Blockchain Offers Dynamic Demand Chains In Place Of Rigid Supply Chains

Global Connection

August 16, 2017

The blockchain may have been initially conceived for financial transactions, but the versatile technology is now showing its true range of colors. Companies from a broad spectrum of activities are getting creative with the distributed ledger system, demonstrating that blockchain can be used to record, track, and verify trades of virtually anything that holds value. Be it ride-sharing or cloud storage or even voting, businesses from almost every industry are starting to see the potential of blockchain.

Simply by accepting that blockchain can provide more secure and transparent tracking of any transaction, we can begin to imagine the possibilities it presents for the complex world of supply chain management. At every point that a product changes hands, throughout the supply chain from manufacturer to sale, blockchain can record the transaction creating a real-time, permanent and un-corruptible history of that product along its journey. Thereby instantly reducing time delays, added costs, and human error that plague transactions today.

In a recent work by Michael J. Casey and Pindar Wong for the Harvard Business Review, it was observed that blockchain could produce “dynamic demand chains in place of rigid supply chains, resulting in more efficient resource use for all.” A bold claim that has stoked the attention of manufacturers, retailers, logistics firms and the wide business world involved in supply chains.

When supplemented by advanced electronic tracking technology, such as Mojix RFID systems, blockchain will help speed up supply chains, while adding greater intelligence along the way, they argue. “It could be especially powerful when combined with smart contracts, in which contractual rights and obligations, including the terms for payment and delivery of goods and services, can be automatically executed by an autonomous system that’s trusted by all signatories.”

In Casey and Wong’s deep investigation into the topic, they noted that some law and governance may need to be developed but the overwhelming benefits of the blockchain for the supply chain would bring these issues to the fore. Here they set out the benefits provided by blockchain and its wide ranging potential for the supply chain:

With blockchain technology, the core system that underpins bitcoin, computers of separately owned entities follow a cryptographic protocol to constantly validate updates to a commonly shared ledger. A fundamental advantage of this distributed system, where no single company has control, is that it resolves problems of disclosure and accountability between individuals and institutions whose interests aren’t necessarily aligned. Mutually important data can be updated in real time, removing the need for laborious, error-prone reconciliation with each other’s internal records. It gives each member of the network far greater and timelier visibility of the total activity.

In a nutshell, this is a global system for mediating trust and selective transparency. Its advocates say it will take the internet’s empowering potential to its next level. Although much attention and money has been spent on financial applications of the technology, an equally promising test case lies with global supply chain relationships, whose complexity and diversity of interests pose exactly the kinds of challenges this technology seeks to address.

The technology can reveal hitherto hidden information and allows users to attach digital tokens — a unique, negotiable form of digital asset, modeled on bitcoin — to intermediate goods as they progress along the production, shipping, and delivery phases of a supply chain and as title to them passes between different players. This could give businesses far greater flexibility to find markets and price risk, by capturing the value that they have invested in the process at any point along the chain. What we end up with are dynamic demand chains in place of rigid supply chains, resulting in more efficient resource use for all.

Advances in chip and sensor technology, which can translate data from the automated movement of physical goods, should greatly enhance these emerging blockchain systems. It could be especially powerful when combined with “smart contracts,” in which contractual rights and obligations, including the terms for payment and delivery of goods and services, can be automatically executed by an autonomous system that’s trusted by all signatories.

But this technology’s potential traceability and automation benefits don’t just pertain to things; it could also keep human beings in check. Staff and supervisors from different vendors can be granted special, cryptographic permissions, which, when placed into a blockchain environment, would appear as unique, traceable identifiers — preferably encrypted, to protect the employee’s personal information. This would allow all members of a supply chain community to monitor the activity of each other’s credentialed staff.

Casey and Wong’s positive assessment of blockchain’s potential impact on the supply chain is echoed by leading experts across the business world. Blockchain “will have huge impact on the way people look at the business network,” predicts Dinesh Shahane, chief technology officer for SAP Ariba. “Blockchain reaches out to the boundary of your network, to faraway places that we are not even connected to, and brings that into a governance model where all of your processes and all your transactions are captured in the central network.”

“Blockchain will work in enabling more intelligence business processes because of its distributed trust and transparency, which in turn will bring more people into connected supply-chain networks,” said Sanjay Almeida, senior vice president and chief product officer of Network Solutions for SAP Ariba. “If you use the blockchain technology to bring that trust together, it’s a federated trust model. Then our supply chain would be a lot more efficient, a lot more trustworthy. It will improve the efficiency, and all the risk that’s associated with managing suppliers will be managed better by using that technology.”

It is not enough to simply buy the technology however, businesses need to adopt a new way of thinking. They must shake off their traditional ideas of what is possible in order to embrace and benefit from this revolutionary technology.

“Enterprises are not used to really exposing that kind of information in any shape or form – or they are very secretive about it,” said Sudhir Bhojwani, senior vice president of the product suite for SAP Ariba. “For them to suddenly participate in this requires a change on their side. It requires seeing what is the benefit for me, what is the value that it offers me?”

Bhojwani believes this process has already begun, “You hear more companies — especially on the payment side — starting to participate in blockchain. It’s still a technology only until the companies want to say, ‘Hey, this is the value … but I have to change myself as well.’”

In the not-so-distant future, Bhojwani predicts this major shift will accelerate when the next generation of employees and business leaders begin to drive change themselves. “I personally believe in next three to five years, when there are more-and-more Millennials in the workforce, you will see people adopting blockchain and new ledgers at a much faster pace,” he suggests.

Casey and Wong believe this will not only give a boost to the ambitious, early adopters, but that it also has the potential to elevate the whole economy. “Challenges must be weighed against the demands of a global economy that hasn’t properly recovered from the financial crisis of 2008 and is fueling disintegrating, isolationist forces in the U.S. and Europe,” they explain.

“Any system that promises to counter those trends by removing the intercommercial frictions that curb trade while also enhancing transparency and control for businesses and their customers is inherently worth exploring. It’s why an increasing number of investors, businesses, academics, and even governments are starting to view blockchain technology as a much-needed platform for economic renewal.”

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