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Can Supply Chains Afford Blockchain Technology?

March 26, 2019

Blockchain technology has been generating buzz in the logistics industry, but are its current capabilities worth the investment for your supply chain?

With the market for supply chain management solutions set to top $19 billion by 2021, the pressure is on supply chain managers across the logistics space to invest in next-generation solutions that deliver visibility, flexibility, and maximum efficiency. These solutions will look different for companies with different requirements, cargo, and scale, but one potential supply chain management solution that’s generating plenty of buzz is blockchain.

If you’re not already familiar with blockchain, you’ve probably heard of cryptocurrencies like Bitcoin. Well, blockchain is the technology behind cryptocurrency. It uses a decentralized digital ledger capable of recording countless types of transactions without the need for third-party verification — banks and other financial institutions included. While blockchain has come into its own in the cryptocurrency space, it’s garnering increasing attention in a number of other industries, with supply chain logistics at the top of the list.

For supply chain managers with an ear to the ground, they’ve probably heard rumblings about blockchain’s potential: shipping giant Maersk recently teamed up with IBM to pilot a blockchain shipping solution called TradeLens, and Walmart paired with IBM to bring blockchain technology into its food supply chain. However, it’s not clear where these partnerships will go from here or what they mean for small- and mid-sized actors in the logistics space.

Regardless, these investments do raise important questions: will blockchain become a crucial component of the modern supply chain? If so, what can it accomplish? And if not, what can fill the gap in its stead — at least until blockchain technology comes to scale?

 

Blockchain-Supply-Chain

 

What Blockchain Could Mean for Supply Chain Logistics

Irrespective of cost, blockchain has the potential to offer a wide range of benefits to supply chain logistics companies. By creating a shared digital record that logs and records transactions instantaneously across distributed nodes (and secures them from tampering or alteration), blockchain brings security and visibility to a logistics sector in dire need of both. Blockchain technology could also speed up processes that currently impede logistics operations, especially those that are heavily reliant on paper forms and third-parties like banks and attorneys. Without the need for these mediators, enterprises in the supply chain could transfer funds almost instantaneously upon satisfaction of working agreements. Moreover, self-executing contracts, connected with blockchain to supply chain operations, could ensure vendors and suppliers fulfill their obligations without the added costs and hindrances of legal teams.

The potential benefits go on. Because blockchain ledgers can be updated instantaneously from around the world and because they’re (supposedly) invulnerable to tampering, supply chain entities and customers alike could track the progress of shipments with complete confidence in the information they’re seeing. This level of transparency could help provide enterprises with every supply chain manager’s dream: end-to-end visibility.

 

What Might Get in the Way — For Now

Despite these benefits — and there are many more — it’s not clear whether blockchain is ready for mass adoption just yet. For starters, the technology isn’t yet financially feasible for the average supply chain actor. As explained above, the two most prominent supply chain blockchain programs at the moment are both supported by megacorporations — IBM, Maersk, and Walmart.

What’s more, because the technology is relatively immature, the operational requirements and security obligations necessary to run a fully blockchain-supported supply chain aren’t readily understood. They may well be affordable and secure against digital threats in the long run, but it’s clear that these early pilot programs need to be put to the test before any firm conclusions can be drawn. For businesses with limited IT budgets and small margins for error, betting the farm on technology with no real track record probably isn’t the best idea.

Finally, experts are still mapping out what role blockchain technology would play in different types of supply chains. For example, the data confidence that blockchain provides would be a major value-add for supply chains that are dealing with unknown entities. However many supply chains today do business with vendors and suppliers whose reporting they trust. In the latter case, it’s not entirely apparent that blockchain would add much value.

 

How Blockchain Works

 

How Businesses Can Bridge the Gap

While blockchain technology might be the ultimate answer for the end-to-end visibility needs of modern supply chains, it’s clearly not the “right now” answer. Supply chain logistics companies should certainly continue to monitor the space. For those looking for end-to-end visibility today, however,  there are other options — tried-and-tested solutions that can offer many of the same benefits that blockchain might one day deliver.

The combination of connected IoT hardware and powerful application platforms can deliver supply chain visibility and real-time situational awareness more quickly and perhaps more affordably. Supply chain infrastructure from vehicles and trailers to warehouses and cargo can all be knit together into a connected network capable of delivering reliable data to all supply chain stakeholders.

By feeding that information into a purpose-built platform, supply chains can boost their situational awareness and offer key stakeholders a common operational picture (COP) that puts all partners on the same page. And all of this can be done with technology that’s at scale today.

 

Blockchain-Technology

 

What the Logistics Industry Can Look Forward To

For supply chain managers looking for promising solutions to boost ROI, blockchain might just be that technology — someday. In the meantime, the more prudent investments will likely go toward scalable solutions with limited risk.

By prioritizing the development of situational awareness on top of existing infrastructure, it’s possible for enterprises to gain greater control over their supply chains, boost client-side transparency, and forge more dependable working relationships with vendors and suppliers.