial perspectives allowing the company total visibility into its current cash position and future requirement demands.

  • The blockchain, provides a focused lens on a specific transaction, enables validation of that transaction, and provides visibility on the history associated with that transaction. But, the blockchain does not provide the full picture from a supply chain perspective as to the immediate financial commitments or future financial demands on the organization.

Supply Chain Analytics and Decision Support:

A business lives and dies on its ability to interpret what is happening in and across its supply chain networks. Having enough data to draw the right inferences and paint the multi-dimensional, colourful, and contextualized picture requires the ability to capture the information, analyze it, and provide the context to support decisions and ultimately lead to correct actions. The rise of artificial intelligence in the supply chain is directly related to the ability of a company to capture enough data to support the automation of the decision support process.

  • The blockchain is a powerful tool to capture incredible amounts of data. But, the blockchain does not provide the tools to analyze the data and support the decision making processes, whether through human or artificial intelligence.

Confusing Blockchain and Supply Chain

So, for a company in some industries the blockchain represents a powerful tool. The blockchain provides visibility, at a specific moment in time, to an action that occurred in its extended supply chain . For the average company access to that "moment in time" information is only important when there is a unique event that demands historical and extended supply chain information.

However, for most companies, success is dependent on supplying products to customers or consumers cost effectively and on-time. Managing supply chains is more critical to organizational success than having historical context of a specific transaction at a point in time.

If there is no clear perceived benefit from the blockchain, it is better for the company to focus its resources on optimizing the supply chain to deliver its products to meet its overall supply/demand strategy.

Solutions, like 3rdwave, that deliver planning, optimization, execution, and decision support capabilities...are available today, without the blockchain.

There is lots of press focused on the blockchain and its capabilities. Much of the reporting is very informative, but the way it is presented is often bordering on “hype”. It is important for management to understand the position the blockchain provides as a tool and its potential positive impact on daily operations. The blockchain provides significant promise for managing certain specific business issues like traceability, auditing, and validation. But, does it improve daily operations? If the supply chain is the core competency of a company, understanding how blockchains deliver real value to supply chain operations is a very important strategic corporate decision.