Blockchain & Supply Chain Management: Issues & Companies Tackling it

Blockchain technology is all about the science of keeping track of things. Originally conceptualized as a way to provide value and security for cryptocurrencies without a meddlesome middleman, like a bank or government, blockchain technology is now making inroads in sectors as diverse as real estate and manufacturing.

Probably the most immediate use of the blockchain to date is supply chain management. In traditional systems, a combination of human and computing assets keeps track of goods as they flow through the supply chain from producer to customer. The idea is to provide an unbroken chain of possession that can be accessed at any point along the line to sort out exactly who has what, where, when, and why.

This process is laborious, to say the least, and each link in the chain is a potential point of failure. A forgotten or mistyped entry, a worn-off shipping label, or an outright fraudulent scan can throw the entire system into disarray.

The blockchain offers a foolproof solution by removing the human element and cleverly streamlining the mechanical or computing element.

Keeping Track

Let’s take a look at an example in the news – steel products shipped to the United States. In March, U.S. President Donald Trump instituted a 232 tariff on all goods from all countries. Although 232s are generally used for national security purposes, the underlying purpose of the 232 was to prevent transshipment of goods from heavily tariffed China through neutral countries and into the United States.

The transshipment issue illustrates perfectly the problems with traditional supply chain management.

A mill in China churns out a steel beam. The mill, ideally, would like to sell this beam for top dollar. Unfortunately, the U.S. currently boats the highest beam price, and it has tariffs in place to price Chinese beams out of the market due to past anti-dumping cases.

The Yangshan port in Shanghai, Image from NYTimes

Fortunately, the U.S. does not have tariffs in place for this particular beam product in Vietnam. The beam is shipped to Vietnam. If the potential exporter wants to display a modicum of decency, it does a little processing on the beam – like polishing its unfinished edges – before slapping a “Made in Vietnam” sticker on it and sending it along to the U.S. If it’s slightly more dishonest, the sticker goes on the raw product and the process continues unabated.

U.S. Customs and Border Control receives this beam – made in China – with a fraudulent sticker proclaiming its false Vietnamese origin. The beam makes its way to the customer, duty-free.

Domestic steel producers balk and cry out for a government solution. With no real transparent way to track steel products as they make their way around the globe, the U.S. government responds by placing a tariff on everybody, in the hopes of hitting transshipped material.

This is like performing surgery with a chainsaw instead of a scalpel.

This whole series of events would not have occurred had just one link in the supply chain demanded blockchain technology be used to track and verify the errant beam. As transactions that take place on the blockchain are difficult to impossible to spoof, the whole issue of transshipment become moot.

The Human Element

Taking a step closer to the hypothetical situation, we discover that the beam in question wasn’t intended for transshipment at all. In fact, it was never supposed to leave the factory; it was to be used internally, in a construction project on the mill’s south end.

The problem occurred when an administrative worker mistakenly grouped this beam’s barcode in with the barcodes of a load destined for export. The beam that was supposed to be erected 100 yards away is now thousands of miles away on a boat, bound for destinations unknown.

Again, blockchain technology could have prevented this issue. With no human fingers in the process to slap the wrong key, the beam proceeds as originally planned to the internal construction site. Even if something absolutely catastrophic should occur – like the barcode sticker drops off – the missing beam can be traced through the blockchain to its “vanishing” point and the problem manually corrected. Without an airtight and accessible inventory system on the blockchain, the beam vanishes into corporate rounding errors.

Flowspace, Warehouse Image from Techcrunch

It goes without saying that the blockchain would simplify all the associated paperwork required to mark a product for internal consumption without polluting order books or inventory tax calculations.

Freshness May Vary

While steel shipments are an immediate and timely example, blockchain technology is bound to cause disruption in nearly every industry where time is a critical factor. Food is probably the best example of this.

A crate of tomatoes leaves the farm on a Tuesday. The new guy at the warehouse mistakenly puts it on the left loading dock, which is only for nonperishable merchandise. The refrigerator truck arrives Wednesday morning, loads up, and leaves – sans one case of tomatoes.

A few days go by. The poor tomatoes are getting more and more rotten by the minute.

The smell alerts one of the old hands at the warehouse, who moves the crate back to the appropriate side and fudges the label to hide the fact that the tomatoes have been slowly turning into ketchup for more than 48 hours. They leave early Friday morning, on their way to disappoint a grocery store somewhere.

When the goof is discovered, the crate of tomatoes is tossed. And what are you going to do? The supply management system in place seemed fairly airtight. Everything worked as expected, up until the crate was placed on the wrong side of the warehouse and vanished from the supply chain with a faulty date.

Whereas our beam example was primarily concerned with where the beam was at any given time, time is the operative factor for our tomatoes. Luckily, the blockchain solves this issue, as well. Timestamps are a fundamental part of the blockchain, and they cannot be altered. The grocery store should be able to check the timestamps for all its goods to determine exactly how fresh they are – and to have rock-solid grounds for a refund should an irregularity appear. A blockchain system would incidentally provide documentation for the store’s other goods, as well, allowing the staff to keep a sharp eye on quality and eliminate tampering.

Companies Tackling the Problem

There are a number of blockchain based companies aiming to solve the current supply chain issues via a few methods as follows.

Waltonchain

Waltonchain is a joint project between Chinese and Korean developers that aims is to combine blockchain technology and radio-frequency identification (RFID) to assist in the management of supply changes, with the stated aim of pushing forward the integration of blockchain and the Internet of Things.

Wabi

WaBi aims to take the security of the blockchain and use it to authenticate real-life goods, preventing consumers from death or serious harm due to counterfeit goods. The team places anti-counterfeit labels on consumer goods so customers have a verifiable method of proving that item in question is what it claims to be and has not been tampered with. Consumers then use WaBi, the token, to buy the products. Although the token WaBi and its parent company, Walimai, are mostly in China, they are expanding internationally, as well.

VeChain

VeChain utilizes the blockchain to provide benefits for a range of industries, addressing a specific concern associated with each particular sector while providing a solution. In the liquor industry, for example, food safety is a crucial concern, particularly with imported foods. Specifically, companies worry about how to stop counterfeiting and how to make tracking and tracing more effective.

Honesty, Enforced

Integrating blockchain technology into the supply chain enforces systematic honestly on all of its participants. Opportunities for fraud and gaming the system are rendered useless, and this can have a ripple effect beyond efficient business management. At least one group is using the blockchain to nip human slavery in at-risk industries, as the source of diamonds and rare earth minerals can no longer be easily covered up.

Business as usual is likely to go by the wayside as blockchain adoption continues. Due to its distributed and comprehensive nature, just one blockchain-dependent link in the supply chain should be enough to compel the rest of the chain to fall in line. If one link can be demonstrably proven absolutely true, it stands to reason that the rest must either conform to this standard or risk appearing out of date, out of touch, or just plain fraudulent.

Therein possibly lies the blockchain’s biggest advantage over traditional management strategies – it is just too honest to fail.

References

1. http://www.supplychain247.com/article/why_blockchain_is_a_game_changer_for_the_supply_chain
2. https://www2.deloitte.com/us/en/pages/operations/articles/blockchain-supply-chain-innovation.html
3. https://hackernoon.com/blockchain-technology-for-supply-chain-management-3d12121df57b
4. https://www.commerce.gov/news/press-releases/2018/02/secretary-ross-releases-steel-and-aluminum-232-reports-coordination
5. https://www.nytimes.com/2018/04/22/business/china-trade-tariffs-transshipment.html
6. https://www.bloomberg.com/professional/blog/blockchain-coming-everywhere-ready-not/
7. https://www.newfoodmagazine.com/article/36978/blockchain-food/
8. https://slavefreetrade.org/blockchain-tackling-slavery-in-supply-chains/

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