Blockchain In The Supply Chain: Too Much Hype

Blockchain is the technology behind Bitcoin and other crypto currencies.  Blockchain is a protocol for a digital ledger that enables proof of ownership and the transfer of ownership from one entity to another without using a trusted third party intermediary (like a bank).  The value that is transferred can also move through an extended supply chain while ensuring that what occurs at each point in the chain can be chronologically recorded.

In logistics, the best known blockchain pilot program involved Maersk and IBM. It centered on creating a digital distributed ledger to create a single electronic place where all the myriad documents related to a shipment could be housed.

In one projected pilot by a company called T-Mining, the blockchain will give clearance for personnel – like a truck driver – to pick up a load. One of the key advantages of blockchain is that it is much, much more secure than traditional IT solutions. A relatively recent trend in logistics is fictitious pickups.  These occur when con artists show up at a shipper’s dock, provide fabricated insurance documents, DOT numbers for trucks, and pickup documentation.  It is argued that blockchain could help prevent these kinds of thefts.

On organization called Kouvala Innovation has an even more audacious vision.  Pallets with RFID tags would communicate their need to get from point A to point B by a certain date. Carrier “mining” applications would bid for the right to move that load. The RFID tag would award the business to the carrier that bests meets a shipper’s price and service needs. Then as the move progresses, the blockchain would continue to track the shipment.

It is also thought this technology could be effective in enhancing food and drug traceability and for reducing costs associated with factoring.  Provenance, a U.K. software startup, looks to use blockchain technology to establish the authenticity of food. Provenance is testing the technology to authenticate tuna caught in Indonesia delivered to Japanese restaurants. Provenance takes information from sensors or RFID tags and records it on the blockchain to track the fish from “hook to fork.” IBM is also interested in food traceability, and has announced a consortium with several major food producers and retailers.

The Sweetbridge Foundation, a non-profit governance body, is aiming to use blockchain to lower the cost of doing business in global supply chains.  In global supply chains, it is common for a big firm to buy goods from small manufacturers, but then to pay the suppliers slowly.  These suppliers must engage in price factoring arrangements to insure they have enough cash flow to continue operations.  This increases costs not only for the supplier, but across the end-to-end supply chain. Blockchain, this organization argues, could greatly reduce the financial costs associated with strategic procurement.

Blockchain has great advantages in terms of cybersecurity, but you might have noticed, that much of what is being discussed are betas scheduled to occur at some point in the future. Harry Forbes, a Research Director at ARC Advisory Group, points out that there are several challenges associated with maturing this technology for supply chain purposes:

The technological talent is scarce and expensive; much of it has been scooped up by fintech startup firms.

There are network effects associated with deriving value from blockchain in logistics. The more entities that participate, the more valuable the solution is. But this network effect makes things difficult at the start.

It is likely that to get to scale, large companies will need to require their supply chain partners to participate. But this could hinder the drive to create the necessary standards. Further, while several organizations are seeking to play the necessary role of standards body; none has yet achieved the necessary scale.

“Miners” are used to validate that the data added to a blockchain is valid. With Bitcoin, this process can take several minutes. There are supply chain processes where less latency would be very desirable.

In summary, blockchain is an interesting technology. But it may be the least mature of all the technologies described in this report. On the other hand, because blockchain is a back-end technology, most companies don’t need to proactively invest in exploring its value.  We will know the technology is mature when people don’t even use the term “blockchain,” much as people don’t use the term TCP/IP when talking about their use of the Internet. If the technology does mature, the providers of Public Cloud supply chain solutions will be adversely impacted.

By Steve Banker
Steve is the Service Director, Supply Chain Management at ARC Advisory Group, a leading industry analyst and technology consulting company. I engage in quantitative and qualitative research on supply chain management technologies, best practices, and emerging trends. I’ve been published in Supply Chain Management Review, have a weekly column in Logistics Viewpoints (www.logisticsviewpoints.com), and can be followed on Twitter @steve_scm or contacted at sbanker@arcweb.com.