Blockchain for Supply Chain Management
Blockchain is set to become a real game-changer for the supply chain management. Blockchain technology arrived on the scene back in 2008, when Satoshi Nakamoto published his paper “Bitcoin: A Peer-to-Peer Electronic Cash System“. Few people outside the tech industry even noticed this monumental event until 2017, when bitcoin exploded in value and sent the world rushing into a cryptocurrency gold rush.
This explosion sent shockwaves around the globe. Not only did it represent an easy way to make a quick buck, but it also created a whole industry built on cryptocurrencies, and more importantly, the blockchain technology that underlies them.
It was really great to see the internet come alive with debate regarding the potential uses of blockchain technology. While many experts are still debating the potential of cryptocurrencies to endure in the long term, what is certain is that blockchain technology is here to stay.
In this article, I aim to examine the way in which blockchain database technology is set to revolutionize supply chain management. I will start by first taking a closer look at exactly what a blockchain database is, before going on to give examples of where they can be implemented to help speed up and improve the supply chain management.
What is a blockchain database?
A blockchain database is a database that is created using blockchain technology. The exciting thing about blockchain technology is that it allows for the creation of decentralized ledgers that are encrypted to make them secure.
These digital ledgers are made up of separate blocks, which are first written and then added to the ledger one by one to form a chain, hence the name “blockchain”. Once written, these blocks cannot be modified or tampered with without the majority of the nodes on the network agreeing to the change, something which makes the information stored on the blockchain incredibly secure.
The decentralized nature of these blockchains is the truly revolutionary aspect of this new technology.
Being decentralized means is that they can operate without the need for central controlling power. In the case of finance, for example, this entity is the bank. Banks control the transactions we make, and in many cases, charge additional fees for the pleasure. Similar fees are levied in a number of different industries that include contract lawyers, housing retailers, and supply chain management.
How a blockchain database works
The illustration above provides a simplified overview of how blockchain transactions work. As each new block is created, it is added to the ledger after being verified by the network. In this way, a chain of continuous unbroken records are kept on every blockchain that go all the way back to the very first transaction.
For this reason, the blockchain database structure is inherently suited to those tasks that require permanent ledgers of transactions to be retained indefinitely.
A database that is based on blockchain technology would allow for a wide range of data to be stored and retrieved as and when the users need it. Information could be inputted either manually or automatically, depending on the needs of the company.
Each block would also record such information as time and date of the block creation as well as the person who created it. This will help companies ensure the reliability of data as they would have a permanent and unalterable record of the transaction in addition to all of those that came before it.
Blockchain Database Technology
The potential uses for blockchain technology are enormous. Pretty much every major industry in the world today stands to benefit from its implementation. Mining companies, the healthcare industry, financial services, the retail sector, and even voting is set to benefit from the implementation of blockchain technology.
In many cases, including the upcoming Russian elections, this technology is already being used to create a more secure record of transactions than existing systems can.
Within the health industry alone, blockchain technology is set to save the industry billions of dollars every year once automated blockchain solutions are fully implemented. Blockchain databases could be used for everything from creating secure patent medical records, which could be accessed anytime and anywhere, to helping to improve the drug supply management process.
Before we go any further, let’s take a look at some of the uses of blockchain database technology.
Examples of industries that are set to benefit from blockchain database technology:
- Financial Services – Everything from improving the security of existing financial transactions to ordering more stationery could be done via blockchain databases. The financial industry is set to be one of the biggest winners from implementing blockchain solutions, though if cryptocurrencies and smart contract-based loans do take root, it could also be the biggest loser too.
- Healthcare – Electronic medical records that could be accessed anywhere in the world simply by a patient giving his/her authorization will revolutionize medical care. One example where this technology could actually save lives would be when paramedics first respond to an emergency call. Even if the person was unconscious, key access such as a fingerprint or iris scan would allow the paramedic to instantaneously see the person‘s entire medical history. This would allow them to identify problems faster and give medication without risk of allergic reaction etc.
- Retail – Stock levels and reorders could be processed through a database that is blockchain-based. Since an unalterable record could be kept for each stage of a product’s journey, from the supply warehouse to the point of sale, a blockchain database would make the whole process far more secure and efficient.
- Property – Everything from your home to your phone could one day be recorded on a blockchain-based digital property ledger. Since the ownership of the property in question would be recorded as an unalterable block on the chain, the database would provide unquestionable proof of ownership.
Blockchain for supply chain management
When it comes to the need for efficient and reliable management of supply chains, the cargo industry stands to benefit massively from blockchain. Each year trillions of dollars of freight are transported globally, 90% of which is sent via ocean freight.
Given that the major freight companies are among the largest businesses in the world, it is amazing to discover that much of their supply chain processes are still done using paperwork. The processing of such paperwork is usually very time-consuming as it must all be done manually, not to mention far riskier. A lost document could cause huge delays as the handlers would need trace transaction documents by contacting the other party for copies etc.
A blockchain database could almost completely automate the entire process, all the way from the factory to the retailer. An initial block could be created for the goods as they leave the factory, thereby initiating the blockchain. This block would detail the time, type, and quantity of goods, as well as the transport company’s confirmation of goods received, etc. A new block could then be added for each step of the journey until the goods finally reach their destination.
This process would not only make the whole process more secure but would also allow companies to track their goods in real-time. Another added bonus of using a decentralized technology is that it helps prevent these records from being altered without authorization, as all parties have a record of the transaction.
Since a large cargo ship can carry millions of dollars of freight, most of which is purchased on credit, the implementation of blockchain database technology will benefit the industry enormously.
“The sooner manufacturers and distributors can agree on shipments and receipts, the sooner manufacturers can be paid for their goods. Getting paid faster improves financial liquidity for members of the supply chain.” – Bill Fearnley, Jr. Research director for IDC’s Worldwide Blockchain Strategies.
Another advantage of the use of blockchain technology in supply chains comes though the ability to automate processes. Smart contracts could be set up between the various different parties involved in the process which could be set to trigger predetermined actions to be taken once a given set of criteria were met.
So, for example, when the goods arrive at the port and are marked as received, this event would trigger an automatic payment being made to the shipping company. This would streamline the whole process and allow companies to operate with fewer administrative staff etc.
Recently, IBM announced that it is planning to join forces with shipping giant Maersk to form a blockchain-based shipping supply chain company. And they are not the only ones looking to cash in on this new technology. Factom, Hyperledger, Skuchain and many others are creating blockchain solutions to help improve aspects of supply chain management.
The Diamond Blockchain
Diamond giant De Beers is another company that has identified a specific need to apply blockchain technology to its supply chains. For years, De Beers has been mired in controversy surrounding allegations that it was involved in the illegal ’blood diamond‘ industry.
This controversy grew so large that, even today, De Beers still include a one-page disclaimer on their website stating that “ensuring our supply chain is free from conflict diamonds is critical to maintaining consumer confidence in our industry.”
Given the company‘s need to ensure that their diamonds are not sourced from conflict zones, De Beers has stated that it intends to implement a blockchain-based supply chain management system as soon as possible.
This blockchain solution will presumably record the weight and size of the stone, along with the exact time, date, and location where a diamond was found. This blockchain ledger could then be used to track the diamond all the way through the supply chain until it was finally sold to the retailer.
The problem of authenticating the location could be solved by using a smart GPS device that would record the exact coordinates into the blockchain when a new stone was found. Precise weight and stone dimensions could also be recorded to be used to help ensure the authenticity of the stone.
The application of a blockchain-based supply chain solution would also help De Beers with another problem that has always hurt the diamond industry, namely fraud. Synthetic diamonds frequently enter the marketplace and are sold as being authentic.
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A recent article in The Centurion highlighted that “the presence of undisclosed synthetics in the market could cause irreparable damage to the integrity of the diamond supply chain and undermine consumer confidence in diamonds”. The article goes on to explain how impractical it is for retailers to test every single stone in an attempt to detect fraud.
A supply chain solution that could guarantee the authenticity of any diamond would have a number of benefits. Firstly, it would save the industry untold time and money spent trying to preventing fraud.
Another important benefit is that prices would actually rise due to increased consumer confidence that the diamonds they are buying are real and not from conflict zones. Since synthetic diamonds would be effectively eliminated from the marketplace by such a system, the carefully controlled supply would have the effect of helping to raise prices.
One firm has already implemented a digital ledger to solve the diamond supply chain problem. To date, Everledger has managed to record more than 850,000 separate diamonds to its database. The firm records 40 separate pieces of information relating to each diamond that allows it to authenticate all the diamonds it has stored in its database.
Authentication equals better safety
The final area that I wish to touch on is how blockchain can help to improve safety. You might not have ever thought about it, but being able to ensure the authenticity of goods leaving a supply chain has massive safety implications.
The most obvious example is the food supply chain. Manufacturers need to be able to prove the authenticity of their products to help retailers identify them as genuine. Perhaps even more vital than this is the ability to quickly trace products in the case that they need to be recalled.
Each year, the food industry has to recall products that pose a health risk to consumers. One such example was the 2013 horse meat scandal where numerous beef products were found to actually contain horse meat.
A lengthy investigation by Ireland‘s Department of Agriculture into one of the companies involved could only conclude that “that there is no evidence that Silvercrest knowingly purchased horsemeat”. This is an astounding claim and shows just how little accountability there is in the current food supply chain.
Given that a blockchain supply management solution would be tamper-proof, provided it was implemented at each stage of the process, it would prevent such things ever happening again because it would make the perpetrators fully accountable.
Aviation, transportation, infrastructure, and even toy manufacturing, would all benefit from being able to prove the authenticity of their products and the materials/components that they include. Fake components finding their way into planes and vehicles, for example, constitutes a real public health concern and has resulted in tragic accidents.
This article published in The Irish Times brings attention to numerous incidents where fake parts have actually resulted in aircraft crashes. “In 1989 a plane crash in the North Sea, which killed 55 people, highlighted the problem of unfit spare aviation parts. It is widely believed the tail fin fell off the aircraft after parts failed. The same year a DC-10 crashed in Chicago when bolts securing the engine to the wing became loose and it fell off.”
These tragic accidents would have been preventable had the supply chain had a way to guarantee the authenticity of the parts. Once again, this subject points to the need for industries to implement secure blockchain-based supply chain management solutions as quickly as possible.
All of these companies have foreseen just how important blockchain implementation into supply chain management is set to become in the future.
Areas of supply chain management that can benefit from blockchain:
- Recording the type and quantity of goods being shipped
- Tracking orders
- Automation of processes such as payment
- Helping to prioritize orders
- Providing shipping information
- Preventing Fraud
- Increased Safety
- Authenticating goods
If your company is interested in implementing blockchain technology and would like to know more about how to use blockchain to build a simple database then click the link to read this interesting article.
Blockchain vs. Distributed database
From the few examples I have given, it is clear to see just how revolutionary this new technology is set to become. The most common question I consistently hear relating to this technology is “how much better is blockchain for improving on existing solutions?”
To answer this question, I am going to look more closely at how a blockchain decentralized database different from a distributed database.
The difference between an ordinary client-server network database and a blockchain database is that with a client-server database the information needs to be stored or processed through a centralized server, whereas with a blockchain database, each participant adds, calculates and updates information into the database.
Why is this so important? Well, as I have already pointed out, the decentralized nature of a blockchain database means that it doesn‘t need to be controlled by a central power. In the case of smart contracts, for example, this means that users can enter into contracts directly with one another and so don‘t need to pay middleman fees.
It is important to not get swept away in the blockchain hysteria and remember that both types of databases have their strong points and weak points. Companies will need to look closely at their business processes to ascertain as to which type best suits their specific needs.
At the current time, it is hard to do a direct comparison between the two types as many of the problems that blockchain technology suffers from are still being addressed. However, for the sake of comparison, I will look at where the two technologies currently stand.
The main benefit of a blockchain database over a distributed or shared database is the massive increase in security resulting from decentralization and the unalterable nature of the blockchain. Since any server system in the world can be hacked, companies who wish to ensure that their data cannot be altered will choose blockchain databases to do so.
Within the supply chain industry, this will certainly be important as companies have no wish for outside parties to know the amount and value of goods being transported. In the past, the hijacking was one of the most lucrative incomes for such organizations as the mafia, who made tens of millions of dollars every year undertaking such activities. Other advantages to companies include the reduction of fraud and the ability to track goods in real-time.
While a shared database also allows the ability to track goods in real-time, it doesn‘t offer the same level of security as a blockchain-based database. However, there are some areas where a distributed database beats a blockchain database at the current time.
Firstly, as a blockchain grows it becomes less and less efficient as a means of recording transactions. This is because as each new transaction is made, the amount of data that must be transferred as part of the transaction process increases.
Secondly, since the processing power of decentralized blockchain databases is not as good as a centralized system, performance speeds are not as good. So companies who desire fast transaction speeds will continue to favor traditional databases over blockchain-based ones.
Once again, these problems are being addressed by innovative new approaches. One such example is BigchainDB, which is implementing blockchain features into existing shared databases rather than making entirely blockchain-based solutions.
Innovation is key to overcoming the problems that blockchain currently faces. The simple fact is that overcoming the current limitations is just going to take time.
Blockchain vs. Shared Database Differences Summary:
- Blockchain is decentralized whereas a shared database is stored on a centralized server.
- As a result of its decentralized nature, blockchain is more secure than a distributed database.
- Control of the database remains with an administrator with a shared database, whereas with a blockchain database, each participant is actively involved at an administration level.
- Blockchain technology creates an unalterable ledger of transactions.
- Blockchain databases keep a record of all transactions since the creation of the ledger.
- Shared databases are generally more efficient as they require less information transfer and processing power to maintain over the long term.
My Final Thought
It is clear just how important blockchain databases will become in supply chains around the globe. We can expect to see them implemented into the large shipping companies such as Fed Ex and Amazon first, after which the technology will filter down into medium-sized companies.
While companies are always resistant to uprooting their existing systems, the enormous advantages that blockchain databases have to offer are simply too great to ignore. It is for this reason that I believe we will see widespread use of such databases within the next 5 to 10 years.