At the time of its inception some two centuries ago, the supply chain was a revolutionary idea that would improve visibility and control on goods and products as they moved from point A to point B. But the old concept and technology can no longer support today’s production and supply cycles, which have become extremely fragmented, complicated and geographically dispersed.
In effect, the supply chain is now an opaque and faulty process that is extremely hard to manage.
Hopefully, the supply chain problem can be remedied with blockchain, the emerging technology that has proven its value in bringing transparency and efficiency to a number of different industries.
The problem with the supply chain
The supply chain represents all the links involved in creating and distributing goods, from raw materials to the finished product that goes into the possession of the consumer. Currently, supply chains can span over hundreds of stages and dozens of geographical locations, which makes it very hard to trace events or investigate incidents.
Customers and buyers have no reliable way to verify and validate the true value of the products and services they purchase because of the endemic lack of transparency across supply chains, which effectively means the prices we pay are an inaccurate reflection of the true costs of production.
Other elements that are affected or tied to supply chains are even harder to track. For instance, there’s currently no way to track the environmental damage that goes into the production of goods.
Also, investigation and accountability of illicit activities associated with supply chains is extremely difficult. This accounts for issues such as counterfeiting, forced labor and poor conditions in factories, or revenues being used to fund war crimes and criminal groups, as is the case with coltan, the substance used to create capacitors for mobile phones and other consumer electronics.
How blockchain enhances the supply chain
As a distributed ledger that ensures both transparency and security, the blockchain is showing promise to fix the current problems of the supply chain. A simple application of the blockchain paradigm to the supply chain would be to register the transfer of goods on the ledger as transactions that would identify the parties involved, as well as the price, date, location, quality and state of the product and any other information that would be relevant to managing the supply chain.
The public availability of the ledger would make it possible to trace back every product to the very origin of the raw material used. The decentralized structure of the ledger would make it impossible for any one party to hold ownership of the ledger and manipulate the data to their own advantage. And the cryptography-based and immutable nature of the transactions would make it nearly impossible to compromise the ledger. Some experts already believe that the blockchain is unhackable.
Several efforts are already being made to leverage the power of the blockchain in improving the management of the supply chain. IBM has already rolled out a service that allows customers to test blockchains in a secure cloud and track high-value items through complex supply chains. The service is being used by Everledger, a firm that is trying to use the blockchain to push transparency into the diamond supply chain and thus help fix a market fraught with forced labor and tied to the funding of violence across Africa.
London-based Provenance is aiming to build trust across the supply chain from the source to the consumer by deploying Bitcoin- and Ethereum-based blockchains that enable companies to be more transparent on how they build their products. This includes disclosing everything about environmental impact, where the products were made and who they were made by.
Provenance’s efforts also promote socially acceptable practices, such as making sure that no slavery or exploitation has gone into the production of goods.
Another relevant effort belongs to BlockVerify, which will be using blockchain’s transparency to fight against product counterfeiting, especially the counterfeiting of drugs, which account for huge economic damage and the loss of hundreds of thousands of lives every year.
BlockVerify aims to make the verification of a medicine’s authenticity as easy as scanning a QR code on the box. Each product will have its own identity on the blockchain to record changes of ownership, which can be easily accessed by everyone.
Beyond transparency, there are other definite advantages that result from the crossover of blockchain technology and the supply chain.
Finnish startup Kuovola Innovation is working on a blockchain solution that enables smart tendering across the supply chain. Pallets equipped with RFID tags publish their need to get from point A to point B on the ledger. Carrier mining applications will then place bids to win the move. The RFID will then award the job to the bidder with the most suitable conditions and the transaction will be registered on the blockchain. The shipment will be progressively tracked as the tag moves down the supply chain.
ConsenSys’s Rebecca Migirov gives the blueprint for a “supply circle,” a production and consumption system based on the blockchain that promotes cooperation and collaboration in communities and encourages consumers to become “prosumers,” i.e. consumers that are also producers based on their vantage point.
The blockchain and smart contract infrastructure provides local producers with a decentralized platform in which they can share and exchange skills, resources and products without relying on third parties.
The future of the supply chain
The blockchain has the potential to transform the supply chain and disrupt the way we produce, market, purchase and consume our goods. The added transparency, traceability and security to the supply chain can go a long way toward making our economies safer and much more reliable by promoting trust and honesty, and preventing the implementation of questionable practices.