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Will tomorrow’s supply chains be built with blockchain?

on Jul 7, 2017


Blockchain technology is bringing a whole new meaning to the industry’s value chain, says Aamer Rana, partner, IBM Global Business Services.

By: Aamer Rana, partner, IBM Global Business Services

Whether it involves raw materials, manufacturing, or distribution to retailers and customers, the technology is smarter, faster, and is creating a new trust-based digital economy that allows all members of the ecosystem to join new business networks based on accountability and transparency to conduct transactions.

Today, the Middle East blockchain technology market is expected to grow from USD 6.4 million in 2016 to USD 67.6 million in 2021, at a CAGR of 60.1% during the forecast period 2016-2021, according to MarketsandMarkets.

In the largest study to date among C-Suite executives about their perspectives about blockchain, one third of the almost 3,000 executives surveyed are using or considering blockchain in their business, and 100 percent of those surveyed expect blockchain to support their enterprise strategy in some way.

And in a new report, "Tomorrow’s Value Chain: How Blockchain Drives Visibility, Trust and Efficiency," IBM talks about how blockchain technology will affect the value chain for retailers and consumer goods manufacturers.

What is blockchain?

Blockchain is a shared, immutable, online ledger that tracks all kinds of transactions from product codes to serial numbers to contracts, images, videos and more. It establishes a single, trusted version of all transactions to provide visibility from the entire ecosystem of suppliers, distributors, transportation providers, retailers, banks, governmental agencies and ultimately, consumers.

Blockchain technology collects transaction information from any participant, including data from the Internet of Things devices, and provides the available data at any point in time, in real time, to all parties involved. When members of a supply chain network complete transactions for the invoicing process, for example, others in the supply chain can see that they are completed, which results in faster payment for suppliers.

Impact on supply chain

In our digitized world, consumers are demanding accurate, real-time inventory information, faster service and low- or no-cost shipping, which requires a transparent, efficient and agile supply chain. Estimates of disruption and lack of visibility in the supply chain are around $300 billion globally. To achieve this rate of speed and agility, companies face pressure to:

•             improve demand forecasting

•             reduce transportation costs

•             reduce out-of-stocks; and

•             ensure high levels of customer satisfaction.

This approach can only be accomplished by collaboration between all parties. However, in traditional supply chains, data about these transactions are still paper-based or use tools such as Excel or e-mail. They often need to be reconciled because of different versions being shared by various parties at different points in time.

As a shared ledger, blockchain allows the retailer, supplier and shipper to work on the same data in a “single version of truth.” As each partner updates the contract, the trusted, real-time data can be used to optimize forecasting and transportation planning to:

•             Improve ability to track products, product safety and traceability: Consumers increasingly demand to know more information regarding where products are made and what they contain to ensure they are safe. With blockchain, products can be digitally tracked at every stage of the value chain: from suppliers to store shelves and eventually to consumers.

With food products, digital product information such as farm origination details, batch numbers, factory and processing data, expiration dates, storage temperatures and shipping details are digitally recorded in the blockchain. Equally as important is the information captured in each transaction that needs to be agreed upon by all members of the business network. Once there is a consensus, it becomes a permanent record that cannot be altered.

•             Reduce fraud and establishing authenticity for high value luxury goods: Some estimates say counterfeit products may cost the global economy up to $250 billion a year, in the jewelry market alone, the cost of fraud to insurers tops $2.5 billion a year.  By creating a chain of data that cannot be altered, blockchain is well-suited for tracking high-value, luxury goods and other items where buyers want full insight into the origins and ownership trail of the goods

•             Use blockchain to track global trade and shipments: organizations such as banks, importers, exporters, port authorities, customs agents, terminal operators and shipping and transport companies are all involved in the various “touch points” of international trade.

The paperwork involved in some current processes, such as letters of credit, bill of ladings, customs documents and more, are very labor and time intensive to draft and are often never digitized. With blockchain, the digitization and sharing of this documentation provides trust, authenticity, and efficiency. All parties can agree to the rules by which the transactions take place.

In order to get started using blockchain technology, retail and consumer goods companies may want to determine the areas where blockchain technology would be most effective. By starting with focused areas that successfully earn business results, there's an additional opportunity to expand those efforts to collaborate with partners in the organization's and industry’s ecosystems.


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