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How blockchain technology will revolutionize the next decade’s supply chain

There has been a lot of talk about blockchain disrupting banking, investment, insurance and government. But if there is one industry in which the distributed ledger technology can make its most significant impact, it is logistics and supply chain.

Utilizing blockchain to record the provenance of products and components would remove any opportunity to tamper with records, thereby providing reassurance to the OEM and end user, and reducing the risk of using the wrong parts.

Furthermore, using blockchain can simplify supply chain finance, removing the dependence on time-consuming, paper-based processing and reducing the settlement period between a manufacturer delivering parts to distributors or OEMs and receiving payment for those parts.

In the future, blockchain technology could also be an enabler of fully automated logistics such as robotic warehouses and autonomous trucks.

Blockchain can replace the traditional mechanisms for cross-border settlement, which are slow and expensive. According to McKinsey: “The average cost for a bank to execute a cross-border payment via legacy correspondent banking agreements remains in the range of $25 to $35, more than 10 times more than for an average domestic ACH payment.”[1] Around a third of these costs are typically made up from managing liquidity costs, with treasury costs comprising a further 25 percent, while other significant elements include reconciliation, counterparty fees and compliance.

Manufacturers and OEMs can trust the provenance of components and materials

When used across the entire supply chain, blockchain provides a complete distributed ledger from the component manufacturer to the factory and, ultimately, to the final consumer of any product or component. Knowing precisely the entire provenance and being able to check it across several independent copies ensures compliance and safety.

Additionally, a solid distributed record of provenance makes it much more difficult to introduce counterfeited products into the supply chain. Both suppliers and clients are able to check product quantities, track its location and ensure that the entire shipment is delivered to the right destination.

When paired with technologies such as IoT location sensors, smart pallets,[2] and LTE-M or NB-IoT cellular connectivity, documenting a product’s journey across the supply chain reveals its true origin and touchpoints. Manufacturers and distributors can also reduce recalls by sharing logs with OEMs and regulators.

Cloud, edge and machine-learning adoption improves with blockchain

By 2020, it’s projected that over 50 billion supply-chain devices will be IoT-enabled.[3] As manufacturers and distributors adopt IoT and machine learning to optimize their systems, those planning for blockchain adoption can leverage substantial savings when the technology is widespread.

Edge computing is a natural partner to blockchain. On supply chain and logistics, most of the processing and tracking occurs locally, sometimes without a reliable connection to the cloud. To keep an accurate record of the sensor-collected data, blockchain-enabled gateways can be deployed, regularly sending the aggregate collected data to the blockchain network to keep the ledger accurate.

Blockchain is a technology that is starting to gain traction

These potential efficiency improvements, paired with the vast amount of information collected, makes blockchain a desirable technology that many companies are beginning to explore.

Like every new technology, however, there are formidable obstacles to overcome first. While blockchain solutions address plenty of potential hurdles in the supply chain, some issues could prevent its widespread integration. These challenges involve blockchain’s complexity, governance and hardware requirements.

One crucial issue is the computer power required to run a vast blockchain network, one that everybody can access. Cryptocurrency mining, the first global example of blockchain, has demonstrated that keeping the servers running is quite expensive, and many bitcoin farms have been closing recently due to running costs and reduced profits.

Another important challenge will be the governance of the technology. According to Michael J. Casey, author of The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order: “Ideally, to encourage free access, competition and open innovation, global supply chains would have the option to anchor to a public blockchain that no entity controls. In other words, data extracted from commercial and production activity would be cryptographically recorded in open ledgers.” However, he adds, “inevitably, private, closed ledgers run by a consortium of companies will also arise as their members seek to protect market share and profits.”

Additionally, as other technologies enter manufacturing and the supply chain, implementing blockchain will require cross-technology expertise, especially for vendors, distributors and logistics companies.

Similarly to IoT networks and edge computing, governance and standardization in blockchains is going to be important. Some standards organizations and regulators such as the European Commission are already looking into issuing implementation guidelines and drafting regulations,[4] which will become the framework for large adoption.

Nevertheless, at some point, the huge potential of the technology will make blockchain the blueprint of commerce, much like DNA is the blueprint of life.

Interested in learning more?

For more information on this topic, or to get in touch with engineering specialist who can help answer any questions you might have, head to arrow.com

[1] “Global Payments 2016: Strong Fundamentals Despite Uncertain Times.” https://www.mckinsey.com/~/media/McKinsey/Industries/Financial%20Services/Our%20Insights/A%20mixed%202015%20for%20the%20global%20payments%20industry/Global-Payments-2016.ashx.

[2] “EBN – Pablo Valerio – The Humble Pallet Gets Smart.” 5 Jun. 2017, https://www.ebnonline.com/author.asp?section_id=3560&doc_id=282751

[3] “Internet Of Things Will Deliver $1.9 Trillion Boost To Supply Chain And ….” https://newsroom.cisco.com/press-release-content?articleId=1621819.

[4] “EU Blockchain Roundtable paves the way for Europe to lead in ….” 20 Nov. 2018, https://ec.europa.eu/digital-single-market/en/news/eu-blockchain-roundtable-paves-way-europe-lead-blockchain-technologies.

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