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Blockchain – Supporting the Transition from Linear Supply Chains to Interconnected Ecosystems

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We started our Blockchain series by focussing on two key concepts which are critical to realising the benefits of Blockchain.  The first is “authenticity”, and if Blockchain is to be utilised as an effective means of storing and communicating information throughout the supply chain, then product authentication at source is vital to ensure what is being communicated is 100% truthful.  The second concept is the creation of this truthful data in the form of a “digital asset” such that each product has both a physical and digital entity.  Digital data stored on Blockchain about the physical entity is a key component of making truthful data about a product visible end-to-end across the supply chain.

This third article focuses on the benefits of Blockchain in creating a paradigm shift in relationships between supply chain actors, and transforming sourcing, procurement, manufacturing, distribution, and logistics into a cohesive system.  Traditional supply chains are linear in nature, often combative and subject to skewed power relations, where the  focus is on interactions between each immediate participant in the process.  By contrast, Blockchain can enable the creation of an “ecosystem” approach, allowing interconnected relationships between actors at all stages of the supply chain where everyone can win and the only losers are counterfeiters or fraudulent actors, and of course significant inefficiencies ensue.

A process of “Coopetition”

The ecosystem is dependent on cooperation among a multitude of stakeholders with Blockchain enabling a process of “co-opetition”, ie collaboration between business competitors with the aim of mutually beneficial results.

The barrier to coopetition is the perception that this involves the sharing of confidential information and whatever data is shared, may enter a wider domain than intended.  That’s where a process of governance is key whereby all active ecosystem participants reach a consensus upon the rules of the road, such that all parties are agreed on what data is beneficial to share and that which is deemed commercially sensitive. 

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Blockchain underpins this process of consensus as all entities within the newly created ecosytem have access and visibility to the same information, securely stored on a decentralised ledger, using the powerful encryption techniques that Blockchain deploys.  Everyone within the ecosystem can see the chain of ownership for an asset on the blockchain whilst records on the blockchain cannot be erased which adds a further transparency layer critical to effective supply chains. Enabled by Blockchain, this openness and transparency allows parties to transact privately and securely with one another without the need for financial or legal third parties, eliminating costs accordingly.

Connected Transactional Flows and effective Audit Trails

Information flows, inventory flows, and financial flows are the three critical elements of supply chain transactions which current ERP systems are unable to reliably connect.  Blockchain enables connectivity between each of these elements as well as visibility to all ecosystem participants whilst storing a tamperproof digital record of each and every transaction, hence providing an effective audit trail. 

The way in which data is recorded on the blockchain means that no participant can overwrite, amend or falsify any past data since each piece of data is stored in a series of blocks linked to each other in a chain – hence the name Blockchain.  Each block is linked via state of the art encryption, so changing data would require rewriting of all historic data across all shared copies of the ledger, essentially impossible.

Smart contracts enforcing the rules

Further increasing efficiencies is the deployment of so-called “smart contracts” whereby the contractual obligations between parties are created in the form of computer code. So in effect, the machine enforces the rules of the road without the need for financial intermediaries or lawyers. More specifically, the smart contract is programmed to only effect transactions once the agreed contractual obligations have been met.  So in effect the status of each transaction is automatically assessed and for example, invoicing is raised and issued electronically but only once the agreed terms written into the smart contract have been proven to be met.

Wider Benefits of Coopetition

  • Enhanced communication –  information is openly and more effectively shared between parties, eliminating inefficient paper-based systems  
  • Data pooling – the ability to securely share information enables supply chain improvements to be based on much larger and more robust samples of data, lending confidence to strategic recommendations                       
  • Developing best in class practices – as new industry issues emerge, coopetition allows all parties to share what works well and less effectively within the business to arrive at best in class practices, learning from others’ experiences
  • Sharing of Resource (i.e., optimising resource by coordinating warehouse capacity and delivery schedules)
  • Industry Innovation & Disruption – beyond an internal focus, data sharing can enable wider industry change and in particular related to social impact, environmental and sustainability issues

Done right, we have experienced the often talked about but rarely seen animal: The Win Win.  This is a  scenario where everybody within the ecosystem benefits commercially from transformation and innovation whilst the only losers are the counterfeiters or operators attempting to game the system.

In summary, a blockchain based ecosystem enables its users to share information speedily, reducing friction between the parties.  For example, once authenticated at source, the product truth is visible throughout the supply chain, reducing the overhead of audit and compliance/inspection regimes whilst smart contracts (written by people but enforced by machine) support pre-agreed stipulations at all supply chain stages and eliminate the need for third parties.                                           

Combined with web or mobile-based dashboards, this allows authorized parties to view activities and products streaming across the chain.

Finally though not least, the ecosystem approach supports the development of supply chain predictive analytics for managing supply & demand and anomalous event reporting, eg product withdrawals and recalls.

Next time: In the last article in our 4-part Blockchain series, we show how –  via a Fast-Start Programme approach – all organisations can explore for themselves, the benefits of Blockchain quickly and at low levels of investment.

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