Is BlockChain still a big deal for SCM?

In October 2018, ?I published Why Blockchain is a big deal for Supply chain management which described what blockchain is about, the motivation to use it ?and some of the initial applications in supply chain management (SCM). Given the accelerated interest and investment in blockchain and the heightened visibility of supply chains since then, I was curious to revisit the topic and see what has transpired. ?

Blockchain, the distributed ledger technology that underlies cryptocurrency, enables entities who do not trust one another to collaborate in a meaningful way. The extended ability to create smart contracts can streamline complex processes and the technology provides an opportunity to have a “single point of truth” for transactions that require multiple steps and partners.

Therefore, Blockchain technology has the potential to eliminate intermediaries and speed up transactions while providing trust and a permanent record. The technology is well suited for tracking assets and can be used to store and transfer ownership of goods. Therefore, this is a seemingly good match for SCM where there are many transfer points between different parties and the need for validation. You can well imagine application of this technology for tracking, authentication and supplier management.

The major challenge with Blockchain implementation has been the immaturity of the technology, the higher cost compared to traditional centralized database solutions and the justification of using this more complex technology between trusted parties.

However, it seems like there is quite a lot of progress in the use of blockchain and in the creation of the supporting infrastructure.

We will look at the progress in the underlying technology, infrastructure for enterprise deployment and major applications.?

Underlying Technology ?

Blockchain is best known as the underlying distributed ledger technology used by?Bitcoin , which is a cryptocurrency, a form of electronic cash. It supports decentralized digital currency (crypto) that can be sent from user-to-user on the peer-to-peer bitcoin network without the need for intermediaries.?

Blockchain technology is a distributed ledger that provides every participant with the same record of all transactions, so tampering with one instance is impossible. The cryptography that underlies it allows agents to securely interact while also guaranteeing that once a transaction has been made, the blockchain remains its immutable record.

This contrasts with a central database or ledger that is typically owned and managed by a single party such as a bank. Databases are susceptible to hacking because there is only a "single point of failure". Databases are also siloed, provide limited access and can become inconsistent.

One of the main challenges with public blockchains is the need to protect them from bad actors. Therefore, they require strict validation of new transactions which is costly in terms of resources as well as resulting in a networks that are both slow and expensive to maintain.?

While public blockchains are typically advertised as completely decentralized, private blockchains have more tightly controlled permissions while still maintaining the decentralization principles.?

Given the nature of a private blockchain, attacks would come from validators that are known to the network, since only validators with permission to participate are able to. Therefore, there is a reduced reliance on crypto economics to create incentives and disincentives for validators, as they were specifically granted access to the network. Private blockchains also have the capability to blacklist certain users. Additionally, the predetermined controllers of the network can very easily make changes to the blockchain if needed. Due to the smaller number of contributors to the network, transactions are often not as energy intensive, process faster, and faults within the network are more easily rectified. The tradeoff is the lack of transparency and decentralization.

An important development for Blockchain has been the addition of smart contracts which are protocols that execute, control or document legally relevant events and actions according to the terms of a?contract.?The objectives of smart contracts are the reduction of the need in trusted intermediators, arbitrations and enforcement costs, fraud losses, as well as the reduction of malicious and accidental exceptions.

Most, if not all, implementations of blockchain in the supply chain are private networks that use smart contracts. For example, ?IBM Food Trust 's blockchain is permissioned so invited members know exactly with whom they are transacting, similar to what happens between business partners today. Participants also determine what data is seen by whom, thereby providing information on a need-to-know basis. Smart contracts also run on the?Food Trust blockchain, allowing business logic to help solve disputes, automatically execute contracts, and build trust.

The most recent important development in the blockchain world is the Non-Fungible Token (NFT) which is a unique?and non-interchangeable unit of data stored on a?blockchain. Fungibility refers to the ability of an item to be interchanged with other items of the same type. Cryptocurrency coins are fungible because they are interchangeable. But NFTs are non-fungible because they are unique tokens (representing digital assets) that cannot be interchanged with other tokens.

When an NFT is minted, the NFT is recorded on the blockchain, including a contract which specifies its terms of use. Therefore no one can unilaterally modify the record and terms of ownership associated with an NFT. The current market of NFTs is mostly in collectibles, gaming and metaverse. ?

NFTs can also be minted to record ownership of any unique asset including NFTs corresponding to items in the physical world, such as a property deed or art work. These NFTs can be used to conduct transactions or represent those items in a virtual environment. Therefore there is a vision that this could be an application for tracking and authentication of physical goods in the supply chain. One early example is Blockbar , the direct-to-consumer NFT platform for wine and spirits.

?Infrastructure

Three years ago it was expected that there will be many?blockchains both private and public ?and they would need to interact so there was work being done to standardize the architecture such as the?Enterprise Ethereum Alliance . ??However, Ethereum has performance issues that make it unfit for enterprise applications which brought about the introduction of?Hyperledger , an open source collaborative project hosted by The Linux Foundation, supported by IBM, Intel and other companies.

Hyperledger Fabric is one of the Hyperledger projects intended as a foundation for developing applications or solutions with a modular architecture. Hyperledger Fabric allows components, such as consensus and membership services, to be plug-and-play. It leverages container technology to host smart contracts called “chaincode” that comprise the application logic of the system.

Given the complexity of enterprise blockchain solutions there are companies who are focused on the middleware layer in order to make implementations easier, connect with existing systems and support various related technologies.

Some examples:

Finboot a middleware platform, MARCO, that integrates with multiple blockchains including Ethereum, HyperLedger Fabric, Quorum, or Cardano, making it blockchain-agnostic. MARCO builds on these ledgers to provide authentication and corporate oversight systems.?The company works with many European companies who want to make sure their supplier networks are compliant with Environmental, Social, and Governance (ESG) requirements. It allows companies to manage private blockchains with varying currencies and standards across a wide variety of supply chain partners.?

Morpheus.Network , ?a supply chain ecosystem with the ability to extend itself on top of existing industry technologies through its blockchain technology. The Morpheus.Network platform exists on the cloud in between blockchain and IoT, with the potential to be integrated with different technologies and devices in one single format. One customer is China-based heavy machinery manufacturer HUAIAN Effort Machinery Corporation Limited ?who is using the the technology to help them with physical asset traceability for equipment .

Supply Chain Applications:

There has been continued activity around blockchain applications focusing on a few main areas: food traceability, authentication of items such as diamonds and luxury goods, supplier management and global transportation. Many of these involve consortiums that are working together to implement blockchain solutions in their industries. ?

Food traceability

There is quite a lot of attention to this area due to concerns about food safety. The FDA’s?New Era of Smarter Food Safety initiative ?is to achieve end-to-end traceability – from source to table – throughout the food safety system. The FDA wants to explore ways to encourage firms to voluntarily adopt tracing technologies and harmonize tracing activities, working toward outcomes that are achievable for all sectors of the system producing human and animal foods. To that end, the FDA’s Low- or No-Cost Food Traceability Challenge winners were announced in September 2021 and many of them are using blockchain.

One example is Wholechain , a blockchain platform, which originated at Mastercard. Because of Mastercard’s expertise in finance, its technology has built-in capabilities such as anti-fraud protections for processing digital payments. It is designed to capture an immense set of data from each company along the chain, and create a unique, code-protected record to shield the data from hackers.

In September 2018, Walmart issued a mandate ?that will require its direct suppliers of lettuce, spinach and other greens to join its food-tracking blockchain by Jan. 31 2019. Farmers, logistics firms and business partners of these suppliers join the blockchain by Sept. 30, 2019. The supplier push came after 18 months of testing the IBM Food Trust blockchain. Tests to trace berries, mangoes, baby food, chicken and other foods have produced a?more complete view of the food system?than under current federal regulations, according to?Nestlé?SA, Dole Food Co., and other participants in the project.

TE-FOOD ?is the world’s largest publicly accessible, farm-to-table food traceability solution. Started in 2016, it serves 6000+ business customers, and handles 400,000 business transactions each day. Their farm-to-table system is live and fully operational. Their commitment is to improve food safety, stave off corruption, and support fair trade while building trust between food supply chain companies, consumers and authorities.

HerdX allows ranchers in the meat industry to strengthen trust with the end consumer by illustrating a transparent product journey. The HerdX Taste of Trust solution integrates tracing technology at the source and tracks it through the entire supply chain to the end retailer. Guests at restaurants such as The Dienger in Texas , can scan the HerdX QR code on the menu to meet their rancher.?

Authenticity

Product authenticity is an important factor in purchasing and blockchain provides a way to do so. Some examples:

Everledger , Founded in 2015, Everledger created a diamond supply chain platform with blockchain that integrates and enhances data from miners, manufacturers, certification houses and retailers. It also has a facility for consumers to view information like diamond characteristics and ownership. The company now covers other industries such as apparel, art and luxury goods.

LVMH, Prada Group, Cartier, part of Richemont, and OTB Group founded the Aura Blockchain Consortium? which makes it possible for consumers to access product history and proof of authenticity of luxury goods – from sourcing to sales, all the way to second-hand markets. The tech platform allows blockchain technology to be accessible to all partners irrespective of size while maintaining the flexibility to address the specific needs of each brand.

?Supplier management

Supplier management is a complex process that can be enhanced with new technology. Some examples of pieces of this process being implemented with blockchain:

The Mediledger Network aligns trading partners in real-time on pricing contracts, eligible customer lists and customer identity data, such as HIN, DEA and?340B?identifiers. This data is then used by the blockchain to automatically enforce chargeback accuracy, eliminating most of the errors and escalations that create manual effort for suppliers.

Retail giant Target has quietly entered the blockchain space . Since mid-2018 the retailer has been working on a blockchain-powered solution for supply chain management, dubbed?ConsenSource . The The ConsenSource project, which Target open-sourced in 2019, was primarily focused on the certification of suppliers for the company’s own paper manufacturing.

Cargill introduced in January 2021 ?an open-source “blockchain-like” platform called?Splinter , which is designed to enable any organization involved in moving agrifood items from one point to another to coordinate logistics and resolve disputes. Splinter aims to resolve tracking and communication inefficiencies by enabling all parties in the agrifood supply chain to work off the same system, while still maintaining privacy when and where needed. ????

IBM and blockchain consultancy Chainyard introduced in August 2019 a new permissioned blockchain-based network designed to improve supplier validation, onboarding and life cycle information management. Along with IBM, Anheuser-Busch InBev, GlaxoSmithKline, Lenovo, Nokia, Schneider Electric and Vodafone are founding participants in the?Trust Your Supplier (TYS) network. ?TYS was built to act as a cross-industry blockchain network for procurement functions. The network's first use case relates only to supplier onboarding and validation.

8)?Walmart Canada and DLT Labs Launch Blockchain-Based Freight and payment Network ?that tracks deliveries, verifies transactions and automates payments and reconciliation among Walmart Canada and the carriers that delivery inventory to its retail stores. The network manages, integrates and synchronizes all the supply chain and logistics data in real time, aggregating the data between Walmart Canada and its fleet of third-party trucks on a shared ledger.

Global Shipment Management

Global shipment is another area that is complex and requires contracts and information sharing.

The industry is actively creating consortiums and solutions in this area:

TradeLens is an open and neutral supply chain platform underpinned by blockchain technology. The platform was jointly developed by IBM and GTD Solution Inc. Together each partner works to ensure the product and business model is aligned to meeting the needs of the shippers and supply chain operators around the world. TradeLens is handling more than 700 million events and 6 million documents a year, expediting decision-making and lowering the administrative frictions in trade.

GSBN is a Hong Kong based trade data utility platform powered by blockchain that enables supply chain participants to work collaboratively to accelerate the digital transformation of the industry.?GSBN is built on a permissioned blockchain with strong data governance where only authorized parties are granted the right to contribute and consume shipping related data. One product, Cargo Release , enables customers to eliminate manual processes and remove any need for physical exchanges of paper documentation - when deployed in Shanghai, it led to a reduction in the overall process time from 2 to 3 days to only 1 to 2 hours.

There is work being done on creating universal standards for blockchain's mass adoption in the transportation and logistics industry. The?Blockchain in Transport Alliance ?is a standards and advocacy organization to help educate, advocate, and establish standards for blockchain applications in the transportation industry.

What’s next?

There seems to be progress in implementing blockchain and some of its concepts in several supply chain areas, but none seem to have widespread adoption yet. The immaturity of the technology is a factor as well as the complexity and cost of implementing distributed ledgers. In addition, there may not always be a requirement for blockchain to solve industry solutions due to the fact that the relationships are trusted ones. ?Some of the ideas regarding tracking, coordination and standard contracts can be implemented in much simpler ways.?