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Written by: Daniel Heinen | Capgemini
Blockchain [1] – a term which has been shaking in particular the finance sector for a while now. Blockchain technology is frequently being described by words like ‘disruptive’, ‘game changer’ or ‘revolution’. But what is Blockchain exactly, and which role will it play in future logistics or Supply Chain Management concepts?
What is the Blockchain Technology and why is everyone hyped about it?
In essence, Blockchain is a technology for decentralized storage of transactional data. The storage of a transaction is organized in so-called blocks, while following transactions are stored in new blocks. The sum of several blocks makes up a chain; a logical sequence of transactions. Every transaction contains a timestamp and is secured by a cryptologic process. This chain works like a database which is updating its information continuously, with the difference that the chain is stored on every hard drive or computer which is part of the Blockchain network. All changes are recorded and encrypted, in real-time and in an audit proof way. Additionally, the changes are authenticated based on the consensus principle [2] . This means that transactions can be verified by all members of the network at any time.
A network based on Blockchain technology can take over functions which, until now, could only be enabled by centralized databases or platforms. Transparency and trust are created by technology, like platforms without owners or operators. Therefore, Blockchain Technology promises to allow untrusted parties, without any trusted third-party authority, to undertake transactions. In the example of Bitcoin or other crypto-currencies this trusted third-party authority are mainly banks. Blockchain saves time, paper and money and is less prone to manipulation. In addition, it ensures transparency, security and trust, which make Blockchain relevant for future applications in Supply Chain Management.
What are the benefits for Supply Chain Management?
Blockchain technology for itself doesn’t generate any benefit for Supply Chain Management. The question raised is therefore: for which desired future processes could this technology be the enabler? In this regard, we identified three major fields of action for our clients:
Traceability
Particularly – but not exclusively – in the food sector, the valid traceability of the origin of ingredients and goods is a prerequisite for operating a trustworthy business, or may even represent a license to operate. This difficult and challenging process of traceability can be automated, simplified and accelerated by efficient use of Blockchain technology and corresponding electronic tracking technology (such as WiFi, BLE or RFID). In a not-so-far-away future, it could be possible to trace back every product to the origin of raw material used. Potential cases of application in logistics are manifold: Tracking of quantity and transfers of material between Supply Chain partners or thinking of ‘smart tendering’ (containers equipped with tags publish a request to get from A to B on a platform; freight forwarders will subsequently place bids to win the order) are just some exemplary use cases.
Related: The Rise of FinTech (and the Challenges Ahead)
Smart Contracts
Another promising application for Blockchain lies in Smart Contracts, which are ‘electronic’ contracts based on automated actions that are triggered through predefined events. Such contracts can be used e.g. for automated execution of payments in case of an in-quality and on-time delivery. In a bigger picture, this scenario is an essential foundation for fully automated order calls, particularly in multi-stakeholder contracting. The Blockchain smart contracting approach is also interesting in light of the inhomogeneity of used IT infrastructure – Large corporations typically use ERP based, private clouds, while suppliers (often Small and Medium-sized Enterprises) are frequently using cost efficient cloud-services. Blockchain technology can offer a public cloud service as an integration platform. [3]
Safe Transactions
A third potential usage for Blockchain technology lies in its capabilities for validating data: Blockchain allows one to follow and track the ‘journey’ of data, including a valid timestamp. This is useful in a wide variety of processes such as: Exchange of confidential business documents, transfer of shipping documents or orders and order confirmations. In combination with Smart Contracts, the potential is even larger; automation of order books is just one of many opportunities.
Where do we see Blockchain Technology Use Cases in future Supply Chain Management?
Creating consistent traceability of goods will remain a major objective for future supply chains. To achieve transparent and reliable documentation of all transactions, end-to-end communication in supply chains must be taken to a new level of maturity. In reality, most networks already fail at the creation of communication or data exchange between the members as well as on legal questions about data sovereignty.
At the Watson IoT Center, Capgemini and IBM have developed a prototype for Smart Container Management based on Blockchain technology. Based on the use case, every container is equipped with sensors which transmit all quality related data (e.g. temperature, pressure, vibrations) to an integrated IoT-Platform. The collected data is visible in real-time to all affected members of the Supply Chain through this platform which guarantees data availability and manipulation security. The monitoring of real-time quality data enables companies to minimize their response time to events. If a quality affecting temperature decrease below a given threshold is noticed during transport, a shipment of replacement products can be triggered in real-time. Furthermore, the destination can be aligned or additional quality checks can be assigned. It is imaginable to automate this processes with Smart Contracts. A change in temperature which poses a breach of contract can trigger automated processes like an insurance proposal, a contractual penalty for the forwarder and a reorder at the supplier. At every point in time, the product’s history and its place of origin are uniquely identifiable, and additional information (e.g. on compliance with the required cool chain of goods) can be secured. In this concept it is imaginable that reactive processes are automated by Smart Contracts. If there is a negative effect on the goods, posing a breach of contract, processes like an insurance proposal or a contractual penalty for the forwarder can be triggered automatically.
The usage of Smart Containers through the entire network has the potential to transform supply chains into highly integrated smart supply chains in which supply streams can be simulated virtually. This integrates physical processes and enables automation. The result is complete end-to-end transparency and transformation of the supply chain into an agile cooperation network. This offers the possibility to break down the existing information silos between members of the supply chain, and fosters efficiency and collaboration.
Do you see potential use cases for your company or do you want to get some information from our experts? Feel free to contact us
[2] Way of making decisions in groups whereas no dissentient vote is allowed.
[3] Capgemini, IT-Trend Studies 2016