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Blockchain in Supply chain & Logistics

In the past few years, lot of technologies such as Analytics, IOT, Digital, Cloud, Mobility, AI, Blockchain etc. have made life very interesting and we hear about them almost on a daily basis and also about the potential these technologies have. People believe that future belongs to these technologies and they have the power to completely change business dynamics worldwide. It is because of this that organizations, small or large, have started adopting these technologies and their investments have increased sharply in the past few years.

One technology which stands out is Blockchain. Why? It is because while others are still trying to make an impact, blockchain has already taken the lead by showcasing its power through bitcoins- blockchain's first successful product.

So what is Blockchain? Well, it is an unalterable ledger which is shared cryptographically and is used for the purpose of recording transactions' history. Its three pillars are-trust, accountability and transparency.

 What it is not? It is not centralized and thus, no single body or party owns it.

Beyond Bitcoin to Business Blockchain:

We all know that today supply chains are extremely complex in nature and involve multiple players at various stages. Various issues are faced by present day supply chains which can be in terms of lack of transparency, enormous amount of paperwork, lack of interoperability and very less knowledge about a product's lifecycle or its transportation history. All these loopholes severely impact the cost, speed and quality of delivered products.

We can save billions of dollars annually by reducing delays and keeping a check on frauds and according to a WTO report, worldwide GDP can increase by almost 5% and total trade volume by 15% if only we can reduce barriers within the international supply chain.

If we look at the businesses today, almost every business which has the producers, the finance, warehouse management, transportation, regulatory etc. use various ERP systems in order to maintain records.  People differ in their opinions about what is the current state and it leads to disagreements. Not just that, this is an expensive and a highly vulnerable method of doing business. Anybody can alter any record. Here, blockchain comes for help.

 

Some use cases of blockchain in supply chain and logistics:

blockchain use case.PNG

Dry aged beef is a good example. Customers have started demanding organic and local products which have clear origin. They not only want to eat fresh but also want to make sure that the product has its origins as claimed by the beef selling company. How can retailers deal with this?

They can provide product information through apps. Customers can scan the QR code through their smartphones and can themselves validate the authenticity of beef in terms of origin, quality etc. If any discrepancy is found, they can raise their voice. Historical data related to origin (such as feed or breeding), location of farm and of the beef in the entire supply chain, time taken in transport, expiry dates etc. can be easily accessed through a dedicated blockchain database. This is from the view point of customers.

Let's see how can blockchain help an organization. For example: Global retailer Walmart has started using blockchain to track sales of pork meat in China. The system helps it in determining the origin of meat, processing and storage related information, sell by date (expiration date etc.). Also, in case of product recalls, Walmart can understand which batch/batches were returned and who bought them. This way we end up with 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:


market scenario.PNGAbove data, on the one hand, clearly shows the vastness of shipping and logistics industry worldwide but at the same time it also shows the weaknesses of the industry and its inability to deal with such massive rise. In the years to come, logistics market is definitely going to grow but so will be the case with leakages in the system which will ultimately lead to losses. Freight brokers have lot of control over the industry at present. They decide the load, tag on a markup and sell it to carriers. This leads to increase in cost to carriers and ultimately a much higher cost to customers.

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.

Maersk, the world's largest container-shipping company, is a good example for this. It is working in collaboration with IBM towards building an extremely robust and efficient blockchain network so as to make its logistics arm much more efficient and powerful and with lesser leakages in between. Even some time back, UPS announced the news of it joining BiTA (Blockchain in Transport Alliance). BiTA works in the area of developing blockchain standards for freight and logistics industry.

Blockchain can also be used to maintain history records of trucks. These records can be performance records, maintenance records etc. We all know that once a truck is out in market for sale, buyers wish to know the history of the vehicle. Blockchain with its "unbroken chain of trust" can help.

Drivers can have an important role in blockchain too. They can help in adding their own data, mostly automatic, such as on and off duty, conditions of roads, condition of vehicle and load etc. This can help them in dealing with any kind of disputes with either the shippers or the carriers in dealing with events such as when and where a particular accident happened, goods got damaged etc.

"Capacity monitoring" is yet another area where this can be useful. We all know that cargo volume is one of the main factors which determines the shipping freight charges. Here, blockchain, in association with IoT (Internet of Things), can help. IoT sensors can help in determining the amount of space used by a particular party and can forward this information to the blockchain network. This will help in enabling self-executing payments against the space used by the freight.

Factoring can also be dealt with using blockchain. With the help of smart contracts, blockchain can make factoring less necessary because it will make the complete system of payments towards transactions automatic.

Such cases clearly show that a blockchain can help all parties involved in a shipment to:

  • Reduce or eliminate frauds and errors
  • Improve inventory management
  • Minimize carrier costs
  • Reduce delays from paperwork
  • Reduce waste.
  • Identify issues faster

Keys to Integration successfully

We feel a three-step approach can be adopted to successfully incorporate blockchain into supply chains.

First, the process should begin with an internal blockchain setup which will give sufficient time to the organisation to get used to the technology while making sure that data is available and consistency is maintained throughout.

After this, the blockchain should be extended to other players such as 3PLs and direct suppliers which can help in a robust data management and data exchange.

At last, all the players along the supply chain, including end customers, should be integrated to the blockchain.

If utilized to its full potential, blockchain can improve the customer experience, can drive value end-to-end and eradicate inefficiencies so as to lower costs.

Blockchain Integration into the Supply Chain-A Three-Step Approach

Oval: 2End-to-End

end to end.PNGBY HIMANSHU KHANDELWAL

SENIOR ASSOCIATE CONSULTANT

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