Blockchain in Supply Chain

 

Blockchain is a system of recording information in a way that makes it impossible to change, hack, or cheat the system. A blockchain is a digital ledger of transactions that is duplicated and distributed across the entire network of computer systems on the blockchain. The term "blockchain" is derived from the "blocks" of validated and immutable transactions and how they link together in chronological order to form a chain.

Cryptocurrencies such as Bitcoin, Ethereum, Litecoin etc. are the most commonly known examples of blockchain technology currently in use. But wide range of information can be stored on a blockchain ranging from medical information to supply chain information and financial transactions. Overall, any process of recording, overseeing, and verifying information can be improved by the blockchain technology. The blockchain technology is still in its early phase and we are yet to know the true potential of the changes that this technology may bring. However, many of the industries are investing heavily in blockchain technology and showing how blockchain can be of use across various of sectors.

At present, most of the industries operate at large scale without using this blockchain technology. But this technology has attracted the attention from banking sector to others such as energy sector as well as supply chain. This has led to major players such as Walmart, Unilever, HSBC etc. to initiate pilot projects on blockchain technology.

•       Walmart is using IBM’s supply chain technology to back up their supply chain process. Along with it, they are planning to track their food right from the farmers and offer their customers to check the provenance before they buy an item using this technolo

•       Barclays, UK’s second largest bank is currently using blockchain technology for streamlining fund transfers and KYC (Know-Your-Customer) processes. Also, they have even filed for patents against these two features.

•       Maersk and IBM are working on cross-border, cross-party transactions that use blockchain technology to help improve process efficiency.

•       Provenance, a UK start-up, just raised $800,000 to adapt blockchain technology to trace food. It had previously used this technology to perform pilot project on tracing tuna in the Southeast Asian supply chain.

•       DHL is using blockchain technology along with Accenture to develop proof of concept for tracing pharmaceuticals from the origin point to the consumer. As a result of this, companies will finally be able to get rid of any tampering or counterfeit drug issues that they face.

 

Ways in which blockchain technology add value to supply chains

•       Traceability

•       Transparency

•       Tradability

•       Trust Building

 

Challenges in the Supply Chain

Today, the businesses have expanded globally, making the supply chain management complex. This complexity leads to several challenges in the supply chain.

•       Lack of Traceability - Traceability gives us an information of where the products are within the supply chain at any given time. At present, every member in the supply chain manages their own system and information, making it difficult to do monitor and analyse where was the product at a particular time. Due to this lack of traceability, companies have difficulty identifying the inefficient processes which can result in expenses rise and hamper customer satisfaction and inflates prices for the consumers.

•       Documentation and Regulatory Compliance - The supply chain contracts can be very complex due to the involvement of paper-based trails for the change of ownership, letters of credit, bills and complicated payment terms. Maintaining the records on the paper can be a difficult task as it becomes challenging to manage the old records.

•       Counterfeits - Due to the improper surveillance in supply chains, various counterfeits cases are reported every year. According to Organization for Economic Cooperation and Development, pirated and counterfeit imports cost around half trillion dollars per year to the global economy. Due to the lack of available information about the origin and other details of the product, it becomes difficult to know about its origin. Also, these counterfeit products do not meet the desired quality standards.

•       Long Lead times - Lead time refers to the time between the start and the execution of the production process. When suppliers, manufacturers, distributors and customers are spread across multiple geographies, longer lead times are experienced. As the demand for their products rises, companies cannot afford to have longer lead time. Thus, it becomes a critical factor to the customers.

•       Security – Due to lack of proper visibility into the supply chain and accountability, passing products over different channels means that they are subject to several risks such as theft and piracy. Items while in transit can be taken through channels which are unauthorized replacement of items can take place or the items can be tampered with. Besides, those organisations that rely on improper and unsecure IT management systems may be subjected to cyber-attacks resulting in threat to the entire supply chain.

 

•       Maintaining trust across supplier networks - A crucial factor to handling supply chain is maintaining good relationships with suppliers involved in the network. It is a key element for handling global supply chain networks. The global companies need to maintain good trust with a large number of suppliers without having any control over them. As a result, it becomes difficult to manage their businesses efficiently.

 

Barriers to Blockchain Technology

Even though the blockchain technology has the potential to revolutionise the supply chain network, there are certain barriers to it.

•       Privacy - In most supply chains the stakeholders are known to each other. Moreover, the supply-chain world is unlikely to accept open access because its users do not want to reveal proprietary details, such as demand, capacities, orders, prices, margins, at all points of the value chain to unknown participants.

•       Solution without Blockchain - In many cases, supply chains are already moving billions of transactions and data, often in real time. The systems are not perfect, and many supply chains have issues with data that is improper, differently formatted, difficult to access, or hard to visualize or analyse in the given context of big data involved here. Even so many well-managed central databases with good data management, combined with supply-chain visualization and analytical ability, can be achieved at scale today.

•       Technical Challenges - The bitcoin blockchain is relatively simple. To verify a proposed bitcoin block, the parties need only view a few previous blocks to determine if there are sufficient funds. In a supply chain, actions often involve significant processing, with each step involving the collection and monitoring of large big data sets.

 

Evaluating application of blockchain in Flipkart’s Supply Chain

Flipkart is looking for expansion and has entered the grocery segment. This segment includes sales of organic goods whose popularity has been increasing recently due to issues of adulteration and unregulated use of chemical fertilizers in food which can cause several health challenges. Due to this, they are charged more than the regular products. When a customer is purchasing organic product, there has chances has the product has undergone adulteration in the supply chain. Blockchain can be useful in this as it can record the transactions happening during the organic products being in supply chain. The supply chain for food involves several stakeholders. For example, in case of organic wheat, the farmer produces the organic food and it is then transported to the distributor. The distributor then ships it to Flipkart. Flipkart stores it in their warehouses from where it is sold to the customer. Once it is sold, it is then sent to the customer. All this information is recorded on blockchain. However, to maintain confidentiality, no business-related information is shared in this process, only product related information is shared in this process. This information can be shared with the customer using a QR code. When the customer scans the QR code, all the information regarding the bag of wheat can be shared with him. This information includes entire product history such as when was the wheat grown, type of seed used for growing wheat, when was it transported to the distributor, when was it purchased by Flipkart so that the customer can be satisfied that the product purchased by him is genuine.

The customer value proposition offered here is providing entire product history to the customer, the transparency and genuineness of the product thereby ensuring the customer that the genuine products are being delivered to the customer.

 

Pain points of customer into customer behaviour in different customer segment

To understand the pain points of customers, first the segmentation of customers is done based on income level, gender, age, profession etc. The segmented customers are surveyed where they are asked about their issues related to the products. These products can be from multiple segment such as grocery, milk, meat etc. The information is collected from the customers to understand the pain points of customers of different segments. Based on the information, conclusion is drawn, and efforts are made to address those issues. These issues can be of wide range such as originality or genuineness of the product, on time delivery of the products, options to return the products etc.

Application of blockchain in streamlining the inbound logistics process

Flipkart operates two models for its business. One is the inventory-based model where Flipkart stores the products in its warehouses while other is the marketplace-based model where it acts as a platform between the seller and buyer. The major issue in the inbound logistics process was the lack of transparency. For example, If Flipkart has ordered 1000 items from one of its vendors HUL, then it will be difficult for Flipkart to know what quantity is being supplied by HUL. There is a possibility that instead of supplying entire order in one go, HUL might supply 500 items today, 300 tomorrow and 200 at a later stage. Due to lack of knowledge, Flipkart had prepared manpower planning based on 1000 items to segregate and store the items at the destined location. However, it has received only 500 orders today. So, this could lead to wastage of manpower as a result of lack of transparency. Also, when a product is in transit, there is a possibility that the product may get damaged during this period. Also, chances are there that the product was damaged prior to being shipped or was damaged at the receiver’s end. This cannot be identified due to lack of transparency. All this information regarding shipping of items can be recorded on blockchain to address the issue of transparency.