Here’s a simple guide to use when considering blockchain technology for supply chain operations.
Blockchain is getting the attention of digital supply chain leaders everywhere. The technology has been described as a game changer that will maximize supply chain efficiency, security and transparency.
You may not subscribe to all the hype proclaiming blockchain as the single biggest thing since the Internet, but there is no disputing the technology is extremely secure, offers deep visibility, creates trust and reduces the need for paperwork and verification.
What company wouldn’t sign up for that?
Yet, although there have been plenty of pilot projects launched around the world, few companies are currently running vital supply chain operations on blockchain. Most companies have not progressed beyond the pilot stage and many do not see a clear advantage over traditional systems and solutions.
At the Digital Supply Chain Institute (DSCI), we do not subscribe to the irrational exuberance surrounding blockchain, but we do believe the technology is a valuable tool for supply chain leaders. In our experience, most companies approach the technology all wrong, focused on proving the technology works when what they really need is a clear understanding of the business value blockchain can bring to their enterprise.
For the past two years, DSCI has been working with over 30 global companies that have blockchain experience. Here are our observations:
- The supply chain is the holy-grail for Enterprise Blockchain. Supply chain shows the most potential with track-and-trace use-cases being most frequently mentioned.
- Workflow selection is critical. Success is best achieved when you select a use-case that has less than optimal performance, a high return to your business if improved and is not well automated.
- Recognize blockchain strengths and adapt the workflow to leverage the technology. Learn from past mistakes of trying to adapt the technology to the current process.
- Enterprise Blockchain will require integration of on-chain data with off-chain data. Protection of personal information and sensitive commercial data necessitates that certain data did not reside on a blockchain.
- While regulatory compliance is a frequently mentioned application, in reality, compliance and regulatory issues can present a challenge. As an example, immutable records are a part of blockchain, but this can be a problem when records need to be changed. Now consider that the new European Union General Data Protection Regulation (GDPR) might make this an even bigger problem because it calls for users to have the right to delete information about them.
- Provenance or original location of each product/service can be identified. Although many companies feel that barcodes and standard track and trace software do the same thing.
- Smart contracts can be enabled by blockchain, but smart contracts have existed for a long time.
- Blockchain adds storage costs and transaction time. This can be substantial and hinder efforts to scale up.
- Companies do not want complete visibility. You never want your customers to truly know your capacity and utilization!
Where do we go from here?
Blockchain is not an IT or R&D project; it is a fundamental business transformation tool which, if properly implemented, will significantly impact revenue and cost. Blockchain excels where information is shared across an enterprise, as well as with suppliers and customers. The complexity and key to a successful implementation of blockchain lie not in the technology, but in the governance and sharing of data across logical and physical boundaries.
In a research partnership with global supply chain leaders, DSCI has developed a portfolio of tools to assist companies using blockchain for digital supply chain transformation. The Blockchain Fitness Index (BFI) is a structured approach that incorporates what we’ve learned from our global partners and aids in selecting workflows, analyzing performance gaps and measuring results from Blockchain pilots.
The biggest challenge with using blockchain is workflow or use-case selection. Our research has found that most pilot projects either duplicate already automated workflows, test use-cases that can be better automated through the use of traditional database technology or narrowly focus on determining if the technology works. (Blockchain works; there is no need to test the concept.) That is why pilot project results are typically inconclusive or disappointing and underscore the need for an easy-to-use workflow qualification tool.
The BFI is such a tool. It enables identification of workflows where blockchain will provide true benefits. It is an experiential tool that incorporates what has been learned from pilots conducted by several organizations. In a series of fewer than 20 questions, a user of the BFI tool can score their use-case and reasonably determine whether-or-not it is blockchain compatible. We continue to incorporate our experiences along with those of our partners into refining the BFI and improving the results.
Our experience has shown that Blockchain, when properly used, is a powerful cross-enterprise transformation engine that provides a competitive advantage, significantly increases revenue and reduces cost. The trick is, successful results require an understanding of the value applying Blockchain to your supply chain processes. Now there’s a tool that can help to ensure your digital supply chain transformation is on track and delivering meaningful results.
Shawn Muma is the Technology Research Leader for The Center for Global Enterprise’s Digital Supply Chain Institute (DSCI). His experience includes structuring and managing technology alliances for IBM in the U.S., Europe, Asia, Middle East, and South America in a wide variety of industries including aerospace and defense, investment banking, retail banking, chemical, and public sector.