The Hunt for the Blockchain Killer (d)App for Supply Chain

One of the advantages of blockchain is the immutable record and trust people can have in it. If anything changes in a document it will be immediately apparent to all.

Manufacturers want to ensure goods get to where they're supposed to go and those purchasing the merchandise want to make sure it originated from a reputable source. By including both ends of that supply chain, it addresses the threat of counterfeit goods, fraud and theft.

The complexity of paperwork for global trade e.g. containerized freight drives a lot of overhead for freight forwarding companies that are basically drowning in a sea of paper trail complexity. As such the Economist magazine indicates that about 20% of the $4.3tn in global logistics costs can be attributed to paperwork.

Blockchain technology, which can be either an open ledger (seen by anyone) or a permissioned network (seen only by those authorized) addresses the supply chain challenge as it's an immutable or unchangeable record shared among network participants that's updated in real time.

So what are some potential killer apps of supply chain that drives these efforts from pilot to value and return of investment?

The graph below summarizes key themes of applications from a business standpoint as a whole:

Specifically, I would like to call out these use cases:

Tokenization and Digitization of Real World Assets:

• The world is full of assets: stocks, real estate, gold, carbon credits, oil, warehouse space, coffee plantations etc. many of these assets are difficult to physically transfer or subdivide, so buyers and sellers instead trade paper that represents some or all of the asset. But paper and complex legal agreements are difficult to transfer and can be hard to track.
• There are many kinds of transfers of assets and many types of asset rights. Sometimes only limited rights connected to an asset are transferred, such as a lease to use land or warehouse for a limited time rather than a transfer of ownership.
• This enables the monetization of assets while cutting out the middleman like Treehouse is tokenizing real-estate, Harbor tokenizing securities

Reduction of per transaction cost:

• Charges from any major logistics EDI gateway will run typically run $5 to $7 per transaction, and a freight payment and audit provider can run as much as $10 or more per invoice (Source: Accenture)
• The industry standard for supply chain management today (EDI & document mirroring) does not offer one, real-time view of all transactions to all the parties involved in the supply chain
• There are about 5,000 companies worldwide that have $1 billion in annual revenue that are transacting between $100,000 and $20,000,000 a minute handling paper and digital trails of serial numbers, shipments, invoices and receipts which causes delays and additional processing cost
• Blockchain can eliminate a lot of that cost by providing a near realtime view into all transactions in a blockchain network

Improve real time connectivity and collaboration across supply networks:

• There is a significant amount of trapped value in logistics, largely stemming from the fragmented and competitive nature of the logistics industry
• Improve product life-cycle management by utilizing blockchain technology for collaboration among supply chain team members, facilitating sharing data across design, quality, manufacturing and business systems
• Blockchain technology can help alleviate many of that siloed and pockets of data in one immutable record for procurement, transportation management, track and trace, customs collaboration, and trade finance

Product legitimacy

• Companies can use this information to provide proof of legitimacy for example for products in pharmaceutical shipments, and proof of authenticity for high value luxury goods
• To bridge the virtual and physical world the product can be labelled with a unique number as a public key, in part or whole, of the manufacturer’s private key corresponding to the product. As the product ships from one member of the supply chain to another, the number is signed with the sending member’s private key. Consequently, at any point in time it is possible to trace the entire path of the product.

Identity authentication and security hardening:

• For supply chain one can validate who has touched the part and product at what point in time which enables to trace back to something going wrong in the process e.g. a product overheating, recipes being changed, product tampering all tracing back to the entity that introduced that change into the supply chain
• From a business standpoint you know exactly who you are dealing with and this technology is already prototyped to fact check employee resumes, integration into security access products etc.

With all of these opportunities how do companies overcome roadblocks and ongoing success beyond the pilot stage?

There are several aspects that can be stumbling blocks, but here are some enablers I can think of: 

1. Create a culture of collaboration

There are challenges to the adopting and hitting the critical mass for applications like these including the need that all constituents in the network to participate and to agree on basic principles, approach on the network and a common goal that everyone buys into:

• Collaboration can happen internally, between partners, and through industry consortia. 
• This involves facilitating trusted collaboration between multiple parties including both public and private entities of all kinds of government agencies, industrial organizations, regulators, partners, and even competitors

2. Build and develop knowledge

Invest in training of your internal teams and select capable partners that can give you a knowledge boost. As in many of the areas where we want to drive innovation cross departmental teams with a good combination of technology, data and subject matter expertise will be key

3. Focus on Products that are made for blockchain/ distributed ledger technology and Deliver return of investment (fast)

Simple, high value and high risk products and solutions that require alignment across companies, industries and consortiums are the first area of focus for distributed ledger solutions since the immutability and traceability of products across the network will provide a competitive advantage over legacy technology choices. More complex products and supply chains will take longer to move towards adoption and ultimately hit critical mass for ROI.

4. Which distributed ledger technology is fit for purpose for your needs

For public ledger technology e.g. based on ethereum and bitcoin public blockchain the block technology itself might be the problem. The data per second that has to be processed has surpassed 1 terabyte and that is a network bandwidth issue that potentially cannot keep up with the rapidly increasing business needs unless changes are introduced into these ledger technology solution and outpaced by Murphy's and Nielsen's law.

As pointed out by Jack Levin in medium.com for example the Bitcoin exchange is eventually bound to slow as more transactions enter the market.

Scalability without an architecture change is limited - it is like a single person elevator always moving at the same rate irrespective of the demand of how much data to transport, but for example ethereum developers are well underway engineering protocol-level changes such as sharding, aimed at minimizing the database for full nodes, pruning old data and stateless client methods.

Other distributed ledger options like IOTA, Holo chain, middleware solutions and exchanges exist that solve for this issue providing an alternative path for off chain storage, on a different chain or storing less data on public blockchain.

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Disclaimer: The opinions expressed in this post are my own personal views and don't necessarily represent the views of current or previous employers.

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