Understanding the viability of blockchain in supply chain management

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There’s a lot of hype around blockchain in supply chain management; can it help enterprises escape their siloed insights and enable them to take a more integrated and holistic approach?

Blockchain has a lot of hurdles to overcome before it becomes mainstream; a recent Gartner supply chain technology survey of user wants and needs found that only 19% of respondents ranked blockchain as a very important technology for their business, and only 9% have invested in it.

A modern enterprise’s supply chain is far from a simple linear chain; rather, it’s a complex, demand-driven network. With all this complexity comes a host of challenges, ranging from monitoring the environmental conditions and location of deliveries to ensuring the safety of workers, all while making sure products are being moved from one place to another efficiently and cost-effectively.

One of the main challenges the supply chain leaders face today is the lack of end-to-end visibility. With numerous moving parts and different partners and suppliers involved, supply chains get out of hand easily. For the vast majority of enterprises, interactions in their supply chains are going unmonitored and the silos between the different stops along the fulfillment process is directly causing business inefficiency.

The EDI problem

Part of the reason supply chains are so inefficient is the widespread reliance on electronic data interchange (EDI) systems among enterprises.

When EDI first burst onto the scene in the 1970s, it was considered a revolution. EDI enabled enterprises to exchange electronic documents throughout their supply chain — from invoices and purchase orders to route plans and shipment notices — saving them from the drudgery of paper trails and snail-mail.

However, it’s far from perfect. Although useful for performing certain tasks, EDI data structures are very rigid and have a hard time processing data from multiple sources and onboarding new business partners with different data types and configurations.

If enterprises want to collaborate in a more sophisticated manner than their EDI sets allow them, they have to supplement them with phone calls, faxes, emails and just about everything else you can imagine. Then they have to try to collect all the information from these different mediums and average them out. It’s a pretty blunt instrument, and, naturally, enterprises get a lot of fluctuations in their results. In other words, EDI doesn’t support multiple parties, and it doesn’t support business logic.

Blockchain’s value proposition

According to Paul Brody, global innovation leader, blockchain at EY, if EDI is the curse, blockchain is the cure. Speaking with Information Age, he asserted that that with blockchain enterprises could fix almost all of the massive shortcomings that exist in terms of how modern companies transact with each other.

“The value proposition of blockchain is the ability to manage complex, multi-party business transactions,” he said. “The core logic of blockchains means that no piece of inventory can exist in the same place twice. Move a product from finished goods to in-transit, and that transaction status will be updated for everyone, everywhere, within minutes, with full traceability back to the point of origin.”

In his report for EY, Brody explained how blockchains give these supply chain networks the chance to create one shared truth without one all-powerful, centralised intermediary.

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“Each participant has a copy of the ledger, and all transactions and movements are part of that ledger. If any participant tries to game the system or perpetrate fraud, that company is manipulating only its ledger and is immediately out of sync with the rest of the ecosystem, a powerful deterrent to bad behaviour.”

Indeed, by design, anything recorded on blockchain technology cannot be altered meaning that there are cast iron records of where each asset has been, which would make the visibility element of logistics much easier to maintain. There are obviously challenges to overcome in terms of cost factors and securing multiple stakeholder buy-ins, but the technology clearly has the potential to provide a new and improved level of traceability to the supply chain.

 

Challenges for blockchain in supply chain management

While this is an exciting technology, blockchain has a lot of hurdles to overcome before it becomes mainstream. A recent Gartner supply chain technology survey of user wants and needs found that only 19% of respondents ranked blockchain as a very important technology for their business, and only 9% have invested in it. This is mainly because supply chain blockchain projects are very limited and do not match the initial enthusiasm for the technology’s application in supply chain management.

In the report, Gartner said that by 2023, 90% of blockchain-based supply chain initiatives will suffer ‘blockchain fatigue’ due to a lack of these strong use cases.

“Supply chain blockchain projects have mostly focused on verifying authenticity, improving traceability and visibility, and improving transactional trust,” said Alex Pradhan, senior principal research analyst at Gartner.

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“However, most have remained pilot projects due to a combination of technology immaturity, lack of standards, overly ambitious scope and a misunderstanding of how blockchain could, or should, actually help the supply chain. Inevitably, this is causing the market to experience blockchain fatigue.”

According to Gartner, one of the biggest challenges for the viability of blockchain in supply chain management is that enterprises cannot buy off-the-shelf, complete, packaged blockchain solutions.

“Without a vibrant market for commercial blockchain applications, the majority of companies do not know how to evaluate, assess and benchmark solutions, especially as the market landscape rapidly evolves,” said Pradhan.

“Furthermore, current creations offered by solution providers are complicated hybrids of conventional blockchain technologies. This adds more complexity and confusion, making it that much harder for companies to identify appropriate supply chain use cases.”


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