How blockchain technology can benefit supply chain management
Supply chain management is an underestimated source of competitive advantage and is on the cusp of major technological transformation. Netherlands-based M3 Consultancy, a strategy and supply chain specialist, explains how blockchain helps clients extract maximum value from their operations.
Blockchain technology is no longer confined to the digital imagination. It is now a very real mechanism used by businesses worldwide to implement powerful solutions to some of commerce’s most pressing problems. Early experimentation with variations of blockchain technology has proven most fruitful in the financial sphere, but also at the sharper end of the stick – in supply chain management and logistics.
A Dutch management consultancy with a specialist focus on optimising its clients’ operations is leading the discussion on how blockchain can be best exploited to radically improve supply chain efficiency. M3 Consultancy has brought its practical, fact-based approach to successful collaborations some of the world’s biggest actors in the world of logistics – including Tata Steel, KLM Cargo, and Unilever.
Blockchain is a decentralised software mechanism that permits a master ledger of data and transactions to be accessed securely by multiple stakeholders. Known for its hugely disruptive impact on the financial services sector, blockchain’s impact is now being felt in countless other domains. Erwin Matthijssen, Partner at M3 Consultancy, has described a blockchain as a “smart spreadsheet” in possession of certain unique characteristics which make it a perfect fit in the supply chain puzzle.
These include its immutability, verifiability and disintermediation. Immutability and verifiability are closely linked, notes Matthijssen, who says the key difference between a blockchain and a spreadsheet is that information can only be added, not edited or deleted. “Any change is recorded as a visible addition to the datastore, making it immutable. Moreover, there are always multiple parties looking at the datastore. So if you decide to alter data in a blockchain datastore, your change is visible to and checked by every other participant.”
Disintermediation reflects the fact that no single party has authoritative control. Blockchain helps prevent fraud because participants “will constantly see and check each other’s mutations. Should someone wish to mislead the network, they would have to get each participant on board to get it done”, he said, offering the example of a group of insurers.
Blockchain is not merely a tool to prevent fraud, however. Most unwanted changes are, the consultant observes, actually human errors. He cites the example of the Dutch cadaster, which ‘nobody distrusts’ but is still vulnerable to a range of errors that would be ‘detected and limited’ by a blockchain.
Disintermediation is most valuable in the absence of a trusted intermediary. Due to the high stakes and lack of trust, Bitcoin, the decentralised digital currency, provides the “best known example of this radical disintermediation, where everybody administers their own spreadsheet”, while checking up on everybody else.
Clients interested in adopting blockchain technology should also be aware that it is solely used to record information. Simply being on a digital ledger does not automatically confer legitimacy, Matthijssen stresses. One example is blockchain being used to organise land titles for residents of Brazil’s chaotic favelas. A nice idea says the supply chain implementation specialist, except, “without any legal infrastructure to back it up, a piece of information is just that – and it will not put a halt to wealthy project developers’ bulldozers.”
Having outlined examples where blockchain is either absolutely essential to the smooth operation of a mechanism – such as Bitcoin – or redundant without legislative support – in the case of the favelas – Matthijssen presents some of the practical advice M3 Consultancy might offer clients.
When blockchain adds value
Consulting firms worldwide are under increasing pressure from clients to advise them on whether or not to adopt blockchain technology and the M3 Consultancy partner suggests three specific instances when it would create serious value. “Firstly, blockchain is very good at indicating when something happened, making it perfect for registering patent applications,” he notes. Secondly, “it accurately captures the order in which information was generated, such as decision dates in board minutes or audit trails on financial transactions.”
“Finally, you can use blockchain to keep track of changes made to important information that is shared between different parties. Instead of using ‘track changes’ and having the contract (re)checked by twenty different people twenty times, your intelligent spreadsheet guarantees that any change made is visible to all.”
Supply Chain Solutions
The organisational advantages are obvious, but how might blockchain make a specific impact on supply chain management? For Bas Ceulemans, an Associate at M3 Consultancy, the answer lies in how a blockchain removes uncertainty and complications from the supply chain.
“Third parties which consolidate and resell goods will become superfluous,” he argues. With their exclusion, the supply chain is liberated from a long and complicated process that often leads to transparency problems. “When you’re depending on a variety of suppliers that are based in all corners of the world, and that work with different currencies, you can quickly lose overview.”
“Blockchain can solve this as it allows you to validate the time and place of all transactions. It offers the opportunity to track and trace transactions, which enables you to validate ‘low-trust’ supply chains in real time.”
Ceulemans cites two instructive examples of how blockchains are currently used in the supply chain process. In the first, American retail giant Walmart employs blockchain technology to track its sales of pork meat in China – “so it can see exactly where every piece of meat originates from, how it is processed, where it is stored, and what its sell-by date is.” Conceding that “track and trace can easily be set up without blockchain,” He argues that in a notoriously non-transparent marketplace, such as China’s, no-one would trust the information.
Ceulemans’ second example is that of RFID tags, frequently used in supply chains to store product-related information. “Logic dictates that it is wise to link the information to a blockchain and use it for smart logistics contracts. For example, RFID tags for cartons or pallets could store information regarding the delivery date and location.” Logistics partners then search for these tags and bid for a delivery contract. Subsequently, “a smart contract tracks the shipment status and triggers the payment upon successful completion of the final delivery.”
‘Trust’ is what blockchain is all about for Ceulemans. In these examples the technology is used to establish confidence in a low-trust supply chain, and automate the invoicing and payment process. That is to say nothing of the quantum leap in efficiency, with third parties, paper documents and time-consuming checks instantly removed from the supply chain equation.
Back to business
Blockchain solutions for supply chain headaches are being developed by the day. In one notable example, leading global consultancy Accenture developed a blockchain solution for international shipping that was successfully tested by an industry consortium and could save the freight and logistics sector billions thanks to its razor sharp efficiency.
Closer to home, a Netherlands-based consortium recently launched the first full-scale investigation into how blockchain might transform the logistics sector. Experts from the 16-member consortium concluded that the technology has massive potential to provide transparency, traceability and security to processes at every stage and dimension, while also dramatically reducing supply chain carbon footprints. Similar projects are unfolding across the world as consulting firms and clients realise the vast untapped potential blockchain presents right across the supply chain – from providing consumers with insight into how products are made, to preventing counterfeiting and boosting green credentials.
M3 Consultancy and other leading providers of supply chain consultancy services stand to benefit greatly from their established segment expertise. Clients who have experienced a taste of blockchain technology have been extremely enthusiastic about its wider business impact. A streamlined and stress-free supply chain allows companies to save a great deal of save time and money, which can then be invested in improving their core business and customer experience.
Related: Freight and logistics industry could save hundreds of millions with blockchain.
