Blockchain supply chain solutions are rapidly improving the efficiency of global trade. In a global economy that’s becoming more interconnected by the day, blockchain technology offers digital solutions to better ensure the origin, authenticity, and quality of products across various economic sectors.
Agricultural producers, pharmaceutical manufacturers, and major apparel brands have already begun to implement blockchain as a way to add transparency and reduce costs. And the benefits of blockchain supply chain management apply to businesses as well as consumers.
Juniper Research estimates that blockchain will facilitate $31 billion in food fraud savings by 2024. This would help detect possible contamination risks earlier in the supply chain and prevent food safety outbreaks. BIS Research calculates that blockchain technology can save pharmaceutical companies $43 billion a year in losses by 2025. Blockchain can help reduce the prevalence of counterfeit medications, thus lowering the number of patient health risks.
This article will discuss the various inefficiencies of legacy management systems and explore how blockchain technology is being applied to improve supply chains across a wide range of industries. We’ll also take an in-depth look at prominent public and private projects working on blockchain supply chain management solutions.
An Overview of Supply Chain Management
Back in 1982, Keith Oliver first coined the terms “supply chain” and “supply chain management” in an interview with Arnold Kransdorff of the Financial Times. At that time, these phrases were not widely used by businesses and unheard of by their customers. Flash forward to the present day, and they are practically household terms.
Supply chain management has existed since the 1940s but largely evolved as the world economy became more globally connected and as technology advanced. The types of supply chain systems used for managing the flow of information, materials, and funds have expanded over the years, but the purpose remains the same.
The goal of any supply chain management system is to increase operational efficiency by cutting shipment costs and/or reducing the time it takes for products to move from Point A to Point B. It also aims to improve tracking capabilities to ensure that no components of a complex, global-sourced supply chain fall through the proverbial cracks.
It was once thought that digital record-keeping, developed over the last three decades, would offer a solution to perfectly optimize global supply chains. Unfortunately, this has not been the case.
Limitations of Traditional Supply Chain Management
Analysts have conducted a substantial amount of research to determine precisely how much time and capital is typically wasted with use of traditional supply chain management solutions. The results show that multiple steps of sending and receiving data are a major cause of inefficiency for these legacy supply chain management systems.
For instance, Maersk, the world’s largest container ship and supply vessel operator, found that a single shipment of avocados from Mombasa, Kenya to Rotterdam, Netherlands takes up to 34 days using a standard supply chain. Up to 14 days of this journey are spent waiting for port authorities to provide shipping information and government approval. This process can involve 30 port and government officials and 200 documented communications among up to 100 people.
Another study found that ocean freight shipping delays were mostly caused by the number of steps to resolve basic questions like, “Where is my container?” In many cases, data is sent from one party to another manually. It is common for companies to share documents via email attachment, fax, and courier.
Supply chain management inefficiencies in the UK have become major issues. Zencargo’s 2018 analysis of 100 shipments found that businesses trading abroad from the UK waste about 3 hours per shipment requesting and funneling data between trading partners via phone or email.
This same analysis found that greater than 100 million hours of time are wasted each year in procurement, supplier management, and freight administration. This equates to £1.5 billion ($1.98 billion) lost annually due to an overreliance on manual, outdated communication processes that could be eliminated by implementing newer supply chain management systems.
Blockchain Supply Chain Solutions: Improving The Status Quo
Blockchain technology provides a number of benefits that can optimize supply chain logistics. According to a 2013 report from the World Economic Forum, reducing supply chain barriers could lead to increases in global GDP by up to 5 percent and global trade volume by as much as 15 percent. Although there are a number of blockchain supply chain solutions with varying technical approaches, they all share a few common traits.
Origination
All users that have access to a blockchain’s ledger can independently verify the origin of a product. In the current system of global commerce, customers have to trust a label when it tells them that a product was created in a specific location.
For instance, how do you really know that your Sumatran coffee was actually grown and harvested in Sumatra? How can you be sure that the wine in that bottle of Côtes du Rhône was actually produced by the Rhone River in southern France? By using an open, distributed ledger, businesses could provide more transparency about product origin to their customers.
Immutability
Transactional data stored on a blockchain cannot be changed after the fact. For example, if a product has already moved from Point A to Point B, no one can change the logistics data to say otherwise. This is important for three reasons.
First, it prevents the possibility of a data entry error from an individual that is working along one part of the supply chain. Second, it ensures that the data on the supply chain route cannot be changed as a result of security breaches. Third, parties on the supply chain and/or customers are able to verify that the product has followed the correct route from creation to consumption.
Finality
With blockchain technology, all copies of a distributed ledger show the same data and all nodes in the network. Every node in that peer-to-peer network updates their copy of the ledger with each modification. Thus, with blockchain supply chain solutions, all parties on the supply chain route get real-time updates about relevant shipping information. This additional efficiency, when multiplied across dozens of steps in a supply chain, can vastly reduce the amount of time it takes to ship products around the world.
Blockchain Supply Chain Solutions Across Industries
While blockchain supply chain solutions are still emerging, there are three major economic sectors already employing these cutting-edge systems: food and agriculture, pharmaceuticals, and designer apparel. Let’s explore each one in greater detail.
Food Security
Ensuring the health and safety of food products can be a challenge in the modern global economy. For instance, in 2014, McDonald’s temporarily stopped selling chicken nuggets in Hong Kong after its supplier, Shanghai Husi Food, was accused of re-processing expired meat. In another example, two of Brazil’s biggest meat producers, JBS and BRF, bribed federal health inspectors in 2017 to ignore malpractices, including the re-packaging of expired beef and the use of harmful food additives.
Blockchain is already being implemented in food and agricultural supply chains to make sure food stays safe. In February 2019, BeefChain completed the first blockchain-based shipment of beef from North America to Asia. In April 2019, the project received certification from the United States Department of Agriculture (USDA) as a Process Verified Program.
Additionally, there are several blockchain projects working to prevent food security issues like the numerous E. coli outbreaks caused by romaine lettuce that have occurred in the US over the past decade. The implementation of blockchain could make it easier to isolate the origin of the outbreak and notify markets before they sell contaminated foods to consumers.
Pharmaceutical Supplies
An estimated $163 billion to $217 billion is lost annually due to counterfeit medications. The World Health Organization (WHO) states that “substandard and falsified (SF) medical products harm patients and undermine confidence in medical products, healthcare professionals, and health systems.”
Blockchain technology could help ensure that patients receive authentic medications and provide an increased level of safety for patients around the world. Blockchain supply chain solutions for the pharmaceutical industry would align well with existing initiatives, like the US government’s National Strategy for Global Supply Chain Security.
Designer Brand Authenticity
The global market for counterfeit luxury goods reached nearly $100 billion in 2017. In many countries around the globe, the counterfeiting of designer brand clothing and apparel is common. While it is true that a portion of the population knowingly buys knockoffs for cheaper prices, there is also a significant percentage of consumers who unknowingly buy fake products at MSRP value.
Blockchain solutions are already being implemented to fight back against counterfeiters. For example, Louis Vuitton Moët Hennessy (LVMH) launched its AURA blockchain in May 2019 to verify the authenticity of products from its major brands: Louis Vuitton, Dior, Celine, Loewe, Givenchy, and more. Expect to see other designer brands adopting blockchain technology to use similar supply chain solutions in the coming years.
5 Projects Working on Blockchain Supply Chain
There are several projects working on blockchain supply chain solutions. The following five examples include three public blockchains (VeChain, IOTA, and Waltonchain) as well as two private blockchains (IBM and Chronicled). All of the projects listed here have ambitions to deliver distributed ledger solutions across multiple supply chain verticals. For the most part, however, they have each picked a single vertical to focus on initially.
VeChain
VeChain provides a Blockchain-as-a-Service (BaaS) platform called ToolChain. ToolChain aims to provide solutions for product lifecycle management, supply chain process control, data deposit, and data certification. One of the early supply chain use cases built on ToolChain is the Wine Traceability Platform (WTP), which utilizes IoT-enabled NFC chips attached to the caps of wine bottles during production.
Producers are able to use IoT devices and the VeChain Work App to generate data along the wine supply chain. Raw material procurement, production and processing, logistics, warehousing, retail distribution, and consumer purchase are all tracked via blockchain. Details can be verified by third-party auditors using chip readers. Penfolds Bin 407, one of Australia's most popular winemakers, was introduced in August 2019 as an early adopter of WTP.
IOTA
IOTA uses a distributed ledger technology (DLT) called Tangle. Although technically not a blockchain, one of Tangle’s main use cases is to improve supply chain management. IOTA’s solution is feeless and supports partitioning. This architecture is designed to facilitate adoption among ocean freight companies and other businesses that need to secure transactions along the supply chain route in remote areas, where internet connection is not always available.
In June 2019, IOTA partnered with Primority to develop an app called AllerSafe to help consumers who have food allergies. The app will use IOTA’s DLT solution along with Primority’s 3iVerify software. Consumers will be able to scan a food product’s barcode with AllerSafe. Any allergens involved along the supply chain will immediately be listed on the app.
Waltonchain
Waltonchain is a project primarily focused on the fashion/luxury goods supply chain vertical. In September 2019, the project announced a partnership with Dongdaemun Fashion Town Tourism Zone in South Korea to provide blockchain technology and RFID chips.
At the same time, Waltonchain also has partnerships with companies in other supply chain verticals. In December 2018, Waltonchain signed an MoU with MitoQ, New Zealand’s leading biotechnology company, to provide a blockchain solution to improve traceability, logistics, and warehousing for the company’s pharmaceutical supply chain management.
While Waltonchain has made a great deal of progress, it also faced a few security challenges shortly after launching its fully operational mainnet in April 2019. Hackers executed a coordinated attack to exploit Waltonchain’s code on June 29, 2019. This resulted in hackers gaining 99.99% control of the network’s mining power, equivalent to around 288 million ASIC miners. Waltonchain developers were able to perform a hard fork in order to save the network and minimize the damage. Still, this raises concerns over the possibility of future security breaches.
IBM Hyperledger Fabric
IBM has rolled out a number of blockchain supply chain solutions. TradeLens is a platform built to support shipping and logistics enterprises. The aforementioned Maersk, the world’s largest shipping company by cargo-carrying capacity, jointly developed TradeLens with IBM. The second and fourth-largest shipping companies by cargo-carrying capacity, Mediterranean Shipping Company (MSC) and CMA-CGM, have also adopted TradeLens. According to Maersk, the platform has 100+ participants and is processing 10 million shipping events and thousands of documents weekly.
In August 2019, IBM announced its partnership with Chainyard to provide another blockchain-based supply chain management solution called Trust Your Supplier. Anheuser-Busch InBev, Cisco, GlaxoSmithKline, Lenovo, Nokia, Schneider Electric, and Vodafone are all founding participants, alongside IBM. Trust Your Supplier provides a “digital passport” system for supplier identity on the blockchain network. Suppliers can share information with any permissioned buyer on the network. Third-party validators, such as Dun & Bradstreet, Ecovadis, and RapidRatings provide outside verification or audit capabilities directly on the network.
Although these various IBM blockchain supply chain solutions have already gained adoption from large enterprises, it is important to understand that they are not currently accessible to all organizations. IBM has other private blockchains, like Hyperledger Fabric, that are available to all enterprises but are typically far more expensive to use than public chains.
Chronicled
Chronicled is focused on developing private blockchains that are vertical-specific. Only public data and mathematical proofs are stored on the blockchain ledger. Each network built on the Chronicled Core stack features P2P messaging, zero-knowledge proofs, and private ownership of confidential data.
MediLedger is Chronicled’s first vertical-specific permissioned blockchain built on open standards and specifications. In Europe, this project is providing a compliance solution based on existing industry regulations. In the US, MediLedger is offering a blockchain supply chain solution that helps pharmaceutical companies comply with the Drug Supply Chain Security Act (DSCSA). This law mandates the creation of an interoperable system for exchanging pharmaceutical supply chain data and tracking electronic movements by 2023. MediLedger’s partners include McKesson, Pfizer, and Gilead Sciences, among others.
Custom Blockchain Supply Chain Solutions With Komodo
Komodo is another platform that’s well-positioned to offer blockchain supply chain solutions. With Komodo's blockchain technology, businesses have the ability to compose and deploy a custom supply chain management system. This is true across multiple verticals and blockchain use cases.
Smart Chains are customizable and modular. Operators of smart chains have complete autonomy to determine their own consensus mechanism, hashing algorithm, pre-mine supply, block time, block rewards, size and frequency of reductions in block rewards, and privacy settings.
On top of that, Smart Chains are modular, in that they come equipped with the Komodo Custom Contracts library. The desired contracts can be activated as needed, like building blocks, while the rest are set aside. Optional contracts include tokenization, trustless oracles, quantum security, stablecoins, channels for instant micropayments, and much more.
In April 2019, HempCoin (THC) announced its decision to migrate to the Komodo blockchain. HempCoin is using Komodo technology to build and deploy HempTRAC, a blockchain supply chain management solution for tracking and tracing hemp shipments. HempCoin chose Komodo specifically for several reasons.
First, many blockchains require gas fees that add significant operational costs, as additional data is stored on the ledger. Komodo instead uses a feeless solution for on-chain transactions that reduces friction for farmers, distributors, regulators, and other parties interested in adopting HempTRAC.
Second, Komodo’s innovative delayed Proof of Work (dPoW) security mechanism protects against 51% attacks. This security service provides Bitcoin-level security at a tiny fraction of the cost.
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