The Deloitte Global CPO Study 2018 found just 6 percent of respondents had full transparency of their entire supply chain, while 65 percent had limited visibility or none. Another study showed that a majority of CIOs consider “supply chain visibility” an aspect of the digitization capable of achieving higher values.
Companies are now considering the Supply Chain a lever to win competitive advantage, in fact, the best performers, in terms of EBIT, have positioned Supply Chain management at Board level or at C-level.
The supply chain is a highly complex area with broad variations. A typical global corporation has multiple production sites that need to interact with thousands of suppliers and various distribution centers worldwide. In logistics, a single shipment of goods across continents could require hundreds of unique interactions between individuals and generates literally tons of paperwork. Almost all the companies that manufacture complex products, which are constituted by hundreds of components that are procured from suppliers spread across the world, are continually struggling with traceability, quality, and process workflow challenges.
Despite massive investments, most of these companies are still suffering due to the highly inefficient and fragmented supply chain processes.
Why are companies miserably failing in gaining the expected level of efficiency in the supply chain area?
Currently, pretty much all companies have highly centralized asset control for equipment, machinery, intellectual property, resource management, technical documentation, etc. This profound data centralization requires synchronous infrastructure among the internal, third-party, and external supply chains.
Most of these companies invest in developing complex processes and IT solutions that are based on centralization. But when it comes to the supply chain, there’s not just one company involved in the process. Hence building processes and IT solutions that utilize a centralized design is definitively a wrong approach.
How do you get out of this dead-end?
To get out of this dead end, companies should include shifting between IT infrastructure centralization and decentralization in their IT strategy.
Unfortunately, this is not a natural shift for any company because it not only involves the information technology architecture but essentially entails a profound cultural change inside the organization. It requires new internal competencies and remarkable effort in redesigning the internal processes.
When it comes to decentralized systems, the blockchain technology immediately comes to mind and, certainly, the supply chain is one of the most recognized and widely tested use cases for blockchain.
Surprisingly, companies due to a lack of understanding of the potentialities of the blockchain technology, while aiming to gain efficiency in their supply chain processes, are continuously wasting enormous amounts of money in maintaining and developing a plethora of complex and unmanageable processes, data integration solutions, and in monitoring and data analysis systems.
Thanks to technological innovations in advanced manufacturing, such as material science, robotics automation, artificial intelligence, and machine learning, we are de facto already in the fourth industrial revolution. However, none of these technologies can contribute to bringing efficiency to the supply chain more than the blockchain technology.
Blockchain is mostly known in the financial sector, but the blockchain technology can be applied to any business model that involves several actors who need to securely exchange data in an efficient and temper-proof manner. Blockchain is a perfect suit in all cases where security and reliability are paramount.
Blockchain can seamlessly and effectively move and track goods digitally across the entire supply chain, eliminate resource waste, protect against frauds, and provide with accountability to the entire supply chain process. The blockchain technology is valuable in many ways:
- Improving trust because everybody knows who is doing what.
- Improving responsiveness, allowing the just-in-time manufacturing.
- Improving the traceability, tracking both tangible or intangible assets among the entire supply chain identifying, for example, The location of parts at any given point of time.
- Preventing poor quality of goods and missing documentation or certifications.
- Improving security and reliability.
- Reducing the IT footprint, eliminating the need of complex IT infrastructure and data integration solutions.
What are the most suitable blockchain technologies for the supply-chain?
Due to compliance requirement constraints, I would recommend the “permissioned blockchains” as suitable technology, even if there are other good examples of public permissionless blockchain that fit the supply chain use case requirements.
There are many possibilities to choose from, depending on the specific needs. Here, I’m going to mention just a few of them without going into detail or making comparisons. A comparative analysis of the best-of-breed “Enterprise blockchain”, which is appropriate for the supply chain use case, will be the subject of my upcoming next articles.
The first one under consideration is Hyperledger that is an open-source project of the Linux Foundation. It offers multiple, generally permissioned, blockchain platforms for a wide range of use cases to industries, including industries with heavy compliance requirements. It consists of ten projects, five of which are distributed ledger frameworks: Fabric, Iroha, Sawtooth, Indy, and Burrow. The other five are modules that support these frameworks: Composer, Explorer, Cello, Caliper, and Quilt. Hyperledger is very flexible, thanks to its “pluggable architectural” design. It is supported by a very active community of developers and adopted by the giants of the software industry, such as the IBM and the SAP.
R3 Corda is another open-source distributed ledger platform that facilitates good interoperability and ease of integration with legacy systems. It is a permissioned blockchain, and data access can be easily restricted to specific nodes, according to needs. Even if Corda was initially designed for the financial sector is now suitable for many other business use cases, such as finance, supply chain, healthcare, government, etc.
VeChain is a new public blockchain developed by VeChain foundation in China. VeChain is a good example, together with EOS and a few others, of a blockchains ready for “real business applications”.
As well as EOS, VeChain tries to balance between centralization and decentralization and to reduce the development time and costs, thanks to the ready-to-use tools for developers. It boasts of various partnerships with automobile manufacturers, such as BMW and Renault, and global quality assurance company such as DNV GL. Moreover, VeChain has been tested in many other industries, including pharmaceuticals, luxury goods, retail, logistics, supply chain, food and cold storage, and so on.
There are many other blockchain solutions as well as many possible implementation paths. Even if the selection of technology is one of the last steps during project preparation phase, it still remains a critical phase for any company that decides to embrace the blockchain revolution which is, as we said, a necessary step for any company suffering from their inefficient supply chain processes.