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How blockchain technology can facilitate supply chain and logistics

Al Fattah Md Azim | Published: July 07, 2019 20:50:42 | Updated: July 11, 2019 21:20:23


[The first of two-part article titled "Driving efficiency in supply chain and logistics through blockchain"]

 

In 2016, Amazon became the fastest company to achieve the $136 billion revenue milestone. It has also been growing annually at a staggering rate of 20 per cent and enjoying around 6.40 per cent of the global ecommerce share. At this pace, it is expected to hit the $1 trillion revenue milestone by 2027.

Those who know about Amazon's history are often curious about how it transformed itself from being an online bookseller to a global giant. According to experts, the secret behind this is a highly-efficient supply chain. By capitalising on technology, Amazon gained economies of scale to achieve the least cost per unit supply. Setting strategic fulfilment centres and optimised warehouse operations also fuelled this growth.

For example in January 2017, 45,000 robots were operational at Amazon warehouses. This is a whooping increase from 15,000 in 2015 and 30,000 in 2016.

Cost efficiency in supply chain and technological transformation are competitive edges for 21st century business organisations in their quest to achieve growth and sustainability. It is predicted that by the end of 2020, a third of all manufacturing supply chains will be using analytics-driven cognitive capabilities, thus increasing cost efficiency by 10 per cent and service performance by 5.0 per cent. According to a prediction by International Data Corporation (IDC), by 2021 one-third of manufacturers and retailers will be tracking goods by using blockchain.

BLOCKCHAIN MOVEMENT: According to Don and Alex Tapscott, authors of a 2016 book called 'Blockchain Revolution', the blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.

Blockchain is currently on the verge of disrupting different industries. Recently, Facebook launched a whitepaper explaining the concept behind Libra, a cryptocurrency to be used by the largest social media platform. Maintained by Geneva-based 'Libra association', which consists of members from global giants like Mastercard, Visa, PayPal, eBay, Facebook, Uber, Vodafone, Andreessen Horowitz, Kiva, Mercy Corps etc, Libra has the capacity to have greater impact and usefulness in social media-based commerce.

Libra is supposed to be launched publicly by the first half of 2020. It will allow people to buy things or send money to others with nearly zero fees.

The Libra association will promote the open-sourced Libra Blockchain and developer platform with its own Move programming language, plus sign up businesses to accept Libra for payment and even give customers discounts or rewards.

In such ways, the impact of blockchain is inevitable in many industries, including agriculture, banking, healthcare, education, e-commerce, property, mining, retail, transport and logistics, media and entertainment, automotive etc.

At the 'Blockchain Revolution Global Conference' in Toronto in April of this year, representatives from DHL, FedEx and UPS came together to discuss about blockchain technology and its inevitable impact on supply chain optimisation. Currently the "take-make-waste" mentality drives the inefficient utilisation of resources in many industries. This can be overcome by blockchain through the sharing economy driven concept. Different parties in the supply chain gain visibility in unused logistics assets, which can be utilised by others later. They have also placed importance on an open and standardised version of blockchain that can be shared by all shipping participants for greater impact. No doubt, blockchain is a team game. Therefore governments, companies, investors and customers should come forward to unleash its potential.

HOW CAN BLOCKCHAIN HELP? Blockchain is a system that records transactions by using cryptocurrency maintained across several computers linked in a peer-to-peer network without central control. It is a public ledger that can allow multiple parties to share data without changes. It removes the requirements for intermediaries who previously acted as trusted third parties to verify, record and coordinate transactions. Transactions in supply chains are likely to have more visibility thus driving transparency and leading to increased trust among parties. This will ultimately ensure efficient use of unutilised resources and sustainability.

According to IBM, today only 10 per cent of supply chain data is effectively used by companies. This is why businesses face delays and risks, leading to increased costs. The World Economic Forum has said that by reducing supply chain barriers to trade, global gross domestic product (GDP) can increase by nearly 5.0 per cent and global trade by 15 per cent.

Still, Gartner has projected that by 2022 only 10 per cent organisations will attain significant transformation using blockchain. This is because the technology is still immature, untested and best practices remain scarce. Still it is clear that blockchain will have one of the most profound impacts on the logistics industry, especially on supply chain.

Professor Vipul Goyal stated "a lot of companies are interested in blockchain for creating more efficient workflows, but supply chain management is one of the big killer apps". One of the reasons for this is that traditionally global supply chains are highly complex involving diverse stakeholders, differing interests and many third party intermediaries. These are challenges that blockchain is well suited to address. By 2022, blockchain is expected to boom to US $7.68 billion which was only $411.5 million in 2017, according to Markets and market. Rise in banking, financial services and insurance applications including digital currencies and identities, as well as the continuous development of this technology and growth from major vendors are fuelling this growth.

Driving efficiency and enabling new business models are two areas where blockchain can contribute to supply chain and logistics. It can reduce multi-level approving processes and paperwork can be replaced by automated tamper evident digital version. Blockchain could be used to monitor end-to-end product visibility and ownership transfer from origin to final receiver, even in between, when it changes hand within several manufacturers, logistics service provider, wholesaler, retailer and consumer. Facilitating direct and automatic transaction will strengthen relationship between stakeholders (e.g., automating payments and transferring legal ownership between parties). Payment, identification, certification, proofing etc. will be drastically improved by blockchain-based services. Ensuring data transparency, security, efficient asset management and utilising smart contracts are the key features of blockchain.

FACILITATING GLOBAL TRADE: At the moment, global trade is a highly complex process as it requires efficient synchronisation among multiple parties, customs, regulatory bodies, government departments, ministries, forwarding companies, etc. So scrutinising a ledger maintained by others and finding inconsistency in between is hardly possible. Blockchain technology can ensure that records are correct, tamper-evident, and from a verifiable source. Rather than maintaining their own ledger/database, under a blockchain-based system, every stakeholder gains access to controlled and shared database thus ensuring consistency, accuracy and transparency. In blockchain, individual transactions and messages are cryptographically signed. This means that breaching a security layer does not allow the entire system to be hacked. It can be used to manage physical or digital ownership transfer like land, house, copyrights etc.

Smart contract is another useful feature of this technology. It can automatically enforce stakeholder-agreed rules and process steps. Once initiated, smart contracts are fully self-directed. As a result, contract conditions are fulfilled while pre-specified and agreed actions occur automatically.

SECURITY IN BLOCKCHAIN-BASED SUPPLY CHAIN SYSTEM: Blockchain enables peer-to-peer interactions which can be trusted based on the digital signatures that endorse transparency where participants share the same documents as opposed to individual copies. Any change has to be made through mutual agreement. To change a single transaction record would require the alteration of all subsequent records and the collusion of the entire network. Thus, data on a blockchain is more accurate, consistent and transparent than when it is pushed through paper-based processes.

Every approved transaction is encrypted and linked with the previous transaction. That information is stored across a network of computers instead of a single server. This makes it very difficult for hackers to hack into the system.

Also historical transaction data can help to verify the validity of assets and prevent fraud. One desirable feature of the technology, is the low transaction cost to deliver anywhere on the planet. Through blockchain, clearing and settlement can happen quickly. Requirement of third party guarantors can be eliminated as everyone will have permission to access the single, immutable record. Also, the owner will have complete control of the assets since there is no third party that holds the value or can limit the access to it.

Additionally, anonymity of transactions will help eliminate identity theft. 

Al Fattah Md. Azim is currently working at a multinational supply chain and logistics company.

alfattahmdazim@gmail.com

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