Blockchains and Supply Chains

This is the technology of the future and to complete this piece, I have used my own knowledge and the knowledge I gained while completing my certification – Certified Blockchain & Supply Chain Professional – from Blockchain Council (www.blockchain-council.org)

Blockchain – is a technology that enables a distributed ledger to be shared across a P2P (peer-to-peer) network.

In fact, it is a chain of data blocks stored on 100s or 1000s of computers or servers distributed over a wide geographical area. It is a complete ledger which maintains a copy of all the credit and debit transactions of a Digital Asset.

Before we move ahead, let’s understand what is P2P and what is a Digital Asset?

P2P or Peer-to-Peer network is a decentralized network where in all computers are connected in some way and each contains a complete copy of the ledger. Ledger, as we know, is a bank account statement since day 0. The complete ledger, or bank account statement as an example, is copied to 1000s of machines in a way that each machine can verify the individual transactions, without involving other machines, and then announce whether it is a valid transaction or not.

Digital Assets are representations of something physical, for e.g., a pen, a chair, data or digital virtual currency. Whatever that can be represented as a number can be treated as a Digital Asset.

Let me try to explain the Blockchain concept using an analogy of a Book. In simple terms, Book can be thought of as a Blockchain; Pages (in a book) as Blocks; and an entry in the page (of a book) as a Blockchain transaction.

A peculiar characteristic of Blockchains is that these are ledgers which record every credit and debit transaction in such a way that the details cannot be altered by anyone without others noticing because each block is connected to every previous block vis-à-vis pages in a book.

How Blockchain differentiates from other technologies?

Most of all, Blockchains enable trust in cryptographic algorithms instead of human nature, thus, they solve the problem of trust (mistrust). For example, in supply-chain based solutions, it is not easy to trust the raw material available in inventories without trusting the inventory manager. Let’s look at this from a technical standpoint. The root administrator or the database owner, who is tracking the inventory, (can or may) easily tamper the records without anyone’s notice. This is where Blockchain-based ledgers become advantageous.

Trusting blockchains means trusting the blockchain protocol instead of trusting intermediaries. For example, this time in case of an online transaction involving transfer of funds from buyer to seller, where blockchains are involved, the buyers and sellers can easily trust the protocol instead of PayPal, Western Union, VISA, Citibank etc. (no hard feelings for these platforms/channels, but Blockchains have their own edge)

Further, Blockchains provide the following benefits –

·        Disintermediation

·        Confidentiality

·        Robustness

·        Availability

·        Verifiability & Auditability

·        High Security

·        Faster Transactions

·        Cost Savings

Smart Contracts & Blockchains –

A Smart Contract is a computer program code capable of facilitating, executing, and enforcing the negotiation or performance of an agreement (i.e., contract) using Blockchain technology.

Smart Contracts help in the exchange of money, property, shares or anything else of value in a transparent and a conflict-free way, avoiding the services of any 3rd parties or middlemen.

For instance, Smart Contracts can be used in different industries – Automobiles, Real Estate, Healthcare etc. Let’s elaborate a bit on the use of Smart contracts in Real Estate, i.e., sale of a house. Seller makes a smart contract and the user has to adhere to this contract. Then, this contract gets executed which calls the function to register and transfer the ownership of the house. The money is then passed and the house is transferred through this Smart Contract. If ‘X’ were the concerned buyer of the house, she/he wouldn’t even have to go through the contract. The code itself will take care of the price of the house and transfer the funds. There is no requirement of an intermediary/3rd party at all.

Why Add Blockchains in Supply Chain Management?

Given the fragmented nature in which today’s supply chains function, organizations may suffer huge financial and reputation damages in addition to millions of $ and accompanying recalls.

Again, we cannot undermine the importance of robust Food and Drug supply chains. Let’s us look into some recent instances which would corroborate this point.

·        2015 Chipotle E. coli outbreak à 60 people in 11 states reported sick

·        2018 Walmart Romane Lettuce E. coli outbreak of 2018 à 35 people from 11 US states reported sick

In both the cases as cited above, it took Public Health Officials numerous weeks to locate the source of contamination leading to millions of $ worth of product being wasted and additionally, millions of $ worth of product was discarded due to fear of contamination.

IoT & Blockchains – A winning combination

IoT (Internet of Things) concept extends internet connectivity beyond PCs and smartphones into things like refrigerators and sensors. The IoT network consists of the hardware, software and protocols that enable the flow of data between different entities of the network.

Blockchains combined with low powered IoT trackers and sensors help track shipments including information à GPS Data, Temperature, Humidity, Lights, Sounds, Deviation from a determined (set) path etc.

Using Blockchains, RFID (Radio-Frequency Identification) chips, and Arduinos, IoT finds its application in tracking batches of shipments uniquely to provide end-to-end visibility.

Applications of Blockchains

In this section, I will mention the uses of Blockchain in – Food, Pharmaceuticals & Healthcare, and Automobile Industries and then throw some light upon the IBM/Walmart Blockchain collaboration.

1.   Food Industry –

In 2006, in one of the biggest E. coli outbreaks in the US due to contaminated spinach, 276 consumer illnesses and 3 deaths were reported. With an estimated $74 M loss to the farmers, several weeks went by before the source of contamination could be identified.

In Nov 2015, 60 people were infected by a foodborne illness, of which 22 were hospitalized, after eating at Chipotle. Not only did the chain suffer from reputational damage but also there was a $330 dip in the stock price from $730 to $400.

A metric – “Food borne illnesses due to contaminated food affect about 700 million people each year, approx. 10% of the world’s population”.  Another one – “An estimated US $90 B is lost in economic productivity in the US alone” due to food borne illnesses.

Blockchain food supply chains are much more connected; transparent; allow for high visibility from the farm to the consumers. In addition, Blockchains facilitate Automated Data Collection & Big Data Analysis.

2.   Pharmaceuticals & Healthcare –

In 1995, FoxMeyer Drugs was the 2nd largest wholesale pharma distributor in the US with over US$ 5B in Revenue. The company employed SAP R/3 and Pinnacle Warehouse automation to increase efficiency and streamlining their supply chain. But, poorly written software and a lack of transparency led to a US $34 M inventory loss and the company filed for bankruptcy in 1996. The result – its main competitor McKesson bought it for US $80 M.

As per WHO, annually, close to US $200 B worth of counterfeit pharma products are sold globally with approx. 100,000 deaths per year in Africa alone.

Counterfeiting occurs when a member of the supply chain siphons legit drugs and resells them; or introduces counterfeit drugs into the supply chain as ‘authentic’ drugs.

3.   Automobiles –

Today, modern manufacturing is extremely interdependent and relies on sourcing parts globally, however, lack of transparency gives OEMs very limited visibility over the raw material that they use beyond tier 1 and tier 2 suppliers. Further, a lack of industry-wide sourcing platform means OEMs cannot access supplier’s historical information and reviews.

Now, a Blockchain based purchasing platform would enable transfer of value and interaction amongst all tier level suppliers and OEMs along the automotive value chain. In addition, Smart Contracts can be used to ensure timely delivery and also to maintain quality.

4.   IBM/Walmart collaboration –

Walmart’s leadership as an efficient supply chain operator dates back to 50+ years on the planks of unbeatable prices and timely deliveries and has close to 12000 stores globally averaging US $32 B in inventory annually. In 1980s, the company started working directly with manufacturers to cut costs and reduce intermediaries in the supply chain. 2018 E. coli Romane Lettuce outbreak damaged Walmart’s supply chain reputation.

Walmart, with IBM, has been working to create the world’s largest blockchain based supply chain network since 2018. Now, using traditional supply chains, it would take about 7 days to trace the source of food, but with Blockchain, this process has been reduced to a few seconds. This is what the power of Blockchain is.

The cases as mentioned above lend even more weight to the use of Blockchains now and in the future to avoid possible mishaps not only in terms of economic losses but also in terms of reputational repercussions for the affected companies.

In a nutshell, Blockchains are there for the future and will enable supply chains further not only in terms of adding visibility, doing away with intermediaries, lowering costs, lending transparency but also helping service/product providers pitch these as points of differentiation against competing firms…