The Supply Chain and Blockchain. I: Pros and Cons
Blockchain technology can be applied in business organizations to functions related to operations and supply chains. Supply chains are becoming increasingly complex in structure and activities, with a diversity of participants, which means that many organizations lack of an integrated wiew of the entire supply chain.
Large organizations have developed their own systems to exercise global control of their operations and establish their rules for suppliers and distributors. Other companies, however, are at the expense of what is determined by regulatory bodies or the intermediaries themselves.
In any case, both options are characterized by poor transparency of their processes which causes problems and difficulties in the operation of the supply chain in everything related to security, traceability, authentication and verification of products.
Some may think, and rightly so, that the blockchain, due to its distributed, infalsifiable and immutable nature, is very suitable for addressing supply chain problems and to provide it with greater visibility and security.
One of the first possible functionalities is to track all the actions carried out in the supply chain, such as who performs them, at what time and where each action takes place. Every participant in the supply chain can track products, shipments, progress and deliveries. They can also measure the performance of each activity and monitor the integrity of product quality during distribution. In this way, workload can be reduced and the traceability ensured, while increasing efficiency, reducing costs, and increasing the confidence that the products are original and maintained their quality.
These functionalities can be greatly developed on the Internet of Things (IoT), with sensors and equipment providing operational data automatically.
However, in some aspects, Blockchain technology is still immature and has not yet transformed critical supply chain activities. Hence the gap between the potential of this technology and its application to the supply chain. In addition, only few organizations dominate this technology and even less the number of applications developed in the field of supply chain management. Therefore, many are waiting for the overcoming of the limitations, to know when will yield positive results and demonstrate their benefits.
Difficulties for implementation
It seems that the transition to a blockchain-based supply chain is not simple for the following reasons:
- The life cycle of development and implementation is very long and full of uncertainties. Organizations must to become familiar with and master blockchain technology, still incipient in their industrial applications, before embarking on these projects.
- Having the skills and prepared professionals still has a very high cost because of long-term training needs. In addition, it requires willingness and collaboration of all participants, and reach agreements to build a new common system that provide value for all of them.
- The storage and data processing systems of each participant must be able to process all the transactions and not only their own. This means sacrificing efficiency to gain in security; but it entails greater demands in terms of technical infrastructure, which makes them more expensive.
- In current solutions, transaction logs are not protected, so participants can access that information without security restrictions. Future applications to be developed will have to solve this issue, and, in addition, it is very likely that certain details of shipments should be stored in external systems.
- Current applications in Blockchain are developed on independent platforms and in private networks, which makes them incompatible with other applications. This represents an additional demand for collaboration among the participants, with the aim of maintaining identification, consensus and authorization systems, and to ensure trust and privacy.
- The benefits of its implementation will be achieved only when a critical mass of participants is reached. This requires the development of a very diverse community of users committed to the adoption of technology, something difficult to achieve when there are already well established systems, regulations that govern operations in the industry, and when any change forces to incur significant costs to adopt the new technology.
It is not easy to face the challenges of improving the supply chain management through the use of Blockchain technology:
- The number and diversity of participants not well prepared and committed to established and distinct technologies.
- The need to share a common and replicated database in each element of the supply chain with the corresponding additional investment.
- The simultaneous requirement of transparency, security and privacy, in all the information being shared.
- The demonstration of tangible economic benefits.
However, it is quite possible that the current approach and the difficulties observed might be the result of a wrong definition of the actual problem and confusion about the real needs of the participants in the supply chain.
In a following post we will describe how the solutions developed by BlockTac through the use of Blockchain technology respond to the problems that affect the supply chain participants and final consumers.