Implementing Blockchain in Supply Chain Systems

What is a blockchain?

The blockchain in technology circles is viewed as a permanent, immutable distributed ledger to record all transactions of value. What makes the blockchain unique from other data storage technologies is the lack of centralization, no individual or entity has overall control over the blockchain, rather it is governed by nodes. Each node involved in a transaction, whether as a direct participant or verifier will have access to the ledger across multiple machines. This allows for decentralization and for control to be shared across the network, instilling trust into the transaction ecosystem. All transactions which are appended to the blockchain are first verified by members also known as miners. This approach is unique and removes intermediaries from the transaction, theoretically creating an efficient and effective transfer of goods and services while minimizing cost. In simplistic terms, when a transaction is created (which is also known as a block), the miners will solve a mathematical puzzle to find the unique number (hash) that is attached to the block to create a verifiable, immutable record. This record is attached to the previous block (as part of the chain) and in the future cannot be amended or tampered with. The hashing process conducted by miners requires a large amount of computing power and is one of the disadvantages of the system. The more complex the transaction the longer it can take for the transaction to verify and append to the blockchain.

Blockchain in the Supply Chain

The supply chain is a complex system that involves several entities working together to fulfill consumer demand by adding value from the raw material stage to the final fulfillment process. This is the primary chain and is supported by the secondary and tertiary chains that work together to form the supply chain network or also referred as the ecosystem. Complexity in the chain is also created through transactions (both physical and informational) and there is a need for informational transactions to match the physical. Trust, that this alignment will provide transparency and traceability within the supply chain is essential. The foray of blockchain within the supply chain environment follows this intention in the first instance. The blockchain environment if implemented appropriately should be able to create verifiable, immutable transactions within the supply chain, thus enhancing trust. For many supply chain businesses, this is an enticing prospect. Over the past few year’s companies such as IBM, Walmart, Zurich Insurance, Maersk, Nestle, Unilever, and Amazon, have invested in pilot blockchain-based supply chain projects to develop and test the technology. However, several researchers in this area urge caution arguing that while there is a significant amount of potential, the risks are still great with many operational challenges that still need to be resolved.

Blockchain considerations for implementation

The implementation of blockchain solutions within the supply chain environment has been slow due to current technical limitations, lack of digital skills, and a lack of general awareness by organizations in the potential of blockchain. These implementation challenges influence adoption, popularity, and future organizational growth strategies. The blockchain environment is rapidly evolving with several startup companies being set up to grow the solutions ecosystem. Hence, the level of understanding about using this technology within a supply chain environment is also evolving.

 Some considerations for implementing blockchain within supply chains:

• Smart contracts
• Computational cost
• Private vs. Public Blockchains
• Security and privacy challenges

Blockchain technology presents a potential for disrupting supply chain information systems in the future with an initial foray into sectors such as food, pharmacy, and aerospace that require mandatory traceability and transparency. The technology ecosystem is developing rapidly with innovative applications. It is also essential to note that blockchain implementation will be useful in an extended, complex supply chain rather than a single factory scenario. The adoption of the blockchain will rely on many variables being put in place. There is a sector-wide requirement for more developers, interoperability, better skills development, and implementation success stories.

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