How to Implement Blockchain in Supply Chain Management
How to Implement Blockchain in Supply Chain Management
“You will either introduce the blockchain or disappear”, said FedEx CEO Fred Smith at the conference “Consensus 2018”, speaking on supply chain management. And this is not strange, since, according to the report of the auditing and consulting firm Deloitte, the blockchain is able to solve four main problems of the industry:
- ineffective management;
- low traceability;
- lack of compliance;
- lack of flexibility.
Walmart, Amazon, IBM, McDonald's, Starbucks and Apple are already fixing these problems with the blockchain. Their cases are successful and illustrative, so we decided to tell you how to implement a new technology in supply chain management, so that you can use this instruction and your business is not among the "disappeared".
Despite the great opportunities of the blockchain and smart contracts, it is not necessary to introduce them all unnecessarily. PwC International Consulting Consortium has developed a list of questions that will help you understand whether a new technology will help your business:
- Do transactions interact with each other?
- Are transaction interactions time-sensitive?
- Are there intermediaries and do they add complexity?
- Are data shared between multiple parties?
- Are data updated by multiple parties?
- Are data checked by formal criteria?
If four of the six questions the answer is “yes,” PwC advises using new technology to improve the efficiency of business processes. In the case of SCM, the answers to these questions are almost always affirmative, unless it is a small business or chains with relatively simple logistics.
Decide how you intend to improve your sales chain management. To do this, formulate the use case - a simple but detailed description of the “points of application” of the blockchain and the goals to be achieved. It is not necessary to describe the technology itself, only its ability to improve SCM for your case.
Use case must:
- Do not describe the framework. The system is considered as a “black box”. Characteristics of the blockchain, user interfaces and screens are worked out in the following steps.
- Have a sufficient level of development to allow interested parties to grasp the essence of the plan.
- Describe what needs to be done to improve SCM.
- Do not affect specific implementation details.
One of the most famous use case examples for the SCM is the Walmart Food Traceability Initiative. The network giant has used IBM blockchain solutions to track products as they move through the chain of sales from farm to shelves in supermarkets. In particular, due to this, it was possible to reduce the time of tracking the origin of products, increase customer confidence and reduce logistics and SCM costs.
The Walmart case is global because it affects the entire product life cycle and the transactions associated with it: monetary, commodity, documentary, custom, and informational. Such use of the blockchain is expensive and not always justified. Besides, this requires a huge impact on trade and business partners, as they need to be persuaded or forced to switch to the new SCM system.
Not all companies have enough money and influence to immediately transfer all sales chain management processes to blockchain, so they move step by step, improving only some elements. For example, such:
- Payment processing. Calculations in cryptocurrency reduce costs for online merchants, reduce the cost of goods and make e-commerce easier and faster, for example by removing intermediaries in the form of banks. Payment processing can be integrated directly into invoices that are automatically paid by smart contracts when goods arrive.
- Document control. Distribution register and immutability of records ensures the accuracy of information and protect against unauthorized changes and human errors. In addition, smart contracts in conjunction with IoT technologies can automatically fill out documents, stamp, make and execute contracts, and also carry out financial calculations on them.
- Traceability. Using RFID tags, you can track the location of the goods in real time. This will help to identify the "problem issues" of logistics and to establish more efficient delivery routes.
- Quality. RFID tags can track not only geolocation, but also temperature, humidity, speed and sudden movements (shake), which is important when delivering goods that require strict adherence to temperature conditions (medicines, biomaterials, food).
According to a PwC survey conducted among 600 senior managers in 15 countries, only 15% of blockchain initiatives in business reach release. The main reasons for failures are underestimation of risks and problems with financing. Therefore, choosing what exactly you want to improve in SCM using the blockchain, study the examples and evaluate the possible risks.
Now we need to determine the key characteristics of the blockchain, which are necessary to achieve the goals: a consensus mechanism, an authentication mechanism, data privacy, algorithm complexity, and so on. For this you need to analyze the use case, giving detailed answers to such questions:
- What technological solutions will help you achieve your goals?
- Which parties are interested in the blockchain and what will they gain?
- What are the roles and responsibilities of participating and interested parties?
- What data is interesting for participants and interested parties?
- What are data inputs/outputs and which Dapps produce and/or consume them?
Answers to these questions will help you to understand which blockchain is needed (decentralized, centralized or combined), whether you need a separate platform, how global the project should be (or the platform), whether you need a utilitarian token.
An example of some key architectural solutions:
- Blockchain registry as a recording system. The platform is a single source of truth that automatically tracks the movement of goods along the sales chain and records every change it makes.
- Openness. Farmers, manufacturers, transport companies and retailers will be known and registered in the blockchain network. All users will have access to this information. So the SCM process will become more efficient, since all interested parties will be able to notice and eliminate the problems of logistics, interaction and management.
- Permissions. All direct participants in the management, organization, control and implementation of processes related to the movement of goods along the chain of sales will have access to the data in the blockchain and the right to change them.
- Smart-contracts. The rules that regulate relations between subjects, objects, transactions and events affecting the monitored asset will be written in the blockchain. For example, the recipient (and not the shipper) may flag a serial number mismatching.
- Consensus (for example, Proof-of-existence). Evidence obtained for transactions and events, such as a “bill of lading” or “Mill Order”, will be digitized and recorded.
- Client Interface. The platform will subscribe to external events and transactions through the client interface. For example, for events such as “asset sent” or “asset set”.
The described characteristics should be compared with existing blockchain platforms. If there is a match, you can use an existing framework; if not, create your own.
Preparation for development
Next, you need to decide who will be engaged in the development and implementation of the blockchain:
- Outsourced company. Hiring a blockchain developer company that will create and integrate blockchain technology into sales chain management. The best option if you do not have time to understand all the subtleties and details of the process.
- Internal development. Hiring a blockchain developer is expensive and requires a lot of effort in finding and establishing coordination. Suitable for those who understand these processes. Gives full control over the development.
- Blockchain-as-a-Service (BaaS). A proposal that allows you to use ready-made cloud blockchain solutions for implementing your own DApps and smart contracts. These services are offered by Microsoft, IBM and Amazon. BaaS speeds up the blockchain deployment process but complicates changing the service provider in the future (vendor-lock). Unilever and Nestle have chosen this path.
After choosing the approach to development, you need to write a Roadmap - a phased plan for integrating the blockchain into SCM. It should include the development, testing, improvement and deployment of a software product, as well as actions aimed at attracting funds and promotion, if they are needed. You can raise funds for such projects with the help of ICO or STO.
The first step in the Roadmap should be the development of a Minimally Viable Product (MVP). This is a product created for little money and time, with a minimum set of functions, which are enough to demonstrate the use case at a primitive level. The main idea is to reduce the resources and time that are needed for proof-of-concept (POC).
For example, the MVP taxi service Uber had only two functions: connecting the driver with passengers and the ability to pay. MVP for SCM can also include one or more functions, such as product tracking, collecting information about the state of the product, issuing information, automatically filling out documents, financial calculations, and the like.
And it is not necessarily to make it look nice or be effective. The main thing is that the product should work and give an idea of two things:
- Are blockchain technologies able to solve the problem?
- Are blockchain technologies better than current solutions (“status quo”)?
After MVP has proven the concept and the ability of the development team to create a finished product, it needs to be improved and expanded to a pilot project (prototype). This is a small-scale experiment carried out in a single SCM segment. For example, within a single department, direction or product.
In the above mentioned Walmart case, a pilot project was carried out within the framework of a single product - the supply of mango from farms in Mexico to the shelves of Walmart stores in the USA. The company wanted to find out how quickly you can trace the origin of a single mango slice using the blockchain.
It was decided to use for this the IBM Blockchain (Hyperledger Fabric framework) and RFID tags, which track the location of the product and several other things in real time: temperature, humidity, serial number, expiration date, and so on. The supply chain consisted of 16 farms, 3 brokers, 2 packaging lines, 2 warehouses and Walmart stores.
The experiment showed a reduction in tracking time from 6 days 18 hours and 22 minutes to 2 seconds. After that, the network giant extended the solution to other products and supply chains. For example, on the supply of pork from China.
After successful testing of the blockchain solution for SCM, are carried out analysis of the achieved results and the development process on the pilot project. Bugfix is processing, errors detected during tests in action are corrected, new functions are added, the user interface is improved.
Then another test is performed - pre-release. If it was successful, the development team and the customer deploy the blockchain, incorporating it into the remaining elements of the sales chain management. This is done in stages: product by product, chain by chain. All participants are connected to the system.
Support and development
After the deployment of the blockchain development process does not end. In the course of using the new chain management system, bugs, errors and problem points will be revealed. They need to be eliminated. And it should be done very quickly, so in the first few months the development team and technical support should work at 150%.
Every comment, wish, every mistake should be systematized and grouped by importance. For example, critical program errors and those of its elements that are responsible for assets, property and money need to be processed first, design and management flaws - secondly, improvements - thirdly.
When developing the use case, it is worth thinking about the integration of not only the blockchain, but also other technologies that will help develop the potential of the distribution registry and smart contracts. For example, you can integrate deep neural networks (“applied” artificial intelligence) to optimize logistic paths, find errors, inconsistencies, or other things.
Other examples: virtual and additional reality for visualizing logistic paths, IoT for controlling everything, 3D printing for reducing supply chains, and Data Science for finding optimal solutions. Data Science and IoT are especially well combined with blockchain.
The combination of several advanced technologies will provide a cumulative effect, which will give even more competitive advantages. Think about it.
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