Home' MHD Supply Chain Solutions : MHD May-Jun 2017 Contents DWIGHT KLAPPICH
lockchain technology has the potential
to transform and disrupt supply chains
by documenting, validating and securing
each step of the chain with an inerasable
history. Despite the hype and its potential,
it could take a decade or more before the
technology achieves its full potential.
Better known as the distributed ledger that
supports the Bitcoin digital currency, blockchain
is a shared, immutable ledger for recording the
history of transactions. It’s intended to provide a
foundation for a new generation of decentralised
transactional applications that deliver trust,
accountability and transparency. It holds a lot of
promise in this digital business era.
The technology is currently most prevalent in
the financial industry, but longer term blockchain
could have a major impact in the supply chain
once some hurdles are cleared, particularly
around scalability, flexibility, confidentiality of
data, efficiency, governance and interoperability.
In particular, blockchain has potential to
revolutionise multi-enterprise processes, but this
will add the challenge of connecting a far-flung
network of trading partners.
Supply chain leaders need to understand its
limitations and lack of maturity before making
near-term strategic investments.
Supply chain viability
Emerging blockchain models could eventually
apply to supply chain with some refinement.
Several supply chain functions are prime
candidates for blockchain, particularly:
• International trade finance – bills of lading,
letters of credit and trade payments.
• Traceability – track and trace, asset
provenance (including authenticity and
tracking), and recall management.
• Smart contracts – where contracts or
contractual terms between parties are
stored on a blockchain. In more advanced
cases, a ‘contractual code’ sits on the
blockchain that autonomously executes
under certain conditions.
Trade finance is likely to be the short-
term winner for several reasons – it’s a well
understood process and banks are investing
heavily in blockchain technology and are
already well underway with pilots. The scale of
trade finance in terms of total numbers of daily
transactions (not dollars) is such that it might
mitigate some of the scalability issues and
concerns in other areas.
While there are several dozen nascent supply
chain-related blockchain initiatives today, none
are fully operational yet. Toyota, for example, is
considering blockchain to track the supply chain
for auto parts as they move from the point of
manufacture to assembly plants in other countries.
Keeping more accurate records in real-time of the
thousands of parts that go into building a typical
car would make Toyota more efficient. The solution
could also help during supply chain disruptions,
such as when Toyota saw major parts of its supply
chain taken offline following a massive earthquake
and tsunami in 2011.
What you need to know
There are seven things supply chain leaders
need to understand about blockchain:
1) Long-term potential to be transformative
across many industries
Although early adoption of blockchain will
progress over the next three to seven years,
mainstream adoption at scale is likely 10 or
more years away. Similar to RFID in its early
days, business processes and standards must
be resolved before blockchain can reach its
potential. The technology must also gain trust
when it comes to privacy and governance issues.
2) Faces many challenges
Blockchain technologies and associated
supply chain best practices bring adoption
challenges, including a lack of standards,
robust platforms, scalable distributed
consensus systems and interoperability
mechanisms. Scalability across supply chains
will need to be carefully planned and aligned
with other high-priority supply chain initiatives
and stakeholders. Adoption too late or too
early as part of extended supply chain and
supply chain maturity progression may prove
detrimental to the entire organisation.
3) Not merely a new database technology
Contrary to what many believe, blockchain
is not a replacement for traditional database
technologies – it lacks the ability to create,
read, update and delete information. For
the immediate future, traditional database
management tools and platforms will continue to
prevail in supply chain, where data is created,
maintained and consumed largely internally or
in a business ecosystem by a user.
Multi-enterprise processes, where certain
information is shared between enterprises
and where there is no central point of control,
remain strong potential uses for blockchain.
However, these uses will be difficult to grow as
multiple enterprises will need to be connected
and motivated to actively participate sharing
information and process tasks.
4) No pre-packaged solutions for
the supply chain
You can’t ‘buy’ packaged blockchain solutions
for supply chain use at the moment. There
continues to be a lot of hype, with few even
partially deployed and very limited prototypes.
Only organisations that are especially risk tolerant
and early adopters of technologies should
consider supply chain management blockchain
initiatives over the next two to five years.
Less risk-tolerant organisations should
peripherally participate in trade consortia or
educational forums to learn more about specific
7 BC FACTS
SEVEN THINGS SUPPLY CHAIN LEADERS NEED TO KNOW ABOUT BLOCKCHAIN
MHD SUPPLY CHAIN SOLUTIONS — MAY / JUNE 2017
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