What's The Weakest Link in Supply Chain Management? Hint: It's Not Blockchain

Blockchain technology (BCT) integration within multi-continental supply chains bolsters efficiency, transparency, and traceability and leads to billions in capital savings.(2) Blockchain-focused startups saw significant capital investment in Q1 2021 at $2.6B — more than the entirety of 2020. Clearly, the world is waking up to BCTs potential.

Supply chain management (SCM) professionals fulfill two fundamental roles within an organization.  

1) SCM professionals plan, implement, and control activities that deliver value to customers.

2) SCM professionals integrate and coordinate business processes within and across participating firms.(5) 

A core duty of SCM professionals is in the realm of technological advancement. SCM professionals seek new strategies and maturing modalities to elevate the customer experience and bring new-found transparency to increasingly complex networks.(1) It is essential for organizations to have transparent material tracing, sourcing standard adherence, ethically operating contract manufacturers, and a development process void of child labour.(3) These critical supply chain (SC) attributes become increasingly more viable with BCT intervention.

The significance of communication technology and information management is widely acknowledged within the SCM space with industry professionals often embracing new technologies. The fourth industrial revolution brought advances in smart machinery capable of forming self-coordinating systems such as “smart” factories.(5) Discovered within the slipstream of such SCM technological innovations has been a natural convergence with BCT. 

Kindling won’t sustain the flame

Touted for its capabilities of producing a trusted and transparent ledger, BCT has use-cases far beyond cryptocurrency. Nearly 82 percent of Fortune 100 companies have dabbled in BCT in some capacity, showing a keen interest globally in its potential.(2) 

The proliferation of BCT in SCM happened to intersect with all-time low consumer trust in organizations. Across the globe, nearly 75% of customers, consumers, and clients cite a growing mistrust with their favourite businesses. This coincidental convergence may have inspired much of the initial investment in BCT, specifically in the realm of corporate application and integration. Is it enough to keep the ball rolling?

Much of the exciting potential of BCT can be compartmentalized into four key tenets: transparency, validation, automation, and tokenization.(5) Within these tenets lies its disruptive and revolutionary use-cases. Here’s a summary of the defining five.

1. BCT integration can remedy inefficiencies caused by a lack of end-to-end transparency, typically leading to the bullwhip effect, a distribution channel phenomenon characterized by an erratic relationship between consumer demand and inventory volume.(5)
   
2. BCT enables the automatic recording of an asset’s birth information. Users can record point of creation data, seal the asset’s birth information and changelogs within immutable records, and track the asset content every step along the way. BCT integration, in this vein, would enforce responsible sourcing and enable enhanced detection of counterfeit and other fraudulent behaviour. 
   
3. BCT’s smart contract capabilities could bring new levels of autonomy and efficiency to SCs. In the event of a machine failure, the machine could order the part from the supplier, request maintenance service, and inform downstream participants of inevitable delays.
   
4. Leveraging BCT’s tokenization capabilities, IT developers could develop a logical representation of physical hardware in software. This approach is more commonly known as “virtualization” and could increase the utilization and flexibility of IT assets. In addition to leveraging a logical representation of physical hardware in software, SC assets, such as inventory or technical equipment, could be tokenized. Capacity claims or ordering options could be created as a token and circulated outside the typical bi-lateral contractual relationship, allowing the excess product to be monetized. Parties bound to contractual relationships could have newfound contract flexibility and risk reallocation.
   
5. BCT integration could expedite settlement conclusions in multi-tier and multi-party contractual agreements and enhance transparency and autonomy, alleviating some burden from accounting departments.(5) 

BCT has theoretical potential in SCM but has it shown any promise in real-world application? 

At its conception, BCT garnered significant recognition as a disruptive innovation with SCM. Touted for its potential to cut costs, enhance transparency, and elevate sustainability. It seemed like the next big thing.(2) Unfortunately, much of the existing note-worthy attempts at integrating BCT into SCM have hit a wall. BCT implementations in SCM often get stuck at the demonstration and pilot study stages.(2) 

Why is this? Is there a core problem with BCT? Is BCT’s nascency impinging on its adoption rate within SCM, or are there fundamental compatibility problems? 

Organizational sentiment is certainly not the issue, with Deloitte citing year-after-year increases regarding how highly blockchain is ranked as a strategic priority. Could BCT just not be capable of facilitating SC's ever-growing complexity? 

Despite this, you don’t have to look far to find successful small-scale blockchain integrations. 

USA-born Walmart partnered with IBM in 2016 to tackle traceability lag in the event of food-borne disease. This pilot project was powered by the Hyperledger Fabric and required certificate uploads for pork sourced from China and mangoes from the USA. 

The time needed to trace product origins shrunk from seven days to 2.2 seconds. Sounds promising, right? Walmart has since expanded this service to 25 products from five suppliers, bringing more trust and transparency to the food people consume. Walmart announced they had plans to include more products in the network, but little expansion has been done since 2018.

North of the border, Canada-based Convergence.tech joined forces with the UN to enhance traceability within the Mongolian Cashmere supply chain. The Mongolian nomadic community is one of profound pride, with their agricultural trade lodged in the upper echelons of their cultural significance. Unfortunately, the life of a Mongolian herder or agriculture worker, comprising nearly 30 percent of the population in 2011, is rife with income instability. This is principally attributed to the overgrazing practices of other producers globally and not to cashmere production, which is quite sustainable. 

The UN and Convergence.tech chose Mongolian herders as they are considered some of the most sustainable and ethical in the world. The pilot program involved over 70 herders and eight cooperatives and utilized an intuitive Android app to register cashmere and RFID tags, subsequently pinned to a virtual map. Since its conception, over 471 kg of cashmere has been funnelled through this system, flowing from nomadic small-scale producers to the doorstep of a willing consumer.

Provenance, a consulting firm pioneering a movement towards transparent supply chains, streamlines the BCT integration process for willing organizations. Provenance envisions a future where every bottle of wine, pair of socks, or smartphone, comes with accessible and trustworthy information regarding its origin, journey, and environmental impact. Trusted by over 200 retailers, with detailed case studies listed on their website, Provenance has proliferated and helped facilitate hundreds of organizational transitions to a more sustainable approach.

Where is the downside?

Cited within this article are three successful examples of BCT integration. Despite very positive results, this growth doesn’t come without concerns and unique problems. There are technological, SC-specific, internal, external, and environmental barriers that hinder its adoption.

Technological concerns and public perception

BCT is still a developing technology and needs advancements in scalability, usability, and interoperability. In addition to these areas of improvement, throughput and latency issues must also be tackled.(2) 

A substantial obstacle is the level of technological complexity and understanding required to recognize its benefits. Improving BCT's palatability and public perception are two adoption hurdles likely to be spanned with time. 

Blockchain is most commonly associated with the inexorably linked crypto sector, which some still believe to be rife with illegal activity.(7) Those holding this belief typically point to high-profile incidents such as the Silk Road darknet marketplace shut down in 2013. The FBI seized over 26,000 BTC, and the reputation of blockchain and cryptocurrency took a hit.(7) However, these beliefs are not true. Between the years 2012-2020, less than 1 percent of BTC transactions were cited as having a connection to illicit activity.(7)

It can be troublesome for both organizations interested in BCT and “crypto-curious” individuals that have latched onto these incidents to look past these illegal activities. Substantial investments in BTC from firms such as Tesla, Square, and MicroStrategy, in addition to numerous other organizations, have served to bring newfound legitimacy to the sector. Successful integration can even be found in the public sector at the National Research Council of Canada, where the Ethereum blockchain was employed to publish grants and funding data.

To what extent have organizations brought blockchain into production? Twenty-three percent of firms noted BCT usage in 2019 and over 39 percent in 2020. BCT perceptions are improving. 

Internal organizational barriers

Integrating new technology is not a cheap endeavour and requires commitment from C-level executives. It is challenging for small businesses to migrate to a new inventory management program which may only require barcode adjustments and data migration. Can you imagine the perceived complexity for a multi-continental supply chain to incorporate a new form of asset integrity?

Costs associated with BCT integration often increase with the organization’s size and make that initial pitch to management a tough pill to swallow.(2) Provenance distills what is ultimately very complex into a palatable, non-offensive elevator pitch that anyone can understand. Further saturation of BCT consulting companies should positively affect adoption rates and further legitimize the technology.

External organizational hurdles

Despite organizations facing considerable pressure from consumers and central governments to elevate their sustainability efforts, progress has been relatively slow. A lack of a clear, standardized framework for SC sustainability integrations may be impinging on BCT’s potentially disruptive effects.(2) Government regulations and perceptions are still not fully onboard with BCT, reducing adoption benefits.(6) If investing in BCT rewards organizations sustainability “points,” it may inspire more deliberate action.

BCT’s global proliferation

BCT may still be recognized as a fad that will fail to meet the test of time; just as the technology is immature, so are some developing perspectives. Integrating BCT into SCM is fraught with typical emerging technology growing pains. Risk-averse adopters need to be convinced that their commitment of time and capital will be rewarded through enhanced sustainability, reliability and interoperability. This disconnect presents a lucrative opportunity for consulting firms to facilitate transitions to more sustainable and ethical product delivery systems.

Airbnb became the largest hotel chain in only seven years, boasting more than 850,000 rooms without any hotel asset ownership. Between 2012 and 2014, Uber devoured over 65 percent of San Francisco's taxi market. Evolution in AI and robotics is expected to put 47 percent of U.S. workers (nearly 60 million jobs) at risk of being replaced. Over ten million autonomous vehicles per year may enter U.S. highways by the year 2030. 

What do these all have in common? The power of exponential growth. 

Is your organization ready to embrace the power of BCT?

References

Dietrich, F., Ge, Y., Turgut, A., Louw, L., & Palm, D. (2021). Review and analysis of blockchain projects in supply chain management. Procedia Computer Science, 180, 724-733. doi:10.1016/j.procs.2021.01.295

Kouhizadeh, M., Saberi, S., & Sarkis, J. (2021). Blockchain technology and the sustainable supply chain: Theoretically exploring adoption barriers. International Journal of Production Economics, 231, 107831. doi:10.1016/j.ijpe.2020.107831

Francisco, K., & Swanson, D. (2018). The Supply Chain Has No Clothes: Technology Adoption of Blockchain for Supply Chain Transparency. Logistics, 2(1), 2. doi:10.3390/logistics2010002

Apte, S., & Petrovsky, N. (2016). Will blockchain technology revolutionize excipient supply chain management? Journal of Excipients and Food Chemicals. Retrieved April 28, 2021, from https://jefc.scholasticahq.com/article/910-will-blockchain-technology-revolutionize-excipient-supply-chain-management.

Blossey, G., Eisenhardt, J., & Hahn, G. (2019). Blockchain Technology in Supply Chain Management: An Application Perspective. Proceedings of the 52nd Hawaii International Conference on System Sciences. doi:10.24251/hicss.2019.824

Choi, D., Chung, C. Y., Seyha, T., & Young, J. (2020). Factors Affecting Organizations’ Resistance to the Adoption of Blockchain Technology in Supply Networks. Sustainability, 12(21), 8882. doi:10.3390/su12218882

Kirshner, J., Schoenberger, T., & Morell, M. (2021). An Analysis of Bitcoin’s Use in Illicit Finance. Retrieved May 4, 2021.