Blockchain and Supply Chain
Jun 08, 2019
This article was originally published on LinkedIn
By now, if not all, most folks in the technology industry are aware of blockchain and its immense potential to transform the current way of doing business. Trust, transparency, agreed business logic between parties (smart contracts) and the inability to tamper recorded transactions are the key aspects for describing it. Some have referred to blockchain as the “Internet for trusted Transactions”.
In my four years as a senior leader at Chainyard (a blockchain services and solutions company based in Morrisville, NC) I have been responsible for building our expertise on blockchain technology and creating capabilities for enterprise adoption especially around supply chain use cases. During this period, I have been involved with over twenty plus projects, some of which are in pre- or post- production stages on both Hyperledger Fabric and Ethereum. Some noteworthy ones include enterprise asset management, procurement of contingent labor, trade finance, retail inventory data visibility, supplier on-boarding to name a few. There are many writings on this topic, but most of them touch very lightly on this subject, just highlighting the potential use case and dwelling on what is blockchain. In this multi-part series, I want to share some experiences and thoughts and welcome audience feedback.
Supply Chain is a broad subject but simply defined, it’s the movement of goods and services from a seller or supplier to a customer or buyer. The whole process that makes this happen includes quotation, order management, customer, vendor and product management, sourcing and procurement, manufacturing, logistics, warehouse management, distribution, delivery and finance to name a few. There are several sub-processes in this chain such as order engineering, forecasting, demand planning, factory planning and reverse logistics. The SCOR (Supply Chain Operations Reference) identifies the following core processes:
Traditional Supply Chain Collaboration Issues
Traditionally, supply chain collaboration involving multiple partners has been achieved using integration technologies. In the early 2000, EAI tools like Neon, Vitrea or Crossworlds were used to integrate enterprise applications. Subsequently, with the advent of SOA, business processes were exposed as services using ESBs such as TIBCO or IBM WebSphere and were orchestrated to execute business workflows. Some legacy technologies such as FTP and MQ are still in use today. The main purpose of the B2B technologies was to send business transaction data from one party to one or more receiving party’s as EDI or XML/JSON messages. These approaches may have helped in standardizing the implementation of the business processes by consolidation multiple applications into single ERP systems within enterprises, but the silos between the partners still existed. The view of the data was not consistent within the various partner applications, often leading to disputes, data quality and reconciliation issues.
While working for a major telecom company that no longer exists, I was leading the end-to-end systems integration architecture. Our team categorized the various processes to better understand the over 8000 applications supporting them and their interactions with partner processes with the goal of consolidating like applications and processes, and having better collaboration with customers, suppliers, contract manufacturers, systems integration houses, 3PL/4PL, warehouses and other 3rd party service providers.
Blockchain has significant impact when multiple parties have stake in the business transaction(s) and data, and there is potential for friction or inefficiencies to creep in. Friction between functions internal to the enterprise are usually out of the scope. Typical supply chain frictions in traditional approaches that can have a positive impact using a combination of blockchain and other technologies such as AI/ML, VR/AR and IoT (BAVI) fall into certain business patterns as listed below:
- Shared and immutable view of data that is of common interest to the business partners
- Secure Trade Financing
- Settlements of transactions such as invoicing and payments
- Dispute resolutions or minimization
- System of record for elements such as orders, suppliers, customers and products
- Audit and Compliance including both regulatory and business practices
- Digital registry of physical and digital assets
- Asset Track and Trace to assist with managing the lifecycle, circular economy and other applications
- Provenance of assets such as parts or produce
- Self-Sovereign Identity and Access Management
- International trade includes taxation (VAT, ST, GST), cross border payments, customs
A preliminary review of the supply chain processes in the context of the technological advances of today suggests that the BAVI combo can help streamline many issues in supply chain collaboration. A short list may include:
- Export Regulations and Controls
- Import Regulations and Management
- Asset Life Cycle Management and Provenance
- Tracking Engineering Parts and Part Certifications
- Shipments Visibility and Tracking
- Repairs and Returns processing (Reverse Logistics)
- Inventory Visibility across suppliers, manufacturers, customers, 3PLs and warehouses
- Optimizing inventory and materials usage across multiple producers, consumers or factories
- Product Data Management including product content, catalog and BOM
- Logistics & Transportation including handling equipment, inter-modal, cross-docking, container tracking
- Fighting Fraud and Counterfeiting
- Document management including all kinds of supply chain transactions, customs documents, drawings
- Sales and Purchase Order as smart contracts
- Digital Identities for assets, individuals and business participants
Enterprise Blockchain Technology for Supply Chain Optimization
The origins of the current blockchain technology can be traced to the Bitcoin and Ethereum networks both of which are public blockchain technologies where anybody can join the network by running a blockchain specific node. Transactions are validated by smart contracts, and miners execute consensus protocols such as PoW (Proof-of-Work) or PoS (Proof-of-Stake) to verify transactions and cut blocks. Transaction execution is powered by crypto currency aka gas or fuel. Miners are rewarded with crypto-money for their role in verifying transactions and maintaining the integrity of the network.
However, enterprises conduct business with partners with whom they have contractual business relationships for producing and trading in goods and services. Hence a class of blockchain technologies known as “permissioned” blockchains was born, where the members of the network are granted permissions to join the network, become users and operate nodes. Permissioned blockchain transactions are not powered by crypto; and consensus algorithms focus on transaction validation and chronological ordering. The Hyperledger Project is a prime example of permissioned blockchains. Hyperledger Fabric and Sawtooth Lake have both gained considerable traction in the supply chain optimization space.
Some real examples of blockchain driven supply chains have been in the news for quite some time such as IBM Maersk, Walmart Food Trust, Shipchain, Chronicled to name a few. Initiatives to standardize blockchain aspects of supply chain have sprung up. BiTA (Blockchain in Transport Alliance) an organization with over 40+ organizations is attempting to develop a standard blockchain view of common business objects like party, shipment, bill-of-lading, location etc. The Hyperledger Grid project is another initiative to build a standard set of inter-operable supply chain components. The Accord Project is focused on developing schema(s), template(s) and contract coding languages for digitizing legal contracts as smart contracts.
Blockchain may eliminate some traditional technologies such as EDI and B2B integrations over the long term. However, blockchain cannot completely eliminate the ERP, CRM and other enterprise applications but reduce some of the baggage that they carry.
Supply Chain as-a-Blockchain Service
Not all processes are candidates for blockchain, and blockchain is not a silver bullet to resolve past gaps in the supply chain processes. There is a tendency to think blockchain as a data processing alternative to current approaches and many PoCs have failed because of a lack of enough analysis. In many cases, fixing current processes and applications can remove frictions. In other cases, other technologies may provide better answers. One of the things that I have pondered is making Supply Chain as a service on top of blockchain platforms. Presented below is a conceptual model and can be a subject of exploration in a future article.
At a high level, each layer builds on top of the layer below:
The Foundation layer provides the core supply chain business objects such as Sales Order, Purchase Order, Order Acknowledgement, Bill of Lading, Invoice, ASN, POD, Good Receipt, Delivery Order, Payment Advice, Shipment, Location/Location Tracking etc. These objects define at a minimum, those attributes that have shared interest, potential to cause friction or mistrust and trigger smart business rules.
The Business and Technical Smart Contracts include sales or purchase order as a digital contracts that are signed of by the parties to the contract. Other smart contracts related to trusted processing of transactions include maintaining records such as shipment location and scans, invoice processing, asset life-cycle, settlements etc.
Workflows will include application or industry specific logic such as order processing, processing forecasts, demand or factory planning etc. In my experience at Nortel Networks, order processing workflows varied by product type, geographic region and other factors.
Introducing the blockchain into the solution landscape does not eliminate current business applications. Blockchains have not yet evolved to where they can perform heavy duty supply chain transaction processing. This layer would include “Oracles” that feed trusted data into the blockchain. It will also include integrations into various enterprise applications and trusted sources of external data such as exchange rates, spot prices, weather etc.
The Business Participants and Personal define various organizations that will be part of the business network, their roles as validators/endorsers, personas such as order processing agent, goods receiver, truck driver etc. Each persona receives credentials to execute various workflows that are governed by access controls.
Finally, without valid business use cases with well defined benefits and as business model, one could be knocking on the wrong doors. Good industry use cases that have tremendous business value have been highlighted in various articles. Some notable ones include conflict minerals tracking, good manufacturing practices (GMP in pharma), digital registry of molecular chemistry used in pharmacology, software license management, asset tracking, engineering parts certification, anti-fraud and counterfeiting of goods and cold chain logistics. With the federal government renegotiating trade deals, sanctions on rogue nations and new regulations around privacy, safety and record keeping, blockchains could play a major role.