Last consumer’s hand.” These systems contain many different key

Last year an article was published in
Bitcoin Magazine titled “Innovation Percolates When Coffee Meets the
Blockchain”. While you may be wondering how it is possible for coffee and
blockchain to meet and why innovation would percolate in this case, this title
actually addresses a very important development. Which is that blockchain has
recently been transforming and enabling IT transformation within the area of
supply chain management.

Questions arise in a multitude of
aspects around supply chain management. A frequent query pertains to whether it
is possible to ensure coffee producers actually abided by fair-trade
regulations. Other often cited concerns are how to ascertain a diamond’s authenticity
or how to ensure that clothing manufacturers refrain from subjecting their
employees to sweatshop-like harsh labor conditions. Until the introduction of
the blockchain, such questions regarding products’ life-cycle in the supply
chain were not easily answerable.

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In order to understand the value
added by blockchain to supply chain management, it is important to understand
how traditional supply chain worked and some of the issues prevalent in
traditional supply chains. A supply chain is the management of the flow of
products from raw materials to consumption. However it “is much more than
trucks and logistics. It’s the way a product or service moves from inception to
consumption and describes all the steps a product takes in its sourcing, manufacturing,
and production before it ends up in the consumer’s hand.” These systems contain
many different key actors, processes, phases and most importantly recorded
information. It is often impossible to get an overview of all transactions
throughout the chain. In the coffee example, the coffee is perhaps farmed and
harvested by a farmer before undergoing quality control by an auditor (point
A), then it might get transported via road to a port (point B), where it then
gets shipped by boat to a distributor’s warehouse (point C), before appearing
on the shelves of a grocery store (point D). In each phase, there is
information recorded by the key actors, for example, the farmer may keep
information about the product’s location, temperature, and humidity. This information
is sometimes based on inputs from other actors in the chain, for example,
retailers will include quality control information based on information passed
on down the chain by the quality control auditors, which could have been
altered.  With increasing complexity of
supply chain systems nowadays not all information is cascaded down the supply
chain, which is why this whole process is often nontransparent to the end-user.
Despite the fact that many of supply chain processes have been streamlined and IT
has played a major role in transforming supply chain management, it still has
many shortcomings that lead to inefficiencies and incurred losses. Moreover,
with the data being separately stored by each party in multiple locations there
is no way to ensure the authenticity of data. And even if it was established
that data has been tampered with at a certain phase, it would be impossible to
pinpoint, who is responsible for this alteration and when it occurred. Due to
the lack of transparency in traditional supply chain systems, transactions down
the supply chain are based on trust between entities in the system. Based on
the current state of traditional supply chain there has been a need for
transparency and traceability. There are billions of manufactured products in
global complex supply chains, but there is a clear lack of data visibility. The
issue is not just “complexity of supply chains but the lack of management,
transparency, and monitoring which is fundamental”. This lack of data
visibility hinders an efficient supply chain and results in supply chain fraud,
which has been reported to be on the rise in 2017 reaching over 600 billion
dollars. Moreover, given the size of supply chains and the key entities being
unknown suppliers, customers and service providers there is also a lack of
trust and a need for a single version of the truth. Trusted information is
important for the manufacturers firstly to ensure no counterfeit items have
been entered into their supply chain in addition to ensuring regulatory compliance
and being able to act in a timely fashion in case any issues arise, leading to
a reduction of their liability as well as the number of losses incurred.
Moreover trusted information about a product’s provenance is important so the
end-customer can regain trust in the company knowing a product’s origin and the
process that this product underwent from raw material to end product.

In order to tackle these issues
companies would have traditionally have had to invest large amounts of money
and time, however using blockchain it is possible to fulfill these needs and
increase the efficiency of supply chain management while saving time and money
in the process. Blockchain has the attributes that allow it to enable supply
chain transformation, which may be something that is not seen by everyday
people not closely related to the supply chain management field. Since
blockchain is a decentralized ledger, it is not dependent on a single actor as
is the case in the traditional supply chain. All parties have access to the
exact same information, which ensures end-to-end reliable transparency. All
actors in the supply chain are able to check records of the events of the life
of a product from its origin. This kind of visibility helps prevent counterfeit
and fraud as it is now possible to know exactly where something came from and
whether it is coming from the correct supplier or not. This type of application
would help save tens of billions of dollars, which is the estimate of
counterfeit losses in the multi-billion supply chain industries. Several
startups and companies have been deploying applications to track the provenance
or origin of a product across the supply chain by allowing different actors to
transparently communicate information to each other. This provides an audit
trail that can track the transformations throughout the supply chain and can be
used for different purposes. For example, an application that has been
implemented in Walmart retail stores across the United States is tracking the
origin of fresh foods. Knowing the origin of each item and the phases it passed
until it got on the shelf of the store helps maintain the quality of the
produce and increase food safety, which is an important issue that has resulted
in annual losses estimated at tens of billions of dollars in the United States
alone. This also helps increase customer satisfaction, since the end customer
can now verify whether received products are as advertised, thus leading to
better buying choices. Furthermore, companies using these applications can use
the feedback and information from the supply chain for better strategic
decision making.

Moreover, blockchain technology
creates secure and immutable records, which are irreversible, thus providing
the guarantee of authenticity and security and establishing confidence in the
information which is the single version of the truth. This leads to reducing
opportunities for fraud and data tampering. Now that trust can be established
it will be easier to eliminate fraudulent actors since it is now possible to
pinpoint what changes have been made and by whom, thus increasing the
accountability in case of any arising issues. It is important to highlight,
however, that given the nature of an open share ledger, this does not mean that
there is no privacy or security. In order to connect to the blockchain, each
user needs to be identified and authenticated first and can access certain sets
of data based on their access privileges that cannot be altered unless
broadcast and verified by the other entities in the system. Based on access
privileges the user only gets access to a predefined set of data, so for
example in order not to compromise competitive advantage of a manufacturer,
information about the specific location of a produce farm may not be visible to
the end customer, but may still be available on the blockchain network and
available to other parties. The distribution of nodes across the network
eliminates any single point of failure and deters malicious access since there
is no longer a central IT infrastructure as in traditional supply chain
technologies. The fact that blockchain can be easily deployable on a supply
chain network and the different users only require authenticated access helps
make the transactions more efficient by eliminating paperwork, that used to be
maintained separately in traditional supply chains. By eliminating paperwork,
costs and time are reduced.

As mentioned above blockchain has
already made improvements to supply chain, however it can achieve more
improvements and open the door for far more opportunities through “the
interplay between blockchain, smart contracts and the Internet of Things (IoT) ”
where that has been “a significant development towards revolutionizing trade
transactions that could deliver considerable benefits throughout the global
supply chain.” IoT is a fast-growing complex network of connected physical
devices that are able to process and communicate information. Smart contracts
are contracts that embed logic to the process and are able to execute automatically
and correctly without the need for human intervention by enabling automated
transactions between devices across the blockchain thus ensuring process
integrity.

By using IoT with RFID devices one
can track information regarding goods and services as they are being moved
through the different phases in the blockchain. Produce’s statistics can be
obtained using the IoT devices from the products throughout its cycle in the
supply chain and this information is updated in the shared ledger, where all
other parties have access. Using this information along with smart contracts,
it is possible to add logic to the supply chain. An implementation for such an
example by shipping giant Maersk would be tracking information such as
position, arrival time and temperature of products as they are being
transported through the blockchain for quality assurance purposes. Besides the
benefit of all actors having the ability to track product information as it is
being moved in the supply chain. Whenever the environmental data of the
products deviate from the agreed-upon values, the IoT devices tracking these
products would propagate this information to all concerned parties including
information of the party currently responsible for the shipment and thus held
accountable for the violation. In this case, the benefits compared to the
traditional supply chain are clear and most importantly the transparency of the
flowing information guarantees non-repudiation. Moreover, IoT devices can
trigger actions such sending an immediate alert prompting the relevant party to
take the necessary measures that could help mitigate or resolve the situation
if done in a timely fashion. Also, it will be easier to reject spoiled products
improving product safety as well as automatically penalizing parties
responsible for not delivering the products in the agreed upon quality, thus
moving a step a further towards an autonomous service system and supply chain.

An example of an IoT and blockchain
application in supply chain is the use of blockchain in tuna supply chain in
Australia to combat illegal fishing. Whenever a fish is legally landed and
starts its journey from the sea to the plate it is assigned a QR code by the
World Wildlife Fund (WWF). This QR code is then used throughout the journey
till the consumer. The consumer can then scan the QR code to ensure this fish
was not illegally fished and the government can check the suppliers are not
supplying illegally fished fishes. While tracking fishing supply chains using
QR codes is not a new concept, the fact that it is now using blockchain
ensuring the authenticity and transparency of information is the major
difference.

Looking at the current state of
supply chain we can say that it is currently already automated with things such
as sensor-based devices, location awareness, self-reporting and auto-correcting
features. With the prominence of IoT devices, it is starting to become a
globally connected network with interconnectivity through and increased
interoperability between IoT devices. Now using blockchain and IoT we can move
to the next step and start making supply chains more dynamic, robust,
auto-executing and responsive and finally allow the next step of artificial
intelligence and machine learning to take place on top of blockchain in the
supply chain. Considering the amount of trusted data gathered, the idea is to
build on the ability to spot and learn trends yielding insights into how to
boost efficiencies and reduce costs and make better strategic decisions in the
supply chain network. Rather than aiming for transactions costs and time this
would open the door for reshaping how to approach businesses in an innovative
way using supply chain. After all, innovation percolates when coffee meets
blockchain.