Blockchain Innovation in Supply Chain [Changing How We Do Business]

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The average citizen knows that forces of supply and demand drive commerce, cost, and pricing for things people buy every day. What most don’t know, however, is that industrial supply chains—networks of supplier, manufacturer, and retailer companies which, together, get products to market for consumers to buy—dictate who gets what, when, where, and how fast.

The inherent problem with supply chains, however, is they are at best disjointed, and at worst disorganized and unaccountable: different companies with different internal politics, different systems, and different expectations for other companies alongside them, above them, or below them in the supply chain makes supply chain dynamics extremely different to manage, especially considering that the subject of supply chain management system interoperability is—in 2017—a solely academic pursuit.

 

 

Worse, the advent of big data, the proliferation of information technology, and digitization of operations throughout all industries has introduced a steep learning curve for even experienced supply chain workers, making the whole proposition even more difficult. In supply chains, the main issue are asset monitoring and traceability—if a supply chain cannot adequately monitor its assets or trace phase progress and asset delivery, it is unaccountable and less likely to get products to market on time and at high quality.

Given the myriad of systems used by different companies across different supply chains, interoperability difficulties exacerbate this problem, causing discord in terms of timing and quality, causing problems such as that experienced by Chipotle in 2015, where an E. coli outbreak at the chain stemming from its suppliers’ inability to monitor and contain the offending products caused its share price to drop by 42%. All in all, a general lack of transparency and accountability plagues supply chains generally. Thankfully, blockchain startups are noticing.

 

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As a global system for mediating trust and transparency, blockchain as a cryptographic protocol for improving supply chain management would serve as a universal validating tool, mediating real-time updates to a commonly shared ledger. A distributed system such as this would immediately resolve disclosure and accountability problems by disintermediating control from individual companies, forcing them to collaborate on the blockchain. Regardless of the individual agendas or interests of any single company, this system would prove useful for leveling out politics between companies, fostering greater collaboration, transparency, and accountability.

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Another previously unaddressed aspect of this technology’s utility to supply chains is its ability to generate and attach tokens, outside of the realm of bitcoin and its contemporaries, to products created in supply chains. This would serve to intermediate goods during their progress through the production, shipping, and delivery phases of a supply chain.

 

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As the title to goods passes between players in this way, companies can capture and track the token-based value of their products in real time as they go through the supply chain. By doing this, businesses will find greater freedom to uncover markets and appropriately price risk. In the end, Harvard Business Review reports, “what we end up with are dynamic demand chains in place of rigid supply chains, resulting in more efficient resource use for all.”

“Various endeavors,” they continue, “have already started. Provenance, a UK-based startup, tells prospective clients they can use blockchain-based technology to ‘share your product’s journey and your business impact on environment and society’ … [And,] mining giant BHP Billiton is using the technology to track mineral analysis done by outside vendors.”

 

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While many on the outside of blockchain businesses are working to improve supply chain process, execution, and management, in the end businesses need to decide in-house how to incorporate the technology into their existing business operations and processes. Yet in a supply chain, this is especially difficult: businesses are responsible for solving their own problems, yet what do you do when new technology your customers and shareholders demand creates these very problems?

To answer this question, businesses along the supply chain need to use platform design thinking to inform future supply chain strategy design, incorporating insights from future proofing, economic analysis, identity management, and value-sharing into current business use cases.

 

 

As a public encrypted distributed ledger, incorporating blockchain use cases that increase inter-business transparency into supply chain design is the procedure that will increase accountability and thus value for businesses and customers up and down the chain. In addition, a robust economic analysis of blockchain tech implementation inside supply chains reveals an end-to-end win-win scenario where services are leaner and thus less costly operationally—and in terms of overhead, the innovative potential of businesses along the supply chain is drastically increased in the presence of highly robust employee training programs on blockchain usage and use case implementation.

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More, the technology can quickly clarify business identity by selectively giving businesses along the supply chain cryptographic access to different kinds of data depending on where in the supply chain they exist and operate, clearing up confusion and saving money. Last, bestowing value to products paired with blockhain-enabled tokens proceeding through the supply chain according to where they are in the chain, which platforms they are tracked by, and which barriers to entry the businesses supplying them have surmounted, will provide a powerful form of cryptographic value-sharing, where products are valued according to publicly available data on the blockchain, once again saving businesses money.

 

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Of course, supply chain management systems’ integration of blockchain does not come without its challenges. Since so much of supply chain management is disconnected and trust-lacking, companies across product lines will find it difficult and perhaps cumbersome to corral all of their partners on the supply chain and encourage them to adopt a new technology many of them, if not all, have never heard of.

In terms of the political dynamics governing supply chains, certain core intermediaries along the supply chain may benefit from foregoing adoption of blockchain technology if their revenue streams depend on them being the only ones able to operate a certain title transfer or goods processing system, or conduct a certain type of analysis required for goods’ continued traction along the supply chain. Companies involved in supply chain management and execution will need to need to have honest, transparent conversations with each other about the shared value to be brought from blockchain adoption if the technology is to gain traction in this space.

 

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Supply chain management is as old as economics itself, and so it is ripe for disruption. Blockchain has the power to revolutionize this industry, and both startups and companies along the supply chain must take note and capitalize as fast as they can on this before the technology itself makes current supply chain management techniques, models, and businesses obsolete.

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H. Caleb Simmons

Staff Writer

H. Caleb Simmons is a writer, startup community organizer, and investor on the Board of Directors of the Columbia Angels Group in New York City, an organization looking to disrupt the traditional VC model by leveraging the collective resources and passion of the Columbia University alumni investor community. With a background in politics and government, Caleb is highly interested in impact investing and hopes to make a positive impact on the world.