My class on Blockchain … Blockchain Wednesday Series #14 Supply Chain & Blockchain

Smart contract as reviewed in BWS #13 is embedded in an IFTTT code;?if-this-than-that. This is what ensures self-execution. No need for an intermediary to ensure all parties observe the terms of an agreement. The blockchain process ensures as well that participants know the contract and that terms implement on their own … as long as the pre-programed conditions are met. Trade finance and supply chain are some of the most use cases of blockchain . The automated coordination thru the smart contracts process is transforming the way business is done; not only the supply chain as movement of goods but also the finance services associated to it (trade finance: letters of credit, invoicing, payments …). It essentially coordinates between many parties that don’t necessarily trust each other and most often have conflicting interest (seller adding cost, buyer delaying payment, carrier not delivering on time ….).?

refresh, the supply chain process:

Typically, the steps involved are complex and subject to delays, inefficiencies and mistrust. The buyer creates a purchase order. The exporter would confirm the order, start manufacturing the goods and issue an invoice. The importer will request an LC (letter of credit); his bank approves and publishes the LC. At this stage the exporter creates a packing list and prepare the goods for shipping. The carrier will publish a bill of lading and start coordinating between the origin agent and the destination agent. The exporter has to send by courier the documents to the importer (while the container is at sea). The exporter submits the invoice for payment. Finally, the bank endorses the release of documents. It is a necessary step for the importer to be able to clear and get hold of the goods. The issuing bank makes the payment to the exporter.

Blockchain process thru pre-programmed smart contracts can facilitate all this. Smart contracts operate the transfer of goods and money in a swift manner without the exorbitant cost of having middlemen (banks and agents). Smart contracts are built in a way to capture critical information at each step of the process. It has to ensure fulfillment before moving on to the next stept. Also, information is irreversible; once a step is completed … no one can change it, not even the platform that designed the smart contract.?Because everyone involved has a complete copy, it’s virtually resistant to hacks and to cyber-attacks. It simply cannot be altered. The built-in safeguard of an immutable ledger (understand the ledger as being a simple and straightforward register of the history of transactions) makes audits easier and data incorruptible.??Therefore, the quality and integrity of all details of the transactions against commercial agreements can be trusted … which in turn creates time efficiency. It also adds new features not obvious in the traditional centralized ways; it can help ensure authenticity and origin of the product being supplied.?

Traceability:

One of the top use cases of distributed ledger is supply chain around traceability. Traceability is an important benefit; tracking goods where they are currently residing and subsequently relaying all relevant information … Traceability is allowing essentially to do two things; first is to fight counterfeit products, make sure that consumers can buy genuine product. The second objective is to secure sustainability. Consumer do not want to be fooled; buying a product claiming it is Bio while it is not. The product is given a unique identifier at the time it is sourced/created that is encrypted. This identifier is time stamped and follows the product thru the entire supply chain with relevant information being captured at each step. Certain processees can integrate IoT (internet of things); these are sensors (i.e. temperature sensors …) that feeds in automatically. There is a lot of effort to track the product from its place of origin and this information (that is stored in the blockchain) enables supply chain leaders to make sure it was sourced in an ethical and sustainable manner.

One of the examples is diamond. We do not want black diamond, diamonds from a conflict zone to be circulated in the economy. We want to know where the diamond is coming from. If the miner, the polisher, the wholesaler, the retailer … all of them put their records on the blockchain ; then we can trace the diamond back to the mine. A certification can be issued with the promise that this is not a blood diamond. We can also prove that this diamond was not stollen or coming from gangsters. This process can have an even larger impact. The product can obtain financial services associated to it. That will attract a number of positive economical interactions around the product. Same can apply to different trading items; be it wine or wagyu beef. Applications are literally endless. We can trace palm oil and make sure it is not coming from deforested areas.

Pharma industry is one of the winners of this technology. It has been an all-time challenge to have all stakeholders in the ecosystem able to assess the provenance, authenticate items and prove compliance of a unit of medicine. It is important to be able to track at unit level the drugs across end-to-end supply chain. This is now enabled by the real-time capability and distributed features associated to the smart contract process. Tracking drugs on the blockchain throughout the life cycle from manufacturing to patients played a critical role to fight counterfeit (i.e. trace vaccines and make sure it comes from authorized pharma producers ….). It also helped assisting drug recall management when necessary.

Finally, Walmart is fully endorsing the traceability process thru blockchain (they use a platform named Hyperledger fabric). They tested it with tracing mangoes arriving to the US and pork being sold in their stores in china. They can now trace the origin of over 25 products from five different suppliers. They plan to expand to more products and categories and started a large capability/engagement program with their suppliers of fresh and leafy greens.

Each trade or finance transaction is recorded separately in a sequential fashion. It provides an audit trail that all stakeholders can consult. Another big aspect is security as each transaction is verified within the network in a way that trade-related information can be assured. Smart contracts are a hot topic; it is an incredible coordination tool that enhances trust. Supply chain is a super fit and many use cases are today in production.

Reda

Note: information and knowledge base of this article is collected while attending the Berkeley webinar on Blockchain Technology EDX platform (Berke?CS198.2x),tThe Honk Kong University webinar on Blockchain and Fin Tech EDX Platform (HKUx?HKU_10x)