Remember the old-time medicine shows, when showmen and storytellers posed as doctors and peddled miracle elixirs for all sorts of ailments?
If they existed today, these showmen would be peddling blockchain, the miracle cure and solution to just about everything. Check out these headlines:
- 7 Ways The Blockchain Can Save The Environment and Stop Climate Change
- How Blockchain Will Save Freedom Of Speech
- How blockchain could save lives by getting medicine where it’s needed
- The Blockchain will save healthcare and shipping billions
- Here’s how blockchain can reduce inequality
- Can Blockchain Help Solve the Housing Crisis?
And the most far-reaching headline of all: 5 Ways Blockchain Could Save Humanity
With headlines like these, it’s easy to see why blockchain is the most over-hyped technology at the moment.
Blockchain in Supply Chain Management
Over the past year, there have been plenty of announcements and articles about the potential role and benefits of blockchain in supply chain management. Here are a few examples:
- Maersk and IBM to Form Joint Venture Applying Blockchain to Improve Global Trade and Digitize Supply Chains
- IBM partners with Nestle, Unilever and other food giants to trace food contamination with blockchain
- SAP Blockchain Initiative Expands to 27 Members
- UPS Joins Top Alliance To Create Blockchain Standards For Logistics
The IBM-Maersk joint venture, for example, aims to “digitize the global supply chain from end-to-end,” creating a “shipping information pipeline [that] will provide end-to-end supply chain visibility to enable all actors involved in managing a supply chain to securely and seamlessly exchange information about shipment events in real time.”
Blockchain, the miracle cure for all of the inefficiencies in global trade management! Suffer from poor supply chain visibility? Blockchain will restore your vision and let you see more of your supply chain than ever before!
Ok, I’m exaggerating a bit here — but just a bit.
Blockchain is Not a Silver Bullet Solution
The reality is that blockchain, like all technologies, is not a silver bullet solution to supply chain problems, especially not supply chain visibility.
Blockchain doesn’t erase the fact that supply chains still suffer from crappy data. It doesn’t erase the integration challenge of aggregating, cleansing, and linking together data that is spread out across many different applications (some of them built in the 1970s), across many different companies and countries (some with limited or no IT capabilities), and stored and sent in many different formats (including email and faxes).
In short, blockchain by itself does not solve the “garbage in, garbage out” data quality problem; you’ll still have garbage data, but in a distributed ledger that’s better encrypted and traceable.
Will blockchain make it easier to integrate the long tail of supply chains or is this just another 80/20 solution — that is, a solution that only 20 percent of trading partners (the very large ones), responsible for 80 percent of supply chain transactions, will use? If that’s the case, then companies will still have significant blind spots in their supply chains.
(Notice that all of the companies doing pilot tests of blockchain in supply chain management are multi-billion dollar manufacturers, retailers, and logistics service providers. For related commentary on this topic, watch Why Supply Chain Visibility Remains an Elusive Goal and download my presentation that provides recommendations on how to improve supply chain visibility.)
Don’t get me wrong, as I wrote back in December 2015, I believe blockchain has the potential to improve supply chain processes. But just like you wouldn’t use a sledge hammer to drive a screw into a wall, blockchain is not necessarily the best, most cost-efficient, or most scalable solution for all supply chain processes and transactions. Where it makes the most sense, at least today, is where you’re seeing the initial pilot tests: for financial settlement, customs compliance, and industries such as Food and Pharmaceuticals where chain of custody assurance is most critical or where regulations almost require it.
“Virtually everyone has heard the claim that blockchain will revolutionize business and redefine companies and economies,” Marco Iansiti and Karim R. Lakhani state in a Harvard Business Review article published last year. “Although we share the enthusiasm for its potential, we worry about the hype. It’s not just security issues (such as the 2014 collapse of one bitcoin exchange and the more recent hacks of others) that concern us. Our experience studying technological innovation tells us that if there’s to be a blockchain revolution, many barriers — technological, governance, organizational, and even societal — will have to fall. It would be a mistake to rush headlong into blockchain innovation without understanding how it is likely to take hold.”
Barriers to Blockchain Adoption in Supply Chain
What barriers remain in supply chain management? In addition to addressing the ever-present data quality problem and integrating the long tail of supply chain trading partners mentioned above, here are a couple of other barriers that must be overcome:
Lack of standards: Remember when video cassette recorders first came out and there were two dueling formats, Betamax and VHS? It wasn’t until VHS won out as the standard that sales of VCRs took off. Well, nobody wants to bet on the Betamax equivalent of blockchain, which is why developing broadly-accepted blockchain standards is critically important to driving adoption. The good news is that there is a lot of work going on in this area, such as the Blockchain in Transport Alliance (BiTA), which already has more than 200 companies in the transportation and logistics industry participating. The irony, however, is that once standards are established, it wouldn’t surprise me if each company and industry will start bastardizing them, as we have seen with other “standards” such as electronic data interchange (EDI) where companies proceeded to add and rearrange fields, thus contributing to the integration and data quality challenges that plague supply chains today.
Scalability Issues: “Some blockchain implementations have been known to scale poorly and suffer from high latency,” states a recently-published report by DHL. In a research brief about blockchain, CB Insights also highlights scalability as an issue:
Nodes holding copies of the blockchain receive constant updates. These nodes are distributed around the world. Because of this, blockchains have high latency (latency is the amount of time it takes for data to move through the network). As a result, blockchains face scaling issues. Bitcoin can process about 3-4 transactions per second. Ethereum maxes out at about 20 transactions per second. Visa can process over 1,500 transactions per second.
Keep in mind, these issues are surfacing in pilot tests. As I learned a long time ago when I worked in manufacturing, whatever problems you experience in pilot production are only magnified when you scale to volume production — and there are many problems that never appear in pilot testing that magically and painfully emerge only when you reach high volume.
What Should Supply Chain Executives Do?
With regards to blockchain, my advice to supply chain and logistics executives is the same as with any emerging technology: The biggest mistake you can make is becoming too enamored with the next new shiny technology and start investing in it without first identifying or understanding the business problem or opportunity you want to address. So that’s the first step: clearly define what you want to accomplish, verify that your existing technologies aren’t capable of meeting your objectives, and explain how this new technology can potentially get the job done.
I also recommend that you engage with your current technology partners and understand their perspectives on it. Is blockchain on their R&D roadmap? Are they participating in pilot tests or in efforts to develop standards? Where do they see the biggest opportunities and challenges?
“True blockchain-led transformation of business and government, we believe, is still many years away,” state Iansiti and Lakhani. “That’s because blockchain is not a ‘disruptive’ technology, which can attack a traditional business model with a lower-cost solution and overtake incumbent firms quickly. Blockchain is a foundational technology [like TCP/IP (transmission control protocol/internet protocol), which laid the groundwork for the development of the internet]…The process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum.”
Blockchain is also not a miracle cure for everything (or anything), so beware of anyone peddling it as one.