Blockchain: A Revolution in the Supply Chain?
Distributed ledger technologies, better known as blockchain technology, which is a kind of distributed ledger, are getting more and more popular since the bitcoin currency has proven stable. Originally the blockchain technology had been regarded as a disruptive technology for the financial and the insurance sector. But of course there is much potential for this technology within other sectors, such as the industrial sector. Especially in supply chain management, this technology seems to be suitable due to its decentralized and tamper-proof architecture.
What is blockchain technology?
In simple terms, a blockchain is a cryptographically secure and distributed database. A subsequent manipulation of the data stored in the blockchain is impossible, since these data are built on one another and encrypted. This means that there is one block in which several data are combined.
The actions of a block are hashed and only the last hash value (root-hash) is stored in the header of each block. The chaining of each block is done via the root-hash. Each block has in its header the complete hash of the earlier block. This ensures the correct arrangement of each block and guarantees that it is impossible to do subsequent changes of the data in each block, because otherwise the single hash-values connecting the blocks do not fit together. Since each block is stored on another computer, it is tamper-proof. To manipulate the blockchain, it would be necessary to gain control over all the computers involved in the memory and, at the same time, to recalculate all the hash values in the blocks.
What are the requirements for a successful supply chain management?
Generally, a supply chain is a complex network consisting of suppliers, manufacturers, OEMs, distributors and customers. The participants of a supply chain normally have very complex and varying interests. In order to ensure a successful management of a company’s supply chains it is necessary to have a transparent overview of the single nodes and their interdependencies. This means that it is essential to have an overview about the inventory and the knowledge where and in which quantities and quality components are located within the chain. With this knowledge, the supply chain can be optimised to become more efficient. It also guarantees that counterfeiters cannot introduce their products, so the quality standard can be guaranteed. Finally, the rising digitalisation in this sector requires exact and actualised data.
How can Blockchain influence the supply chain?
First of all, blockchain technology is ideally suited to control and verify huge amounts of data in real time. This guarantees two things: that no data are getting lost on their way to the database, and that there is quick access to these actualised data. So, it is easy to get real-time information, which shows that the technology is perfectly suited for illustrating inventory changes and for tracking products on their way through the supply chain.
The fact that the technology is ideally suited for tracking products, combined with its tamper-proof nature, makes the technology best suitable as an instrument in the fight against counterfeits and grey-market activities. If the data of products are tracked consequently at each stage of the supply chain, it is nearly impossible to bring counterfeit products into the chain (e.g. via external distributers) or to sell products on markets for which they are not intended, because the history of the parts within the blockchain is unforgeable.
Furthermore, audits of suppliers are getting easier, because it is simple to get correct information about the origin of the components they use. But it is not just interesting for audits in an industrial environment. It can be also a competitive advantage since customers in the western world care more and more about the origin of products. They prefer products which are produced in an environmental friendly way and under fair conditions for the workers. So, blockchain can ensure correct data about the provenance of products.
Thinking about the “Internet of Things“ as a megatrend in the context of industry 4.0, it is necessary to provide an unforgeable infrastructure for the data that are made available for the customer. The blockchain environment guarantees this, making it possible for companies to ensure that only correct data are communicated to their customers.
Finally, blockchain technology linked with smart contracts can automatise trade between different parties. Therefore, it is thinkable that contractual rights and duties as well as the payment and delivery be made automatically by the system. Especially this aspect can lead in the intermediate-term to pressure from the financial world to implement this technology into supply chain management.
How is data integrated into the blockchain?
There are several ways to bring data into the blockchain. Probably the most basic opportunity is that someone is typing the serial number of a product manually into the blockchain. But there are of course other methods which are faster and less prone to errors. Bar codes and QR codes can be scanned and used. To ensure that the right code is used, they can be protected with a seal. Finally, there is also the opportunity to use RFID or NFC technology to bring the data to the blockchain.
Regarding the characteristics and benefits of blockchain technology, especially the ability to reveal hitherto hidden information and the unforgeability of data, one can clearly say that it is a technology creating trust and transparency. Of course, this technology has been originally created for the financial sector and the proof of concept was made within the same sector with the bitcoin currency. But there is also a demand in other fields for trust and transparency. Especially in supply chain relationships, which are highly complex and have huge diversity of interests. It seems to be a perfect fit.