How Blockchain changes the SCM industry
by Maxim Zhulinsky a E-Crypto News Exclusive
Did you know that more organic food is being sold in the world than is grown all over the world? This is a miracle!” Frank Yiannis, Walmart’s Vice President of food safety, ironically began his speech at the “Business of Blockchain” conference. According to Walmart, every year fake products cost the industry $10-15 billion in damages.
When you buy food, drinks or medicines, are you sure that they are authentic and safe? You really don’t know. You believe it. After all, you simply cannot check it. According to the Organization for Economic Cooperation and Development (OECD) report for 2013, 2.5% of global imports in the amount of $461 billion are counterfeit products. And this figure is growing every year. Trust and transparency has become the scarcest commodity on the market.
Manufacturers are struggling with fakes, but there are still many pain points in supply chain management (SCM). Although 88% of companies use ERP systems, only 29% can see costs along their supply chain. The problem of availability and verifiability of data traditionally leads the polls of market participants. Yiannis gave an example when, during a meeting, Walmart managers brought a box of mangoes from the store and were tasked with determining where they came from. He said, “It took six days, eighteen hours and twenty-six minutes … almost seven days … and we work better than most.” Now, after the implementation of the blockchain, tracking of the source of the product takes 2.2 seconds for Walmart. Remember this when someone tells you that blockchain systems are slow.
Blockchain capacity in SCM Each shipment of a container in sea transportation requires about 200 approvals from 30 organizations. One lost document or late approval, and the container can get stuck in the middle of nothing and cause significant losses to its owner. SCM is a multi-step process; the delay in any of the steps can dramatically affect profits. Security, transparency in the movement of goods throughout the supply chain, and prompt signing of contracts in electronic form is vital in SCM.
One of the most significant advantages of the blockchain is the transparency of information. Companies can easily share information with manufacturers, carriers and customs authorities. Such transparency reduces delays in the paperwork and disputes, which reduces the possibility of getting stuck and downtime of delivery. Blockchain scales the availability and security of information around the world. A business can use a private blockchain and store commercial information, giving access only to participants in the process. In this case, a single information center is created with high confidence, which allows you to fight against forgery and loss of documents. The key properties of the blockchain are to create and store consistent, unchangeable entries. If someone changes the content of the document, it becomes known to all.
There are four states in the supply chain: existence, ownership, location and storage of the product. The decentralized nature of blockchain allows knowing all types of state in real-time. Once the data on the origin of the product, the date of shipment, transfer of the goods and the shelf life of the product are recorded on the blockchain, they are available to everyone and cannot be changed without general agreement of all interested participants in the supply chain. In this case, the trust in information leads to a reduction in the time of movement along the chain, reducing additional costs and the possibility of human errors.
Using blockchain in practice In a recent review, Xeneta asked SCM professionals, Do you expect blockchain technologies for logistics to regulate and simplify administrative work in shipping and logistics/supply chain management? 72% of respondents answered “Yes”, 20% “Not sure” and only 8% “No”. In fact, it is difficult to find another example of such a high level of adoption of a new technology in a traditionally conservative business.
In a nutshell, the blockchain technology can be described as a secure way to share consistent information freely. Now the use of blockchain systems has not yet become the industry standard, but giants such as Oracle, SAP, IBM, Salesforce, Microsoft and Google successfully develop their blockchain solutions and launch pilot projects in cooperation with major retailers and logistics companies. FedEx, UPS, Purolator, Target, British Petroleum and even more than a hundred companies have joined the Blockchain in Trucking Alliance (BiTA) association and are committed to develop the industry through consistent, transparent and unchangeable data.
Walmart’s success in tracking the origin of food using blockchain technology inspired the main players. The recovery time of the entire goods path from the farm, packaging centers, brokers, warehousing and logistics companies to a specific retailer’s store has been reduced from days to seconds. As a result, Walmart, Unilever, Nestle and Dole successfully control a distribution of contaminated products with the help of blockchain, having the ability to track the path along the chain and, in the event of contamination, promptly recall products from the infected shipment from all stores.
In August 2018 Maersk, the world leader in shipping, and IBM launched the blockchain platform TradeLens, to which 94 participants have already joined. Among them are a group of the 20 largest port operators, such as the Port of Rotterdam, PSA Singapore, New Terminals of Hong Kong, the Ports of Philadelphia and Halifax. This group manages 234 seaports around the world. In addition, the project was joined by the Customs Services of Holland, Saudi Arabia, Singapore, Australia and Peru. The blockchain database has already recorded more than 154 million transport events, including the time of arrival of the vessel and loading of the container, customs documents, commercial invoices and bills of lading. And about a million new events are recorded daily.
When using TradeLens, all participants in real-time get access to information about shipping data, shipping documents and condition of the goods. Data from IoT sensors about weight of the goods, temperature and location give the maximum level of control over the transportation process. Blockchain and smart contracts simplify the interaction of importers and exporters with customs brokers and port operators providing a single picture of all transactions and signed documents, according to access rights and confidentiality of commercial information.
In one of the cases, the use of this blockchain platform has reduced the shipping time by 40% and thousands of dollars in costs. Improving communication and transparency of the process helped answer the most burning logistics question: Where is my container?, from ten requests and five people, to one request to the system from one person.
Custom blockchain solutions
How can a small- or medium-sized business try the benefits of transferring their supply chain management system to blockchain? One can use a finished product from market leaders or develop a solution for their own needs. But it is important to remember that SAP or IBM products are designed primarily for global corporations, and may not be suitable for small companies. At the same time, the development of blockchain solutions from scratch may be beyond the budget.
To solve this dilemma, projects such as Prometheus appear on the market. Engineers at 482.solutions have created a balanced solution for a comfortable launch of custom blockchain SCM platform. Using IoT detectors and sensors allows you to track the path of the product and its condition. The use of smart contracts and recording in blockchain allows you to digitalize and automate the process. That speeds up and simplifies the processes throughout the supply chain. Storing data in the blockchain guarantees their immutability and enables the establishment of trust between participants in the delivery process and eliminates abuses at all stages.
The complexity of supply chain management is associated with the involvement in the process of dozens of participants who need to come to a consensus on the status of the goods. For retailers, it is important to know the origin and path of each product, and customers need confidence in authenticity and quality. With the help of the blockchain, this process can be greatly simplified and accelerated, making it transparent and accessible to all.
The systemic advantages of using the blockchain will sooner or later outweigh the fear of a new technology. The dynamic teams and companies that will be the first to reap the benefits of productivity growth, comparable to the transition from paper to electronic documentation, will benefit.