Blockchain and Supply Chain & Logistics- a partnership for a lifetime

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In the past few years, we have heard a lot about the emergence of technologies such as Analytics, IOT, Digital, Cloud, Mobility, AI, Blockchain etc. All these have become buzzwords and technology pundits worldwide are quite hopeful that the future belongs to these technologies and these technologies will completely change business dynamics worldwide. Consequently, organizations, big or small, have started investing heavily in these technologies. Out of all the above names, one which stands out is Blockchain. Why? Because while others are still trying to make their presence felt, blockchain has already taken the lead and Bitcoin- blockchain’s first successful product- is making people crazy worldwide.

So what is Blockchain? Well simply put, it is a shared cryptographically unalterable ledger for recording the history of transactions and trust, accountability and transparency are central to it.

What it is not? It is not centralized and it’s not owned by any one party.

Beyond Bitcoin to Business Blockchain:

If we look at the current business environment, almost every multiparty thing where we have the producers, the finance, regulatory, warehousing, transport etc. all of these, right now, use various ERP systems for maintaining their own records. People have different visions of what the current state is and there can be disagreements. Not only this, it’s expensive and it’s highly vulnerable. Anybody can change a record. Here, blockchain comes for the rescue.

Blockchain use cases in supply chain and logistics:

Let’s take an example of dry aged beef. Customers’ demands have risen for organic and local products with clear origin. They want to make sure that whatever they are eating is not only fresh but also has the origin which is as claimed by the beef selling company. What can retailers do in such a case?

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They can provide selected product related information through an app. The customers can scan the QR code on their smartphones and can themselves validate every step beef took right from its origin to final destination and if there are any discrepancies, customers can raise their voice. Any kind of historical data related to origin (such as feed or breeding), timing (time taken in transport, expiry date), location (of farm and of the beef throughout the supply chain) etc. can easily be accessed through blockchain database. This is from the point of view of customers.

We can also see this from a company’s point of view. For example: Global retailer Walmart uses blockchain in order to track sales of pork meat in China and few other countries. Its system helps in determining the origin of meat (from where it came), its processing and storage and sell by date (expiration date etc.). Also, in case of product recalls, Walmart can see which batches were returned and who bought them. What we end up with are dynamic demand chains in place of rigid supply chains, resulting in more efficient resource use for all. Isn’t interesting?

Here’s an interesting fact about logistics industry worldwide:

The above data is sufficient enough to depict the enormity of shipping and logistics industry but this data also shows that the industry is not well prepared and well equipped to deal with such massive rise. While logistics market is definitely going to grow in the years to come, so will be leakages in the system and consequently, losses. At present, the industry is under severe control of freight brokers. These brokers determine the load, tag on a markup and sell it to carriers. This increases cost to carriers and ultimately it leads to higher cost to customers.

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Blockchain can help in the sense that it can bring transparency and visibility by allowing shippers to be able to communicate important information such as geo-waypoints, loads and basic compliance information with carriers. Once a shipment is recorded in the blockchain, they can no longer be changed meaning nobody can alter the records or dispute validity of the transaction.

A good example in this regards is of Maersk, the world’s largest container-shipping company, which, in collaboration with IBM, is working on developing a robust blockchain network to make its logistics arm more efficient and with less leakages in between. Even some time back, UPS announced that it is going to join BiTA (Blockchain in Transport Alliance). BiTA works towards development of blockchain standards for freight and logistics industry.

Yet another use in the logistics industry can be in the case of “capacity monitoring”. Cargo volume is one major factor which determines the shipping freight charge. Here, blockchain can work in tandem with IoT (Internet of Things). IoT sensors can determine the amount of space used by a particular party and then send that information to blockchain network. This will enable self-executing payments against the space used by the freight.

Factoring can also be avoided using blockchain. Blockchain, along with smart contracts, would make factoring less necessary because the entire system will make payments for transactions automatic.

Keys to Successful Integration

All said and done, Blockchain is still not so easy to implement. All the stakeholders need to be in sync and both the shipper and carrier should use this platform to truly implement blockchain. How can this be achieved?

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We feel a three-step approach can be adopted to successfully incorporate blockchain into supply chains. The process should start with internal blockchain set up, thus giving ample time to the organization to get used to the technology while insuring data availability and consistency. The next step can be to extend the blockchain to adjacent players, such as third-party logistics and direct suppliers, helping in efficient data exchange. Last step should be to integrate all players along the supply chain, including the end customers, to the blockchain.

At its full potential, blockchain improves the customer experience, drives value end-to-end, and roots out inefficiencies, thereby lowering costs.

Himanshu Khandelwal

Senior Associate Consultant at Infosys || Avid Blogger || MBA in Marketing || Working in Logistics & Supply Chain

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