What We Think

Blockchain – Where to from Here for Supply Chain?

As we come to the end of our series on Blockchain, we will be exploring where we go from here utilising blockchain in the supply chain. We will finish the article with an infographic around blockchain in the supply chain.

Click here to scroll down to the infographic

If you missed the other parts of this series, you can find part 1 introducing the article here, titled blockchain – can it work with supply chain. part 2 covers supply chain innovations using blockchain. On with the article:

According to Gartner, blockchain technology is at the Peak of Inflated Expectations on their annual Hype Cycle of 2017, which means that it is lined up for a fall into the Trough of Disillusionment. Ray Valdes, vice president and Gartner Fellow says that “many enterprises are still jumping on board the blockchain bandwagon and for most, disappointment will be the next phase.”

It seems things will get worse before they get better.

Blockchain in the hype cycle

Gartner Hype Cycle
RFID tagging seems to have survived the wave of inflated expectations and disillusionment, now it is regarded as an innovation that is on the rise in the Scope of Enlightenment. Many RFID applications are driving better inventory accuracy for major retailers and delivering real value from their investment. Unlike RFID, blockchain does not require devices, reading hardware or any physical process to affix tags so the investment required is less. It’s early days though, Gartner says that blockchain applications are likely to take 5 – 10 years to reach maturity. By 2022, they say, an innovative business built on a blockchain will be worth $10 billion.

Blockchain has the potential to secure transactions in the industrial Internet of Things (IoT) using wireless networks. Accenture research has found that 84 percent of executives believe their organisations have the ability to create new, service-based income streams from the IoT. However, IoT is also on the Hype Cycle, not far from blockchain.

There are some commentators that have reservations about the usefulness of blockchain, suggesting that some solutions currently being developed using this new technology could be done using existing, tested and proven systems such as relational databases hosted in a cloud.

A reminder of the benefits of blockchain for supply chain:

  • Chain of custody for products can be verified and tracked for assurance.
  • Transactions are verified by participants by consensus eliminating the need for third-party intermediaries such as banks.
  • Time-consuming and manual procure-to-pay and settlement processes are reduced thereby making cost savings in human resources.
  • Trust is embedded in the system through a transparent ledger.
  • Transactions are immutable, secure and auditable.

So what are the risks?

  • Blockchain standards do not yet exist and there is no regulatory framework currently in existence, either globally or locally, to protect users as we are used to in currency dealings.
  • Implementing a blockchain solution may require expensive amendments and upgrades to existing systems which is both costly and time-consuming.
  • Who will pay for what in the blockchain transaction processes? The amount of data being processed may require additional computer power and bandwidth.
  • The shift in thinking will require a focus on change management. A decentralised network with no-central-control is a very different way of working for people.
  • Even with encryption, cyber-attacks are a concern. Additional cyber security may incur costs.

Blockchain Risks
Gartner – blockchain supply chain risks

A real life example

Samsung’s recent major recall of new faulty cellphone handsets could have been much less costly, both in dollars and in reputation, if the company had a more transparent and an effective supply chain. If the company had a blockchain-enabled supply chain they could have quickly traced the defective components to the specific errant supplier and reduced their financial losses considerably. They could have provided a faster response to the public and possibly avoided some of the negative publicity. It is estimated that Samsung lost US$3 billion as a result of this fiasco.

Opportunity in emerging markets

It is estimated that 25 percent of the global population does not participate in the internet economy because they have no access to bank accounts and/or credit cards because they cannot prove their identities. Major successes have already been achieved in mobile money transactions in Africa to overcome this problem, blockchain is the next step. The opportunity in emerging economies is to “leapfrog” conventional banking systems and adopt new innovative solutions.

We need to understand more

Most blockchain applications are in the development stage and still evolving although major projects are underway in global banking. Blockchain platforms available now may not align with other blockchain platforms from a different vendor, either now or later. The most effective technology platform may not have even been created yet.

Blockchain is a much wider and more powerful concept than other recent innovations on Gartner’s Hype Cycle, such as Advanced Cognitive Systems, Predictive Analytics, Robotics, 3-D Printing, or even the Internet of Things but it is still unproven in terms of delivering long-term value. What is encouraging is that these other technologies may become more easily applicable and secure because of blockchain.

Speaking at Gartner Symposium/ITxpo on the Gold Coast, David Furlonger, research vice president and Gartner Fellow, said the implications of blockchain for our society are beyond our imagination. “This is not about the technology, it’s about trust,” said Mr Furlonger. “We now have a digital capability to represent any form of value that is privately issued – you can become your own banker, insurance agent or foreign exchange teller.” Let’s watch vendors like IBM who are investing in establishing a market for this technology and can afford to find and foster pioneering users like Walmart and Maersk. We need to listen and be open to the ongoing debate to learn what we can from the early adopters.

Thanks from our supply chain consultancy team for reading this article. You can find the infographic just below:

The Infographic

You can feel free to use this infographic in your own materials. It’s licensed under the CC-BY-SA license.

All we ask is that you attribute us with a link to this article where it is used, and use the same license.

Enjoy:

Blockchain Supply Chain: Benefits and Applications of Blockchain in Logistics Infographic

Published by: Go Supply Chain Ltd