What are the quantifiable benefits blockchain can bring to the supply chain?

The blockchain is a phenomenon, which has yet to reveal its full potential. It is open-source, it is decentralised and it connects anonymous people across the globe to share in common social themes such as the exchange of value, digitisation of assets and last but not least the entire supply-chain. This technology is re-shaping the world as we know it and millions of people with various means at their disposal are experimenting with this sand-box. We don’t know where the blockchain will take us but the experience society as a whole is gleaning clearly shows us what benefits we can count on. It is transparent, it is trust-less and it saves time and money.

Transparency

A key benefit of implementing the blockchain, or similar decentralised ledger technologies (DLTs), into a supply-chain are its transparency and immutability. This is so, because any addition made to the ledger is (a) visible to anyone and (b) it is verified (or rejected) by a number of participants in the network. This is the most basic function of a blockchain, and these two characteristics - transparency and immutability - influence the core driver of profitability: the end-user’s experience.

Back-office technology is not usually credited in the main stream media with boosting the satisfaction of an end-user - not so with the blockchain. Because, when a technology so fundamentally streamlines the way mundane socio-economic processes work then the effect becomes tangible across an entire supply chain. Take, for instance, a recent Forbes Insights study, which found that 57% out of 433 C-level executives believe, that accuracy of information boosts their ability to track a specific product. Internally, accurate information empowers management to make timely decisions at a strategic level. Externally, accurate information allows the company to win the trust of the end-user of the product (https://bit.ly/2srdr0F).

Companies, which open themselves up to their customers profit immensely. Such as, for example, fish supplier John West. John West chose to include codes on its tuna cans to enable a consumer to trace the product back to the fisherman - this initiative netted the fish supplier GBP 17 million (https://bit.ly/1TomcAy). This is a non-blockchain example, but the principle is the same: transparency begets trust and trust is rewarded. And the technological embodiment of this principle is the blockchain.

However, not all are convinced that the blockchain is here to stay. A VP at Gartner, Dwight Klappich, was part of a panel at the Highjump event earlier this year in Dallas. In it he likened the blockchain to the RFID-hype from a few years ago. In the early 2000s, RFID was mandated by Walmart, analysts and journalists raved about its prospects, only for it to be scrapped. However, only one day after the panel Wall Street Journal released an article in which we found out, that „Already, 1.1 million items on sale at Walmart Inc. are on a blockchain, helping the company trace their journey from manufacturer to store“ (https://on.wsj.com/2FGxNbf). Given the rapid societal acceptance of the blockchain, as one of many forms of DLTs, it appears as though the very nature of this technology has more applicability than RFID.

Security and trust

In the corporate world it is often said, that the weakest link in the chain is the human link. Hackers thrive on this, because the best way to hack a system is by manipulating a person, as opposed to conducting brute force attacks. In 2012, phishing represented 77% of all socially based attacks, that is a whopping 37,3 million users! Phishing is the practice of sending emails appearing to be from reputable sources with the goal of eliciting confidential information.

The blockchain is even more secure from brute force attacks than traditional centralised systems are. The decentralised nature of the blockchain, coupled with the constant encryption of blocks makes the decryption of past blocks completely unfeasible at the present day (https://bit.ly/2LnaIxr).

Take the infamous cryptocurrency exchange heists between fall 2017 and spring 2018, none of them were hacked via the blockchain. The absolute majority of them were the result of phishing, such as Coincheck, which was hacked for GBP 390 million. A simple multi-signature system is a direct way to prevent this, because for every transaction to be carried out, a designated number of authorised people have to type in their password to approve the transaction. This mechanism alone radically decreases the likelihood of a breach to almost zero.

How does this translate into securing a supply chain? The FBI estimates that cargo theft causes an annual loss of approximately $30 billion per year in the US, with an average theft value of $190,000. In effect, cargo theft can cost consumers up to 20 percent more for their goods (https://bit.ly/2TMUdhp). If our blockchain is modified to include geographical data, then the ledger’s immutability will act as a trustworthy record of where the cargo is. Couple this with the Electronic Log Device mandate from the U.S. Department of Transportation: now you have a supply chain with unprecedented visibility over freight movement without the tedious requirement of connecting to individual freight companies one at a time (https://bit.ly/2VOv7Rd). Thus, an overarching procedure of implementing a blockchain over an entire supply chain (or as much as possible) makes it clear who is responsible for what at any point in time. Such oversight decreases the attractiveness of theft.

Cost-efficiency

Even in today’s day and age in which supply chain management systems have evolved significantly, centralised systems are still prone to receive faulty information. The blockchain because of its very nature of immutability cannot accept faulty information, thus an auditable track record of volumes, inflows and outflows is available for analysis from the very first transaction until the present.

Don’t just take this author’s word for it, because it even makes government more efficient! The government of Estonia claims that its online systems, including blockchain technology, add 2% to its GDP (https://bit.ly/2qaoEAe). There are still cases of organisations, that use paper ledgers to track their products. This is an anachronistic practice which decreases oversight of the supply chain and profitability across supply bases. This is area of business is dying to be streamlined, because more than 65% of the value of a good or service is derived from its own supply chain.

An International Data Corporation report estimates, that 80% of the supply chain will be cloud based networks by 2020. This foretells a significant reduction in manpower and, possibly a societal tectonic shift, since labor is one of the largest determinants of the cost in manufacturing (https://bit.ly/2Rmgmqa). Take this a step further and blockchain-enhanced tech will make the supply-chain more time-efficient. IBM general manager and head of blockchain, Marie Wieck, says that users can cut as much as 40% on shipping costs by compressing the time between each step and saving „thousands of dollars“ per transaction (https://bit.ly/2D5gcdZ).

Decreasing the burden of bureaucracy is what makes blockchain so attractive to supply-chains. According to Maersk, a single container travelling from East Africa to Europe is subject to collecting stamps and approvals from around 30 people, totalling in some 200 different interactions by the time the cargo reaches its destination. By using a blockchain, that IBM and Maersk developed together, the shipping giant can get rid of all the paperwork and make the process smoother (https://engt.co/2VNRfeq). So it is no surprise, that nearly two-thirds of senior executives say that they anticipate significant productivity benefits from applying blockchain technology alongside AI and machine-learning (https://bit.ly/2srdr0F).

Conclusion

At its core, a blockchain is an effective tool for managing rights. Rights to assets, tokens and anything else that the users of a blockchain have agreed upon. Since 2009, the blockchain has proven itself to be a powerful tool with a high rate of adoption. So, it is up to society to make this technology a means of enriching communities. Probably, the societies that will adopt DLTs the fastest are the societies with young populations and less dense technological infrastructures. This would mean, that the future of developing truly decentralised supply chains would lie in the areas of MENA, the African continent, India, and the Asian Pacific - all connected to the maritime half of the China’s One Belt One Road initiative. Thus, with the blockchain, and the advent of a second machine age, we have the chance make supply chains more accurate, fair, efficient and above all humane.