This is Joao Paulo. He grew the beans for your morning latte ©AFP/Getty Images
This is Joao Paulo. He grew the beans for your morning latte ©AFP/Getty Images

Blockchain for supply chains: From hype to reality

Is the shared ledger technology really the future of supply chains? From coffee to mangoes, a number of pilot projects suggest it could be

Has there been a single business conference in the last twelve months that hasn’t included the mention of the word ‘blockchain’ in hushed, reverent tones? We’d put money on no. 

The shared ledger technology (see box on p20 for more on how it works) is increasingly being seen as fundamental to the development of supply chain management – and the solution to many global problems. Evangelists even claim it could play a role in ending modern slavery, with the rise of blockchain-enabled supply chain transparency. 

According to a 2017 Deloitte report, blockchain can be used to record price, data, location, quality and certification. This could increase the traceability of the material supply chain, improve visibility and compliance, and reduce paperwork costs, risk and fraud. “Less time can be spent validating data and more can be spent on delivering goods and services – either improving quality, reducing cost, or both,” says the report. 

But while this is all exciting and worthy of discussion, is there more to blockchain than breathless chatter? In 2018, are there signs that we are moving from hype to reality, and that all supply chain professionals should be thinking about how the tool could transform their roles?

Deloitte’s 2018 Global CPO Survey indicates signs of progress. While 75% of procurement leaders say they are not using blockchain in their work, 17% are considering it and 6% are piloting it. A separate survey by Hackett Group suggests more procurement functions are exploring the technology, with 33% trialling blockchain in their organisations.

Examples of blockchain in action throughout supply chains are also increasing in numbers, particularly in the food space. Last year, US food giant Walmart trialled the technology to monitor its pork supply chain in China and its mango sourcing in the US. The pilot, alongside IBM and Tsinghua University, centred on whether blockchain could be an alternative to occasionally inaccurate paper tracking and time-consuming manual inspections – from farm to table.

Product information such as farm origination details, batch numbers, factory and processing data, expiration dates and shipping were digitally connected to food items and entered into the blockchain at every step. The technology also ensured that testing documentation, certificates and audits were up to date and accessible.

The trial results were encouraging, said Walmart, with blockchain enabling it to trace a package of mangoes from farm to store in just two seconds – compared to days using the standard method. “I’ll be able to tell if this product is authentic and safe, and when it expires,” says Frank Yiannas, VP of food safety at Walmart. “If a food contamination issue arises at the farm or factory, I’ll know which products to recall and which may be left on the shelves. It could improve supply chain efficiencies, promote sustainability and reduce food waste.”

Although there were some concerns over sharing the information in parts of the chain, the project did manage to break down some trust barriers in the release of data, and made real-time information more available. The pilot ultimately led to the creation of the Blockchain Food Safety Alliance, comprising IBM, Walmart, Tsinghua and Chinese retailer JD.com. The Alliance aims to boost food tracking, traceability and safety in China, and create a standards-based method of collecting data about the origin, safety and authenticity of food, using blockchain technology.

According to Alliance members: “This will encourage accountability and give suppliers, regulators and consumers greater real-time insight and transparency into how food is handled, from the farm to consumers. This has traditionally been challenging due to complex and fragmented data sharing systems that are often paper-based and can be error-prone.”

A global information pipeline 

IBM is now aiming to do something similar in ocean freight in a joint venture (JV) with Maersk. The JV is developing a global trade digital platform built on open standards, which is intended to provide transparency and simplicity in the movement of goods across borders.

By using blockchain to digitise global shipping processes, the JV believes a new form of “command and consent can be introduced into the flow of information, empowering multiple trading partners to collaborate and establishing a single shared view of a transaction without compromising details, privacy or confidentiality”.

It initially plans to commercialise two core capabilities. A shipping information pipeline will provide end-to-end supply chain visibility, enabling the secure and seamless exchange of information about shipment events in real time. Paperless trade will digitise and automate paperwork filings by enabling end-users to securely submit, validate and approve documents, thus reducing the time and cost for clearance and cargo movement. By using blockchain-based smart contracts, the hope is approvals will be sped up and the number of mistakes reduced.

“It is a broad vision,” says Marvin Erdley, IBM’s global lead on the project. “We are creating the information backbone of the global ocean supply chain. We will bring together the entire network from ocean carriers, exporters and importers to ports and terminals, customs and government authorities and transport and rail networks. The digitising of information on the blockchain will increase visibility and produce reliable, accurate and timely information for all parties to see. If an issue in a carrier arises then it can be identified and dealt with quickly rather than disappearing into a black hole somewhere.”

Blockchain will also digitise and automate the clearance process reducing the costs associated with paper and information exchange, he adds. “The key success criteria will be building the network. The value to clients and customers grows exponentially when more clients sign up. We are confident the demand is there, as IBM and Maersk are engaging with a broad group of global corporations, many of whom have already expressed interest in the capabilities and are exploring ways to use the new platform, including General Motors and Procter & Gamble.”

Increasing efficiency and accountability

For enterprise blockchain platform Slync, efficiency is a tangible benefit for supply chain managers in exploring the value of blockchain. It has recently joined the Blockchain in Transport Alliance (BiTA), a trucking industry consortium developing industry standards in blockchain use. 

The aim is to enable supply chain partners to validate and manage transactions in a less expensive and more efficient way, says Slync CEO and co-founder Chris Kirchner. “We create an immutable audit record of any series of events within a supply chain,” he explains. “It provides a collaborative system of record for business partners, reducing disputes.

He adds: “It means more accountability. You have better vision of what is happening throughout the supply chain, such as a third-party vendor not following the rules of a contract. You will also no longer get companies skewing data to fit KPIs.” 

The BiTA is currently working on a pilot, and Kirchner says he expects to have hard metrics on savings and benefits within the next 18 months. 

“At present if a shipment spoils or goes below a critical temperature in transit it can take months to audit the data points held by every party,” he says. “With the real time visibility and transparency of blockchain you could quickly get another product heading out to the shelves or speed up any dispute resolution because the information is clearer and not left in silos.”

Aside from the efficiency angle, blockchain also has the potential to play a role in fighting modern slavery by enabling supply chain managers to track the source of materials and services through a number of tiers. Coca-Cola, for example, has confirmed it is piloting blockchain technology to prevent forced labour in its sugarcane supply chain. 

IBM has also teamed up with gold and diamond firms such as Berkshire Hathaway’s Richline Group to track the origin of jewellery to ensure it is being sourced ethically. The TrustChain programme will initially help customers track six styles of diamond and gold engagement rings and is expected to be available to consumers by the end of 2018.

It follows another initiative from De Beers Group. The mining giant is developing a diamond blockchain to provide a “single, tamper-proof and permanent digital record” for every diamond registered on its platform, which will span the entire value chain. The aim is to ensure registered diamonds are conflict-free and ethically sourced, so gems can be tracked every time they change hands, responding to consumer concerns over conflict diamonds. A pilot is underway, with a full launch expected sometime in 2018. “It has the ability to be very significant for the industry,” the firm’s CEO Bruce Cleaver told Reuters. 

Digital certification

The ethical implications of sourcing and consumer expectations also play a key role in a smaller, UK-based blockchain project, this time focused on the food supply chain. Tech start-up Provenance has teamed up with the Soil Association (SA) to improve food traceability.

“We wanted to recreate online the trust that we have, as shoppers, when we see a well-known mark such as the SA’s Organic Standard on product packaging,” says Provenance founder and chief executive Jessi Baker. “We wanted to transform the mark from a static image on product labels to a fully-interactive symbol enabling shoppers to find out more about the produce they buy.”

A supplier provides evidence to Provenance stating that it has an SA Organic certification and the licence number. Provenance then creates a smart contract – a piece of code that runs publicly on the blockchain – to validate the supplier’s certificate. 

“You could do some of this without blockchain, such as creating a digital equivalent of a certification, but it would lack the extra layer of encryption and transparency that blockchain provides,” says Baker.

In addition, when a supplier transfers a product to the next step in the supply chain, this information is recorded on the blockchain. “It’s as simple as updating a digital record, such as creating a Facebook account or similar, on your mobile or computer. All you need is a phone and an internet connection to make it work,” Baker explains. 

Provenance is also leading a group of fintech start-ups working with blue-chip banks, Unilever and Sainsbury’s to test whether blockchain technology could help unlock financial incentives that improve transparency and sustainability in supply chains. The tool is being piloted by building a database of small tea farmers in Malawi, gathering and recording standardised information on small farmers and producers, including quality and price. 

If successful, the technology, which could reach up to 10,000 farmers in its pilot phase, could be used to make supply chains more transparent and easier to assess for risk, allowing banks to offer lower priced capital to more than 1.5bn small-scale agricultural producers worldwide. Unilever’s head of sustainability Keith Weed has said the tool should help the firm increase sustainable sourcing globally. 

“There’s a new type of digitally savvy consumer who is demanding more information about the food and goods they buy,” Baker says. “People want assurance that the things they’re purchasing, have not caused harm to the environment and societies from which they originated. This makes transparency in the supply chain crucial.” But it’s not all plain sailing, she adds. 

At present supply chain information is stored in centralised databases, meaning that key data sits in silos, owned only by the company responsible for it, and only available to whoever they choose to share it with. 

“Currently when we share data, the transactions are brokered by a trusted third party. At Provenance we use a public blockchain as it allows information to be shared, peer to peer,” Baker says. “Storing key supply chain data in a decentralised database which is open, secure and inherently auditable is radically different from the status quo.” 

Added value

Transparency is also driving change in the coffee supply chain. Moyee Coffee Ireland has been working on a blockchain project with software firm bext360 in Ethiopia since last November. All players in the supply chain, from farmers to roasters and consumers, can access data as beans are moved from production to consumption. Moyee is in good company: Starbucks has also announced a two-year pilot scheme in Costa Rica, Colombia and Rwanda to provide real time information about beans in the supply chain and help empower rural farmers. 

“We want to give consumers full visibility of the supply chain,” says Moyee’s co-founder Killian Stokes. “They can use a QR code on our coffee bags to see where the beans have been sourced. We want to let them see how much farmers are getting paid.”

The bext360 platform creates crypto tokens, which means farmers get sums paid into a digital wallet as soon as they sell on their coffee cherries. Blockchain allows for that payment to be digitally recorded and photographed. Data is further recorded in the washing stations and during transport until the beans reach the supermarkets. 

“Blockchain provides real added value to the process,” says Stokes. “Our next step is to scan in shipping documents to the platform and identify where pollution or excess use of carbon is being added to make us more sustainable.”

These examples of  blockchain in global supply chains appear to show a clear move from talk to action. Yet there are still significant challenges to be overcome before the technology goes mainstream and delivers on the benefits extolled by enthusiasts. 

“The value of the data comes in the collaboration of like-minded parties. It is not easy to get them into a line,” says Kirchner. “But I believe firms are bullish about change and modernising their business. However, we still need to determine what the black and white business benefits are.”

Although stressing the advantages blockchain offers around shared definitive records, professor Michael Lewis, head of the IDO Division at the University of Bath School of Management, urges caution.

“A recent World Economic Forum report stated that over-promoting the technology without considering associated risks such as cost, security and regulations could be damaging blockchain’s long-term prospects,” he warns. “Tracking and traceability are clearly potential benefits of a distributed ledger technology, but a public system invokes significant concerns regarding data confidentiality.”

He adds that too many of the pilot applications are trying to replace things that already work pretty well the old-fashioned way. “The WEF report added that if supply chain partners already know and trust one another there is probably no need for blockchain,” he explains. “If they don’t or if they have misaligned interests, there may be a good reason to use blockchain. But how will an uncertain, potentially hackable, energy-intensive, technology be the basis for building trust? There doesn’t seem to be much precedent for that in the history of supply management.”

Enrico Camerinelli, co-founder of Community NdT, which works with companies to test new technologies, also believes the pilots need to be better focused. “They are looking at how blockchain applies to existing business processes, but the real value is to think beyond that,” he says. “So, how can blockchain reduce the time needed to replicate purchase or sales orders? Will customers pay more for more tracking visibility? Can you use blockchain to select the best suppliers? What is the return on investment? We need to answer these questions.”

But he is confident progress will continue, predicting: “There will be an acceleration in investment. Blockchain will become reality in the next five years.” 

Stokes of Moyee Coffee Ireland agrees: “Every industry should be excited about blockchain, from the coffee farmer checking mobile data from the back of his donkey to diamond producers. It can disrupt dinosaur industries.”   

Go further with CIPS Knowledge on blockchain.

What is blockchain?

Still confused about what blockchain actually is? Don’t worry, we won’t tell anyone…

Blockchain is a shared ledger where multiple copies of the same database – stored across computers online – communicate. This allows new entries to a database – the creation of new ‘blocks’ of information – to be shared with all stakeholders, while constant crosschecking ensures the integrity of existing entries. The data is permanent and immutable.

Products can be digitally tracked from suppliers to store shelves, and ultimately to consumers, with suppliers uploading information such as origination details, batch numbers, factory and processing data, expiration dates, storage temperatures and shipping details. Transactions are recordable and trackable.

BARRIERS TO BLOCKCHAIN

  • Fears over data privacy and security
  • Unwillingness to share information across the supply chain
  • Interoperability of IT systems and standards
  • Lack of concrete benefits and rewards from adopting blockchain to date
  • Pilot schemes yet to be fully completed. No proof of concepts in the sector
  • Uncertainty around what blockchain means and concerns about its links with cryptocurrency
  • It’s not a green technology, especially if combined with bitcoin (the currency used in blockchain transactions). The electricity required for one bitcoin trade could power a house for a month.
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