Blockchain Technology – The Next Revolution of Supply Chain

Written by Adrian Goh Boon Siong, MSIPMM

by Adrian Goh Boon Siong, MSIPMM

Blockchain Technology – The Next Revolution of Supply Chain

Written by Adrian Goh Boon Siong, MSIPMM

by Adrian Goh Boon Siong, MSIPMM

by Adrian Goh Boon Siong, MSIPMM

The popularity of bitcoin among the internet world spurred many to look at the underlying technology application. What makes bitcoin ungoverned, stateless and independent, a currency the world is so actively trading daily without regulation by any agency? Why are financial institutions so involved in using blockchain technology to develop integrated banking applications? Are there other business applications for blockchain technology? What is all this mind bending excitement about blockchain technology? Let us run though some of the facts.

traceability and transaction monitoring shipments

The diagram above shows the use of blockchain technology to ensure traceability and transaction monitoring of shipments. (Extracted from Lehmacher, 2017)

Blockchain Technology for Supply Chain Management

1. A blockchain record cannot be controlled by a single entity

Incredible as it sounds, you need to take control of more than 51% of all the networked computers controlling the blockchain to make a “false” record. Now image if your network is a million strong computers, a seemingly impossible event. From a single computer, a request to add can only be processed, and also to view the current blockchain record.

2. Information recorded is shared by a large number of entities

So if one computer is corrupted for some reason and is offline, the other computers in the blockchain network will still maintain the blockchain record. As mentioned earlier, the technology dictates that each computer in the blockchain network will have a copy of the blockchain record. This ensures that no matter what happens, there is a build in fail safe in information records, be it man made or natural equipment failures. This useful feature become critical if your supply chain system is connected worldwide, having a decentralised data system like blockchain technology will make it robust to any centralised system failures, making information recovery swift ensuring continuous supply chain operations.

3. Information recorded in a blockchain cannot be corrupted

The programmed protocol of a blockchain record does not allow for modification of entries already added previously. Example, if an earlier entry accepted by the blockchain record is “10 apples 1200hrs 14April2017” you cannot erase this entry or overwrite it. You can only add the next entry of maybe “6 oranges 1530hrs 16April2017”, the history keeps adding with no subtraction. Which bring us to the point that blockchain technology ensures information integrity which is temper-proof to a higher degree. This comes useful for supply chain information systems that are reliant on corrupt proof information at all nodes of the supply chain system. Examples of this use would be like tracking of perishables like meats along a cold chain supply system where temperature integrity is vital to food safety. Or maybe pharmaceuticals, where traceability and manufacturing origin is vital to prevent “fake products” from distribution in a market where copy-cat products are rampant.

4. Large network of computers form governing body to oversee integrity of the blockchain record

Durability, robustness and self-governing (a kind of computer automation) of blockchain technology is all dependent on the infinitely large number of computers in the blockchain network. The larger the network the value quotient of durability, robustness and self-governing strengths will increase. Having said this, it does not make sense if your blockchain network consist of less than 50 computers. The smaller the grouping of computers, are you sure you need blockchain technology? Maybe sticking to current sever network systems will do fine for you.

5. The governing programme can be set to self-audit in regular intervals to maintain the integrity of the blockchain record

Self-auditing in blockchain technology is to ensure that each computer in the blockchain network is having the same up-to-date blockchain record. The frequency can be defined, as an example, currently the bitcoin blockchain record is said to “refresh” every 10 minutes along with the allocation of 25 bitcoins rewards for the “mining” efforts to its blockchain network. For supply chain management, the automation to self-check ensures integrity of all information shared by all points of access in your supply chain network.

6. Blockchain records can be programmed to act only if certain conditions are fulfilled – “Smart contracts”

This is where the functional value of blockchain technology increases. The conditions or criteria for an action to record and act upon can be programmed. In general, you can set criteria to accept a record to be entered into a blockchain and also set criteria such that once fulfilled then it activates another event. This will be explained next in applications.

Possible Applications for Supply Chain Management

1. Product trail recording from origin to customer

The ultimate product traceability tool. With blockchain recording for a push system, the raw material information will be chained to the production batch information and chained to the quality inspection information and chained to the packaging batch and chain to shipment date and chained to last mile delivery record and chained to customer date received date and invoice. This type of recording is ideal for aerospace components, pharmaceuticals, food safety control, medical devices, etc.

2. Use of Smart contracts to execute an action when criteria is fulfilled

An example of a purchase where payment is in stages like a 10% up front and 90% upon receiving item. So the 10% down payment triggers the build of the product in blockchain records. All the subsequent activities get recorded to the blockchain. Once the item gets received by the customer an auto release from the bank is initiated for the balance 90% payment. This can only happen only if all the required activities are fulfilled earlier like commissioning, quality acceptance, safe delivery to customer and finally digitally acceptance received by customer, blockchain technology ensures this.

3. Enables peer-to-peer data transfer or payments without a governing host

Blockchain technology allows for secure transfer of data or electronic payment without the use of a central host. With a two key encryption for the sender and receiver, the blockchain network then packs the blockchain across the internet and the receiver then receives the data or payment without any “middle man”.

4. Providing a recording system to authenticate original and genuine items

Land titles, genuine branded fashion goods, diamonds, precious materials, marriage certificates, product origin, intellectual property record, death certificates, birth certificates, home ownership record, education certificates, citizenship records, vehicle ownership records, income records, tax records, business registration records, etc. Anything that is important and valuable to the human race, needs a dependable, reliable and trusted recording system, that is what blockchain technology provides.

5. Proof of ownership

Important possessions that belong to an individual can be kept recorded with a blockchain ledger. Property transfer records, ownership of valuable assets like ships, businesses, precious materials and land tiles are some uses of blockchain technology records. The importance of integrity of records makes blockchain records the ideal form of digital record.

6. Transparent and open resource allocation system

The distributed record system of blockchain records allows for network wide information sharing. Now if the time allocation of activities of supply chain transport assets such as trucks are shared, then better scale of productivity and efficient use of resources may result. Tie this in with artificial intelligence programming and the efficient use of network wide transport resources is achieved with possible significant operation cost savings.

7. Self-auditing of supply chain activities

One of the features of blockchain technology is that all records held by each member of the network is revalidated in fixed intervals. This ensures that a network wide record is shared at each point of use. Tie it in with a “Smart contract” feature, then certain inter-checks activities have to take place before the item is allowed to move to its next supply chain node and recorded into the blockchain record.

8. De-centralised distributed data records

When customer information and customer requirements needed to be communicated to all across the supply chain network, a blockchain data record system seems logical. This allows for clear instruction on customer requirements and also uniform execution of services to the customer at each supply chain node. Other potential uses of a distributed record system is that information is easily available for viewing as it is already downloaded into your computing device and updated regularly. Example are movement records of goods in transit, as the blockchain record is updated, the updated information is shared to all devices on the blockchain network.

Comprehensive collection of blackchain application

The diagram above shows a comprehensive collection of blockchain applications and start-up businesses pioneering the development of the technology. (Extracted from Letstalkpayments.com, 2017)

Conclusion

The supply chain management world needs blockchain technology – a defining competitive advantage. To enhance and control information integrity, to improve reliability of supply chain reporting and improve customer service levels is key to developing long term competitive values that customers will appreciate. Blockchain technology proposes all of these values, now the question is who will be the first to adopt it?


References:

BlockGeeks (2017), “What is Blockchain Technology? A Step-by-Step Guide For Beginners”. Retrieved from https://blockgeeks.com/guides, accessed 27 July 2017.

Bauerle N. (2017), “How does blockchain technology work?” Coindesk. Retrieved from https://www.coindesk.com, accessed 30 July 2017.

Lehmacher W. (2017), “Why blockchain should be global trade’s next port of call “, World Economic Forum. Retrieved from https://www.weforum.org/agenda/2017/05/blockchain-ports-global-trades, accessed 19 August 2017.

Letstalkpayments.com (2017), “Know more about Blockchain: Overview, Technology, Application Areas and Use Cases”, Retrieved from https://letstalkpayments.com/an-overview-of-blockchain-technology, accessed 24 August 2017.

SCM Globe Corp (2014), “Five Supply Chain Drivers”, SCM Globe – Online Supply Chain Design & Simulation. Retrieved from http://blog.scmglobe.com, accessed 7 August 2017.

Tapscott D. (2015 March 12), “SXSW Preview: What’s Next Generation Internet? Surprise: It’s all about the Blockchain”, Linkedin, Retrieved from https://www.linkedin.com/pulse/whats-next-generation-internet-surprise-its-all-don-tapscott, accessed 27 July 2017.

About the Author:

Adrian Goh Boon Siong has extensive experiences in supply chain management, business and manufacturing operations in several industries. He is a member of the Singapore Institute of Purchasing and Materials Management (MSIPMM).

Adrian holds an MBA from the University of Adelaide, and he is currently a candidate of the Graduate Diploma in Supply Chain Management (GDSCM) at SIPMM Academy.

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