In late 2017 the New York based beverage company Long Island Iced Tea announced that it would change its name to Long Blockchain Corp. Its share price went up 200% in one day. That’s the power of hype, and it helps to explain the irrational market of two years ago.
The cryptocurrency market has returned from the moon since then, 2018 was an especially ugly year for investors, but that doesn’t mean R&D has stopped in crypto. In fact, development is continuing at a blistering pace, and the revolution happening in supply chain optimization and management is a great example how blockchain has the chance to modernize the world.
Where Blockchain is Being Used
The Capgemini Research Institute recently conducted a survey of 731 organizations, and the results were surprising. More than half of the organizations, 447 in total, claimed that they were in the trial stage or further of implementing blockchain technology in order to modernize their supply chain. Given that just a few years ago blockchain meant Bitcoin meant criminals, this is tremendous growth in such a short amount of time.
Ernst & Young (EY), one of the big four accounting firms, recently released Nightfall. The protocol enables private transactions on the Ethereum smart contract platform. What’s so fascinating about the release is that EY spent more than $1 million developing Nightfall and then they released it for free to the Ethereum community.
EY blockchain supply chain
It’s hard to think of another time when a cutthroat consulting firm gave away a millions dollars’ worth of something for free. Actions speak louder than words, and this commitment shows that EY believes that Ethereum has a strong chance of being adopted globally. While the cryptocurrency is still in its childhood and many technical hurdles remain, the Ethereum Enterprise Alliance proves that there is a huge potential for businesses and blockchains to work together. Supply chain management will no doubt play a role in that.
How Blockchain Works in Supply Chain
What makes blockchain in the supply chain industry so exciting is the way it allows for easy, yet immutable, record keeping. A shared, secured ledger that every person involved in the supply chain, from the producer to the shipper to the retailer, can easily read and also write to.
With blockchain supply chain optimization is easy since there is no paper, everything is digital. In seconds any person can find out the entire history of the product they have in their hands. No phone calls or paper invoices, the data will be easily accessible with a computer or smartphone. For the first time there will be a common ledger to verify and track goods through the supply chain. Interestingly, as a bonus of sorts, retailers can also make some of this information available to the consumer.
Areas Where Blockchain Can Lead to Supply Chain Optimization
One area where blockchain is going to lead to supply chain optimization is carrier onboarding. At the moment there isn’t a comprehensive database of carrier ratings and as a result each company has to spend time gathering reliability statistics, checking on insurance and driver qualifications. Blockchain will change that. With a common database businesses from around the world will be able to rate carriers, saving companies the time and hassle of having to screen shipping companies themselves.
The trial might have lasted two years but Walmart has finally announced that they’ll be integrating blockchain technology as they believe it will lead to supply chain optimization both within the company and with their suppliers. In particular, the new supply chain system will track grocery products. Walmart believes that this will lead to less spoilage and in the event of a recall goods can be easily traced. As a proof of concept the mega-corporation demonstrated how supply chain with blockchain allowed them to reveal the origins of a mango that they were selling in their store.
They were able to track the mango from the tree, through the shipping process, all the way to the shelf and it took only a few seconds to pull up the information. Normally following a product through the supply chain would take much longer, if it was possible at all.
A Supply Chain Automation Use Case
Traditionally bill of ladings (B/L) have been printed on paper and passed along or copied physically. The problems inherent in this outdated approach are obvious. Paper documents get can lost or stolen. They are only accessible to a limited number of people and cannot be viewed remotely, at least not without some effort. They’re also time consuming to transfer to a computer. That’s the old way. The new way is supply chain blockchain and it’s going to automate the entire process.
CargoX is a shipping services company focused specifically on digitizing the bill of lading. By writing the document to the Ethereum network, they can cut processing time from five to ten days to just twenty seconds. Transferring cargo ownership is also significantly easier as a quick swap of private keys is all that’s needed.
To ensure the highest level of security and immutability, all data is written to the public Ethereum network. This allows for a tamper proof bill of lading which will help with insurance claims and to reduce fraud in the supply chain. While the data is stored publicly, as opposed to being stored on a private chain, cryptographic algorithms guarantee that only people with the correct private key can view the data.
A Supply Chain Finance Use Case
“This is an inflection point for how trade is conducted. With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous.” The comment from Vivek Ramachandran, the head of HSBC’s global trade and receivable finance business, was addressed to a momentous occasion: the completion of the first ever commercial trade transaction made using blockchain. A shipment of soybeans was sent from Argentina to Malaysia and the entire process happened digitally.
Powering the transaction was R3’s Corda distributed database. This private DLT system is designed specifically for business applications and HSBC is one of the banks supporting the project. One of many backers, it’s worth noting. Corda has partnered with has partnered with several hundred large institutions and while this might have been the first trade finance transaction that took place in their ecosystem, it’s a good bet that it won’t be the last.
Far from just a buzzword, the real-world supply chain trial of a DLT network reduced the time needed for document exchange from about a week to twenty-four hours. HSBC went on to claim that if all supply chain finance transactions in the Asia-Pacific corridor were run on blockchain, there could be as much as a 44% reduction in time needed for export and a cost reduction as high as 31%. Impressive numbers that prove the real world viability of blockchain to improve supply chain finance.
A Supply Chain Management Use Case
Coffee is a perfect candidate for blockchain enabled supply chain optimization and management. With thousands of coffee farmers spread across the world, and consumer base who is interested in knowing about the origins of the product, there is a lot of potential for supply chain with blockchain to come in and disrupt business. In Denver, for instance, Bext360 is a startup building a product on the Stellar blockchain.
Bext360 uses a blockchain enabled machine, something they call a bextmachine, in order to scan beans and assign them a unique tracking number. From there batches of coffee are represented on the blockchain as tokens. This facilitates not only supply chain tracking but quicker payments to the farmers.
Once the beans are scanned it becomes much easier to track them through the entire supply chain. Further, with a few clicks consumers can discover the farm the beans were grown on, when they were harvested and roasted, and any other information that farmers want to provide.
The blockchain aspect of this new supply chain management strategy is important because it’s essential to have an open database which anyone can write too. With farmers potentially thousands of miles away from retailers, it would be difficult for a database to fill the role that a blockchain is so perfectly designed for.
A Supply Chain Logistics Use Case
Shipping is a big business. Trillions of dollars’ worth of goods travel across the planet every year and 90% of that freight is sent via the ubiquitous container ship. It’s surprising then that so much of the industry still relies on paper documentation. Not only is paper in the supply chain inefficient and difficult to replicate, it’s easily lost.
This is especially pernicious for freight companies as certain documents are required at certain stages of the shipping process and the loss of these documents can cause delays and millions of dollars’ worth of losses. Blockchain is going to change all of this.
With supply chain blockchain a shipping company can register freight on chain as soon as it’s received. That would create a definitive record of what was received, from who and at what time. Crucially, this record would be immutable which would help to uphold its legality in a court of law. As the freight was transported across the world its location could be continually updated on chain, ensuring that it was easy to trace. At the final destination the blockchain could be updated to reflect the time of delivery and who received the goods. Throughout the journey, officials who needed to review the container ship’s freight could easily do so.
The adoption of blockchain in the shipping industry also opens up the possibility of using smart contracts. Companies could deposit funds into an escrow account and those would be released as soon as the goods were certified as delivered at the final location. That would mean faster payments to shipping companies which could have the effect of allowing them to reduce their fees. It would also reduce the number of administrative staff needed to handle supply chain invoices, further lowering the price of shipping goods.
While the use of blockchain in the shipping industry is still in its infancy, it’s not going to stay that way for long. IBM recently announced their intention to work with Maersk, the world’s largest shipping company since 1996. Together they are creating a blockchain shipping supply company. The company will offer supply chain blockchain solutions to the freight industry at large, helping to reduce costs and speed up shipping times. The future is bright and even if this particular company fails, the era of paper is rapidly coming to an end. Blockchain can do everything that traditional systems can, plus a lot more, and it’s an exciting time for every business integrating this new technology. Supply chain optimization can save time and money and since blockchain is in its infancy it can still offer a competitive advantage to those firms that adopt it.
Blockchain is the Future
Paper contracts, bills of lading and shipping manifests can be used to start a fire, should the need arise. Apart from this rather esoteric advantage, there is almost nothing that paper does that blockchain can’t do better. Documents written to the blockchain cannot be forged, they are difficult to lose (the data is there forever, however, a private key to decrypt the data can be lost), and are quick to transfer.
As companies update their supply chains with blockchain technology, they are going to speed up the entire shipping process and save money as well, there is very little to lose. Even though adoption at the moment might not be extraordinary, as the technology improves, it is likely that paper in the supply chain will go the way of the landline telephone in the home. Goodbye tradition, blockchain promises better supply chain optimization than anything we’ve seen before.
We help our clients to deliver high-quality distributed apps and web-apps with blockchain. If you have any questions about how blockchain might benefit your project, feel free to reach out, we offer a free consultation on the topic.