Blockchain in Supply Chain Management

Over the past couple of years, no other technology has generated so much hype, and so much confusion, as blockchain. Why is there so much interest in blockchain? Where are we today with blockchain adoption in supply chain management? Will blockchain replace or coexist with existing network-based platforms? 

Those are some of the key questions I discussed with Arun Samuga, Chief Technology Officer at Elemica, during a recent episode of Talking Logistics.

Why the hype?

Blockchain has gotten so much attention over the past couple of years, but why all of the hype over this particular technology? Arun says the hype reflects interest as people begin to understand its potential value for supply chain management and business in general. “With supply chains being so complex and global today, blockchain comes along and guarantees consensus, immutability and unprecedented levels of security,” he says. “These three elements are what supply chains need for high levels of reliability and integrity.”

Arun also mentioned the potential role of blockchain in enabling autonomous supply chains. “Technologies such as IoT and machine learning are important for this process, but they can’t create autonomous supply chains by themselves. These technologies all need to work in tandem. Blockchain fits into the autonomous supply chain process by providing traceability, which is another very important component.”

Blockchain adoption

The difference between hype and value is adoption. Arun comments that so far adoption seems to be only in pilots and proof of concepts. “I haven’t heard of any successful complete deployments yet,” he says. He restates Gartner’s comment that today companies are blockchain inspired, not blockchain enabled. “The gap between current blockchain capabilities and what the supply chain needs is enormous.”

Arun notes there are many things that need to be worked out such as who gets to input data and who gets to see the data, since most supply chain data is private. He states that public blockchains, where everybody can see everything, are not appropriate for this reason. He points to a pilot Walmart is doing with some of its large food industry suppliers as a good example of how a permissioned blockchain can be successfully deployed in a private network.

Elemica is currently working on two pilots, one in the financial industry for factoring so suppliers can get paid sooner, and another one which Arun indicates is classic invoice automation. This second one is with chemical companies who tend to buy and sell with each other and send thousands of invoices back and forth each month. Automating invoicing can save huge amounts of manual processing. Arun says they’re working with these companies on ‘netting’ invoices through blockchain to greatly simplify the invoice process.

Supply Chain Operating Networks vs. Blockchain

I have been a longtime proponent of supply chain operating networks (SCON) so I asked Arun if blockchain is an extension of these networks or a replacement. Arun notes that SCON have been evolving for a long time through EDI, end-to-end visibility, IoT, machine learning and AI while blockchain is just starting to evolve. “In the short-term I don’t see a chance of replacement at all,” he says. Storing data on a blockchain, for example, is extremely cost prohibitive at the moment compared to using existing cloud services. “You also have think about processing,” Arun adds. “Visa processes about 24,000 transactions per second, while Ethereum boasts of processing 15 transactions per second. So when you think about data storage costs and processing capabilities, blockchain is not ready to replace existing networks today.” But Arun believes the gap will close over time.

Adoption hurdles

Beyond storage costs, I asked Arun what other hurdles blockchain must overcome to reach its potential for supply chain management. “Ultimately, somebody has to write the check, so the cost benefit has to be there,” Arun comments. “Unfortunately, it’s too early to estimate the cost of operating blockchain technology in supply chain in its current magnitude. The value proposition has to be very clear in terms of the operating efficiencies and cost savings. And you need a focused and dedicated implementation team.”

The future of blockchain

I concluded our discussion by asking Arun how he sees blockchain evolving in the future and what companies should do today to prepare. I encourage you to watch the full episode for his insights and advice on that question and more. Then post a comment and share your perspective about the role of blockchain in supply chain management.