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Supply chains are the backbone of the business world. They dictate how goods travel from producer to consumer, through the many links in between. Time and again, supply chain practices have been optimized to facilitate the seamless movement of goods. However, in our data driven world, one must ask, what happens to the numbers behind the processes and how can we share them to bring about even greater efficiencies?
Data in current supply chains
Supply chains involve many different parties. From manufacturers to customs, logistics to retailers, enterprises run their own systems, and each step to a supply chain requires the interaction of data silos. This means that each stakeholder holds their own copies of contracts, has their own data tracking of what’s going on with regards to warehouse management and transportation management, and each has their own system, whether enterprise resource planning (ERP) or otherwise.
Supply chains need a solution that brings together these systems: a layer which synchronizes all the systems in terms of a supply chain of data.
Blockchain: ideal for supply chain
As a distributed ledger shared among its participants, blockchain offers supply chain participants a golden copy of data, whereby all participants in the chain are guaranteed to have the same data as one another. This strengthening of data integrity through one copy makes the auditability of the data simpler, while blockchain’s immutable nature also reduces audit costs, since network participants can be sure that the data has not been tampered with. Lastly, smart contracts in the form of code, which executes to trigger automatic operations, provide the opportunity to automate many processes that are currently performed manually, with all of this data recorded to the tamper-proof ledger.
So what is holding back the technology?
Enterprise has already invested so much in computing systems; they are not going to migrate to an unproven technology.
Implementation of blockchain so far has for the most part been based on bringing all stakeholders under a single platform. This is not a working solution since enterprise has invested so much in their own computing systems that they are hardly going to submit to the hype and a novel technology. Businesses are unlikely to now embark on ripping out their incumbent systems – whether 5 or 50 years old – to completely replace them with distributed ledger technology (DLT), such as blockchain.
In short, no company will replace their current ERP system to an unproven technology no matter who is backing them.
So what are the pain points and can they be overcome?
At present there are two main approaches that are dominant in proposals of how blockchain can be implemented in supply chains: provenance-focused and transport management-focused.
This proposal for blockchain implementation is one put forward by companies such as IBM’s Food Trust, OpenSC, and others, whereby they focus on placing all stakeholders to a supply chain within one system. They say this is needed to correctly track provenance. In this system, all participants put product data on the blockchain in addition to data input on existing systems (sometimes manually).
The big problem with this system is that it doesn’t say how and why a particular product actually arrives at its destination – it doesn’t provide any delivery information, just about the points of contact where there was an event/interaction/hand-over during the supply chain.
As such, this offers no control over the delivery process.
Transport management-focused blockchain
The second approach involves placing a transport management system (TMS) on blockchain. Again, this doesn’t account for the fact that companies have already invested large sums in their current systems and will not re-invest even bigger sums to be part of an all-encompassing system.
Examples of projects offering these blockchain-based TMSs are track and trace firms such as IOTA, One Network, DLT Labs and others who place IoT sensors on products in transit to provide location information. However, they do not provide information on the contents of the products in transit, nor information as to why the contents are moving, although they will have recorded the proposed destination.
Order management on blockchain
There is actually one more approach that isn’t very popular in the blockchain market right now, but worth a mention: order management on blockchain. This approach basically equates to document management in supply chains; something of the opposite end of the stick to the blockchain-based TMSs since these blockchain projects provide data on why there is movement of a certain good but no data on where the product is destined for.
What needs to be solved
The above proposals for supply chain on blockchain aim to provide data transparency throughout the processes involved. The aim is to solve the following problems in supply chains.
- What is happening in the physical world
- How to understand what is the legal basis for
- the movement of goods
- the events that need to be documented – the links in the chain
The whole notion here is to express in data why things are occurring in the real world and try to understand why problems occur and how to solve them. After all, problems have an impact on contracts and are costly to resolve, so the real idea is to use the data at hand to know where pain points are likely to occur and account for them before they happen, providing safety nets to avoid issues.
With this in mind, blockchain projects should aim to provide a one-stop-shop solution that links real people to real world problems. This solution should make it easier to identify risks. This can be done by every supply chain process covered by documented data: the events of handover, the reason as to why the links occur, the locations, the movements of the goods, etc.
The problem is that conventional systems and blockchain projects only account for the supply chain of tangible goods – what is moving down the chain. They do not account for what could be termed as the supply chain of data.
Supply chain of data
Current supply chain processes document the movement of physical products and they work pretty well – not perfectly – but they work. The roles of all participants are pretty well defined, and this is what keeps the wheels moving.
However, companies also need to exchange data. There is no defined process as to how data should be exchanged throughout the supply chain. This is something that can be solved with a blockchain platform that doesn’t aim to overhaul and replace current systems, but can link them up and provide for a transparent data ecosystem.
Data interaction processes need defining
The process for data interaction at present is poorly defined in incumbent systems, and can be addressed by the above-mentioned blockchain-based ones only when all participants throw out the computing systems they already have and complete a costly migration to a new and single, blockchain-based system. Moreover, neither is able to define the next steps, depending on which data has been received.
As such, there needs to be a well-defined process for data interaction between parties. If we take the current supply chain process in tracking an order, we can say that tangible interactions work well when using one courier. Problems arise when there are many links and many data silos. A good example of this is tracking an order. When the order changes hands to a different operator, it is given a new number in accordance with the new system within which it is being accounted.
This is why provenance-based blockchains aim to envelope all participants within one ecosystem with predefined data interaction processes.
Blockchains should aim to link existing ERPs
As you might have guessed by now, blockchains should aim to link existing ERPs. For this they need to be interoperable with conventional systems. It goes without saying that most blockchains are aiming to be interoperable with current systems as, even if the blockchain revolution does come to fruition, data will need to be shifted over and that will require interoperability. Blockchain just needs to link the participants to provide visibility of data all the way down the chain.
A blockchain system that documents the supply chain of data will build the process for the legal basis of why things are happening and then exchange this information within a single ecosystem.
This system will document every handover to the blockchain, then transmit this data back to the ERPs of the separate participants. This makes it simpler to know who is at fault, should something be lost/damaged/etc. Pictures can be uploaded to the blockchain by each participant so that it can be determined where the damage (if any) was caused. All the data and documents regarding the order are collected within a single blockchain-based ecosystem that participants’ ERPs connect to, copying the data to their own systems and adding relevant and necessary data to in order to facilitate a supply chain of data.
This approach means documenting all interactions in the real world with a legal basis via DLT. The difference is that this is a system that accounts for the data holes in previous systems, while it is integratable with current systems. This means that there is no need to overhaul current systems – just plug into the blockchain that fills all the data gaps in the current chain of supply.
Supply chain optimization aims to facilitate frictionless trade. By implementing blockchain correctly, we can bring about frictionless data exchange to further improve process execution.
Andrey Zhulin co-founded Insolar in 2018. He is a tech entrepreneur with a demonstrated history of building successful companies. Before launching Insolar, he worked in venture capital and investment banking at Goldman Sachs. Andrey holds a PgD in quantitative finance from the University of London, and a Master’s degree in engineering (honors) from Bauman State Technical University.
Email: [email protected]
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