What does the blockchain mean for the Supply Chain?
What value do we place on trust? This seemingly simple question can have a very complicated answer. Whenever we enter into a transaction we assume a level of trust from the opposite party. This was simpler when transactions were face to face, but in modern societies, we are increasingly called upon to trust in smart machines and software.
When we buy something from a shop and tap our contactless card, we trust that we are only going to be debited for the value of the item we have just purchased. We trust that the money that is taken from our account is going to the shop and we trust that next time we check our card it won’t be full of erroneous payments. We often do all of this without even thinking about it.
Trust is the cornerstone of modern society and we often take for granted that transactions will happen as we expect them to. In the example above, an industry has grown around being able to safely and securely transfer money from one place to another and as a result, we are now all comfortable with the thought that money can be numbers on a computer. In the supply chain, trust is particularly important. We have to trust suppliers, forwarders, drivers and more external parties to do their jobs, but also tell us when things go wrong. But what if trust wasn’t necessary? What would it mean if technology could ensure complete transparency from both parties in a transaction? The blockchain promises to do just that.
What is it?
At its most simple the blockchain is a digital ledger of anything that needs to be recorded as having happened. Take the payment example above, the blockchain would record that payment has been made from the customer to shop. The advantages of this over other digital ledgers is data isn't stored in one place but shared across a number of locations across the world. It's also encrypted using a process called "hashing". What this means in practice is that once the ledger has been updated it is almost impossible to tamper with or retrospectively alter without leaving a trace.
This concept is not new but it was the invention of crypto currencies like Bitcoin (an entirely digital, open-source currency) in 2008 that brought it to prominence. Being an entirely digital currency, Bitcoin does not need an intermediary like a bank in order to operate, but as a result, trusting that money has changed hands is vital. One of the key facets of currency is that you can't spend it more than once. With blockchain once the currency has been spent the ledger is updated and it is irrecoverable by the original spender.
What does this mean for supply chains?
The practical application of blockchain technology in the supply chain is still being explored, but it has the potential to be very beneficial. One particular example is in the diamond industry. It is at present, difficult (if not impossible) to accurately track a diamond’s origin. This is very important as ethical consumers now want to avoid buying diamonds from conflict areas, but diamonds change hands multiple times before they reach a seller. At each step, it becomes harder to discern where a diamond has come from. The blockchain could solve this. Once the diamond has been mined and registered on the blockchain its origin is unalterable.
Not every company trades in diamonds of course, but this practical example is indicative of a lot more. It is very possible to imagine scenarios like this one where it would be beneficial to have an unalterable ledger. For example if your stock gets damaged in transit, but it has multiple journeys before the damage can be recorded, it is presently very difficult to know what happened where. In an ideal world one of your freight forwarders would admit to causing the damage, but this doesn't always happen.
The blockchain would make it impossible to change data retrospectively, so once the damage has been recorded it couldn't be deleted further down the line. This is also useful when you have multiple suppliers who provide you with the same parts and you need to work out what came from where in order to make a warranty claim. As such, blockchain technology lends itself to a much greater level of transparency in the supply chain.
What is next?
It should be noted that this level of transparency isn't impossible without the blockchain and digital ledgers already exist in numerous forms. Without blockchain it is impossible however, to guarantee your ledger is tamper proof. Provided you trust your suppliers, blockchain shouldn’t be necessary and you might feel that it just adds an extra level of transparency you don't really need.
Never-the-less the technology is undoubtedly going to be a fixture of modern society and it has many more exciting applications beyond supply chain processes. The safe transfer of money from place to place for example could be used to open up labour markets and the sharing economy in ways that are not currently possible. Trust is what our society is built upon, but we may no longer have to take it for granted.