Automating supply chains with blockchain

Automating supply chains with blockchain

Considered to be one of the most disruptive and progressive technologies in recent times, blockchain has the capacity to advance many industries and change the future of business. RMIT Senior Lecturer Dr Pham Cong Hiep reveals how this technology can be the key to automated supply chains.

news-thumbnail-automating-supply-chains-with-blockchain Blockchain could potentially improve efficiency and transparency, and reduce costs in supply chain management.

Blockchain has made an impact on the global financial sector with cryptocurrencies like Bitcoin, Ethereum or Ripple.

Perhaps less known to the public is the use of blockchain in industries such as supply chain and logistics, where this technology is enjoying rising popularity thanks to its superiority in efficiency, transparency and cost reduction.

Extended visibility and production traceability

Blockchain-based supply chains allow all parties involved - from manufacturing to distribution and sales - to access reliable and verifiable information of the movement and timeline of any product.

As a decentralised peer-to-peer distributed data infrastructure, blockchain provides a high level of transparency and visibility.

This helps to guarantee product traceability, authenticity and legitimacy as the product’s origin and the required production and distribution processes cannot be altered without authorisation.

Some food, diamond and pharmaceutical supply chains have successfully applied this blockchain feature to ensure the quality and authenticity of products, as well as to execute product recalls in a much faster manner.

Digitising and disintermediation of supply chains

Supply chains in international trade are complex since they involve multiple cross-border stakeholders. Many processes are still paper-based, delaying information sharing and hindering the efficient flow of goods.

An examination by Maersk and IBM’s blockchain group found that a single shipment from East Africa to Europe could involve more than 30 people and organisations, with more than 200 different interactions and communications among them.

Blockchain solutions in maritime transport and port operations can substantially improve the digitisation of cross-border activities, resulting in efficiency and cost reduction.

It would enable tracking shipment movements, documents, and financial transactions without relying on the verification of intermediary financial organisations or manual information updates from various sources.

To illustrate, Barclays Bank reported that a blockchain-based financial clearing system can reduce a transaction process from 7-10 days to less than four hours, by removing intermediaries as in a traditional system.

news-automating-supply-chains-with-blockchain-2 EN The blockchain mechanism makes unauthorised updates and deletion of transactions nearly impossible.

Improved data security for integrated information sharing

In 2017, the NotPetya ransomware crippled Maersk’s shipping computer network and brought a halt to its operations in 76 port terminals around the world, causing damage of up to $300 million.

Such a failure due to a single point of data access can be mitigated by data decentralisation via blockchain.

The blockchain mechanism makes unauthorised updates and deletion of transactions nearly impossible. Original and authentic data can be accessed from many sources in a blockchain, reducing the risk from a single point of failure.

Blockchain also provides a mechanism to allow authorised parties access to confidential commercial data as required by business rules, and domestic and international laws.

Such high fraudulent resistant characteristics will raise trust for supply chain partners and end-consumers.

Self-executing agreements (smart contracts)

Considered one of the most revolutionary innovations of blockchain, a smart contract is a form of computerised protocol which executes the terms specified in an agreement automatically in a blockchain.

This type of self-executing agreement can have a great impact in the legal, banking, real estate, shipping and logistics industries.

An example of smart contract is when a shipment is received by a buyer and verified in a blockchain, the payment will be released to the seller automatically without the buyer’s involvement.

It minimises or replaces manual intervention and intermediaries normally involved in fulfilling a contract, resulting in reduced cost and speedy completion.

news-automating-supply-chains-with-blockchain-3 EN Smart contracts can have a great impact in the legal, banking, real estate, shipping and logistics industries.

Applying blockchain in Vietnam’s supply chains

It should be noted that Vietnam currently lacks an established legal framework to institutionalise blockchain-based products and services, but progress is being made.

In late March 2020, the Ministry of Justice submitted the report No.70/BC-BTP to the Prime Minister, detailing the review of the current legal framework for blockchain-based products and services. The report also put forward several suggestions to create a supportive environment for the creative and legal use and development of blockchain applications.

Generally, a small targeted deployment of blockchain in a certain part of the supply chain would be a wise choice, since blockchain is relatively new in terms of technological, legal and organisational maturity.

It should be clear that blockchain is not a solution for all data sharing and trust verification needs. It is best used when a supply chain involves multiple unknown participants who can enter and exit the chain at any time, and trust, transparency and traceability are critical.

Organisations should conduct a proper assessment of their business needs, talk to a blockchain expert and be aware of the pitfalls of blockchain.

Also, blockchain employs a decentralised data repository and the maintenance costs of such system (i.e. performance, security) need to be borne by all members. This can pose a substantial challenge for many small businesses.

Finally, a truly automated supply chain can only be achieved when information flows across a supply chain freely to the registered participants while still preserving its authenticity, security, scalable performance and cost effectiveness.

It is thus important for users to get informed and change their mindset towards embracing transparency in order to jump on board with the emerging technology.

Story: Dr Pham Cong Hiep

 

12 May 2020

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