Blockchain technology is no panacea to cure supply chain ills. But if developed cautiously alongside traditional cloud-based software platforms, it will undoubtedly enhance existing systems and ultimately improve consumer trust.
Supply chain managers across sectors rely on cloud-based software platforms to trace products from source to finished product and to provide full transparency to consumers: by managing and sharing product, process and supplier information, companies can reduce costs and risks, while at the same time enhancing product quality and sustainability programs.
One key challenge encountered by supply chain managers is that every party in the supply chain maintains their own database without necessarily an automated reconciliation. This is where blockchain can make a big difference – by enabling multiple parties to maintain shared records of digital assets and identities, ensuring flawless traceability of goods throughout the supply chain. What started out primarily as underpinning for cryptocurrencies, blockchain today has many applications and can be used for any exchange, contracts, tracking and payment. Every transaction is highly transparent and secure, since it is recorded on a block and across multiple copies of the ledger. Ultimately, blockchain can increase the efficiency and transparency of supply chains and improve everything from monitoring the sourcing of raw materials to delivery.
Yet, a full blockchain system is not necessarily the best solution for supply chain managers looking for efficiencies over the long term. The hype that the technology can solve complicity and create secured supply chains with immutability of information may start to hinder investment in large-scale cloud-based traceability systems, which are still very much in play. Indeed, cloud-based software platforms can even support blockchain capabilities for enhanced data protection of supply chain traceability data, with blockchain solutions building on existing digitization and mapping technology.
A distributed ledger heightens the security of supply chain data stored in the existing transparency platforms by creating a permanent, immutable record of all supply chain interactions. This enables users in, for instance the food industry, to provide a secure and rigid audit trail of all interactions from farm to fork, which ultimately reinforces consumer confidence. This solution combines best practices of existing cloud-based software and blockchain capabilities. In order to get there, supply chain mapping down to raw materials can be undertaken with traditional cloud-based traceability software, while blockchain ensures that every step of the process is permanently recorded, providing an even higher level of data security. Once data is stored in the blockchain, it can no longer be changed; any subsequent changes are stored as additional transactions in the blockchain, providing full traceability of the changes. This integration provides users with supply chain data that is 100% secure and accurate, thus strengthening consumer trust.
Looking ahead, we see an increased focus on new data standards by industry consortiums in the next five years. Instead of optimizing the administration of each single company, we expect industries to create 'value chain IT' systems that combine services of existing and new service providers and market infrastructure providers on a shared but not necessarily open infrastructure. While building trust, companies along the value chain will not need to reveal all their trade secrets. Here, blockchain is unlikely to replace existing IT infrastructure, but instead will complement existing technology to improve trust throughout the supply chain.
It is in the next ten years that we will see the biggest change taking place, with blockchain-inspired distributed ledgers becoming the norm. Multiple forms of distributed ledger technology will become a preferred database, particularly in complex arenas with many players who have different roles. The cost of creating supply chain transparency will fall over time, enabling companies to invest in large-scale traceability and learn more about blockchain. Lessons learned from current blockchain projects demonstrate this may be a lengthy and labor-intensive process. To make this future vision a reality requires value chain cooperation and data standardization.
Jerwin works with corporates to improve the visibility of their supply chain structures, and to identify and address risks across their operations. He specializes in helping companies map and trace raw materials, with a focus on food soft commodities as well as retail.