Blockchain For Supply Chain
Game Changing Supply Chain Management
Modern supply chains are increasing sophisticated, The risks inherent in a supply chain are associated to its interlinked nature. There’s certainly a problem to be solved. For example, one shipment of refrigerated goods from East Africa to Europe can pass through roughly 30 people and organizations, with more than 200 interactions among them, according to shipping giant Maersk.
Blockchain technology can help ensure provenance, providing traceability across the supply chain. This can thwart counterfeiters and ensure safety. The technology also allows manufacturers, shippers and customers to aggregate data, analyze trends, and perform predictive monitoring.
Faster, Cheaper Transaction Settlement
The investments companies are willing to make for faster transaction settlement are continuous and significant. In 1999, GE saved $1.8 billion by digitizing its payment settlement processes. When an unnamed European automaker adopted digitized purchase cards, they experienced a 75–80% drop in processing time per order, a 50% reduction in processing costs per purchasing transaction, and a 5–12% improvement in purchasing costs.
Conversely, time-consuming cross-border payments, which are routine in many supply chains, drain $1.6 trillion in system-wide costs per annum. Which all goes to show that efficiency in the financial flow of supply chains carries tangible, substantial rewards, and ignoring efficiency comes at a great cost. The blockchain allows for faster transaction settlement by: a) processing payments directly from peer to peer with no third-party intervention, b) automatically and immediately updating ledgers, and c) executing both ends of a transaction simultaneously. Fewer intermediary fees, the relatively low cost of computing power, and fewer reconciliation requirements add the benefit of decreased cost to pair with the speed of transaction.
Due to the complex nature the supply chain are susceptible to lot of regulatory/invetory lapses. For example flooring retail giant Lumber Liquidators was outed by 60 Minutes in 2015 for selling Chinese-made laminate flooring products that contained levels of formaldehyde that were 20x California’s standard “safe” level, it became clear that they had a major lapse in supply chain management.
Supply chain auditing is an essential practice for businesses who seek to prevent such breakdowns before they occur. In order to streamline supply chain processes to create sustainability and savings, clear systems for auditing are absolutely necessary. Determining the approach to and scope of an audit can be daunting, and strategic mistakes can prove costly.
While any good audit depends heavily on the auditor himself, effectively probing and examining a supply chain requires the proper tools to do so. The blockchain is interoperable, and if applied to all participants in a supply chain, can give a clear view into where inefficiencies lie while maintaining pseudo-anonymity for each account. This combination of accessibility, transparency, and reasonably anonymity allows auditors to do their jobs in a cost-effective, comprehensive manner, and the blockchain can serve as just the tool to identify and resurrect inefficiencies without disrupting the flow of daily supply chain processes. Ultimately, the blockchain can help supply chain auditors make more informed decisions about which suppliers to audit, where to focus auditing resources, and which recommendations to make based on the findings.
Tracking Social Responsibility
Consumers have spoken, and they expect companies to provide goods in a way that doesn’t leave them feeling guilty. 86% of consumers expect companies to act on social and environmental issues. They’re also willing to do their part, with 81% of consumers stating that they will make personal sacrifices to address social and environmental issues, which presumably means choosing brands that jive with their ethics. 66% of consumers, and 73% of millennials, are willing to spend more for a product sold by a “sustainable brand.”
Though millennials probably aren’t going to see all of the $30 trillion that baby boomers are set to transfer to them, a not-so-distant generational wealth transfer means brands would be wise to embrace provenance for socially responsible manufacturing methods now to cater to a woke generation with new money. The blockchain’s ability to trace products’ progress along a supply chain provides a record that allows easy access to each specific product, proving that the product’s path to shelf was not forged on the back of children or other unethical means. Make no mistake, the millennial consumers will come a-runnin’, avocado toast in hand.
More Accurate, Usable Costing Information
39% of supply chain managers surveyed said that inadequate technology and software was a barrier to useful costing information, and 30% cited resistance from accounting and finance personnel in regards to changing systems as another reason costing systems for the supply chain suffer. The need is real — one study found that 88% of organizations have substantial cost-reduction goals but only 17% are meeting those goals. Considering that disconnect in data systems costs almost $223 billion per year, technology is at the core of these costing data problems. Over-reliance on external financial systems was yet another gripe that supply chain managers had in seeking to improve their cost assessment and projection methods.
Each of these issues can be rectified through the adoption of blockchain technology, assuming that all parties are willing to embrace the change. A single, shared record of costing information upon which costing data can be stored and accessed would represent the adequate technology supply chain managers desire, while also serving as the necessary break from external financial records systems to an interoperable one to which all necessary parties have access and oversight.
Better Shipping Data
There is no overstating the direct impact that shipping accuracy and timeliness has on a brand. One survey showed that 89% of consumers worry about receiving a product late, and 83% have concerns that the product will be damaged. Considering that 94% of consumers blame the retailer for subpar delivery, 47% of respondents said they didn’t shop at a retailer again once they had a poor shipping experience, and that demand for quick, cheap delivery is at an all-time high, the need for more accurate, real-time shipping data could not be greater. Yet only 12% of supply chain managers in one survey said that their partners in the oceanic supply chain were “very effective” at collaborating and sharing data, while 32% said they were only “somewhat effective.”
In order to improve this, 90% of respondents said that real-time data access and better information sharing systems are needed, including 82% who said the industry needed to improve supply chain visibility. Naturally, the blockchain’s shared, decentralized ledger technology is just the chap for the job, providing a uniform mode of recordkeeping that is interoperable by all players in a supply chain and can be updated in real time. In rain, hail, sleet, or snow, blockchain technology will be a viable means for ensuring packages arrive on time and goods are on the shelves when they need to be.
Preventing Compliance Violations
The cost of compliance in shipping is high and toeing the line is tricky, but ignoring those costs can result in fines that are obscene. In 2013, the largest-ever fine for non-compliance related to shipping was levied upon Texas oil company Weatherford International Ltd. after it was found to be shipping to sanctioned countries, such as Cuba and Syria. The fine: $100 million, including $50 million in a civil penalty, a $48 million monetary penalty, and a $2 million criminal fine.
The cobweb of regulation governing supply chains — especially those international in nature — is complex, with Europe’s REACH (Registration, Evaluation, Authorization, and Restriction of Chemicals) and RoHS (Restriction of Hazardous Substances), a proposed conflict minerals framework, and China’s Due Diligence Guidance for Responsible Mineral Supply Chains illustrating how many different guidelines must be accounted for. And a civil penalty for a violation of American trade compliance laws can run up to $1 million, 20 years imprisonment per violation, and additional penalties of up to $250,000 per transaction. The more data that supply chain managers have on hand, and the more easily that they can look into what their suppliers are doing and how they’re doing it, the more likely they are to avoid these steep punitive costs for compliance violations. The blockchain is precisely the decentralized, interoperable record that supply chain managers don’t just desire, but need, to avoid massive fines and potential jail time.
By the end of 2018, only 17% of companies won’t be considering or employing some level of supply chain automation. Considering the value that customers, distributors, and retailers put on provenance, blockchain tech’s ability to record every transaction on a permanent record, whether financial or an exchange of goods, carries great benefit. Whether in art, food service, pharmaceuticals, or elsewhere, the tangible value of provenance is undeniable: in England, international consumers were prepared to pay 22% more for British-made goods. Even unusual provenance merits, such as the ability to show that a celebrity was once the owner of a piano or desk, can increase the value of an item by as much as 15%. Whether for ethical reasons, fear of counterfeit goods, health concerns, support for domestic brands, or otherwise, consumers yearn for provenance now more than ever, and with the blockchain we have the tools to deliver on that demand.
Reducing Human Error
According to one auditor, the typical shipper loses $50,000 to $150,000 each year due to human error in the invoice process, and that is only one link in the supply chain where avoidable costs take hold. Manual processes inherent to supply chain management are notoriously prone to human error. Even the most careful, skilled data entrants typically see a 2% error rate, or 20 cells in a 200-cell Excel spreadsheet. Margins in the logistics sector are low already, if they exist at all, typically ranging between -1% and 8%.
Companies affected by supply chain error have reported an 11% increase in costs, 14% increase in inventory, and a 7% decrease in sales in the year after a supply-demand disruption, evidence of how critical minimizing human error in supply chain processes is. Blockchain supply management platforms are designed to reduce reliance on humans, instead automating transactions, recordkeeping, data entry, and inventory tracking systems in a way that is faster and more affordable, even without considering costs saved from avoiding inevitable human mistakes.
In 2018 alone, the Centers for Disease Control and Prevention has investigated 17 different instances of reported foodborne illness outbreaks, including salmonella in pre-cut melon products, E. coli in romaine lettuce, and cyclospora in Fresh Express Salad Mix, which is sold at McDonald’s, among other retailers. Although the U.S. is one of the most food safety-conscious nations in the world, there are still 48 million cases of foodborne illness each year, the equivalent of 1 in 6 Americans being made ill.
Many foodborne illnesses are insidious, with their effects remaining latent for hours, days, or even weeks before the misery kicks in. E. coli can take as long as 8 days before its symptoms appear, which include severe diarrhea, vomiting, and possible kidney failure, lasting from 5 to 10 days. Salmonella rears its head more quickly, causing diarrhea, fever, abdominal cramping, and vomiting within 6 to 48 hours, then lasting as long as a week. The severe health consequences of mismanagement in food supply chains — consequences that can cause major, potentially irreconcilable disruptions in one’s personal and professional life — necessitate that significant steps be made to enhance transparency in the industry.
The latent nature of foodborne illness symptoms only makes it more difficult to deduce exactly where a contaminated product originated. But with the cooperation of the many members of a food supply chain, a single product can be tracked in literally 2.2 seconds, meaning the time it takes to trace a contaminated product to its source is minuscule. Comparatively, the link-by-link process of tracing such products in non-blockchain monitored supply chains can take up to a week or longer. These additional hours and days mean lives risked that should not be put in jeopardy — 5 people died from the 2018 romaine lettuce-hosted E. coli outbreak — especially considering that the technology for quicker food supply chain tracking mechanisms is already at hand.
Reducing Counterfeit Goods
As if the $4.2 trillion that counterfeit and pirated goods are expected to siphon from the global economy wasn’t loathsome enough, the 5.4 million jobs expected to be put at risk by 2022 from the global black market is a heap of salt in an open wound. While U.S. Customs and Border Patrol are putting in the work, having seized 31,000 counterfeit goods in 2016 alone, no human force can match the insomniacal nature of counterfeiters and peddlers of fake goods.
The burden of vetting $11 billion worth of international goods coming into the U.S. each day is simply too great not to automate. The issuance of QR, NFC, or RFID codes logged on an interoperable blockchain ledger allows individual products to be traced more accurately throughout the supply chain, ensuring that the product on the shelf or in the customer’s hands is from a reputable supplier. With blockchain, in combination with end-to-end supplier logs and workflow monitors, fewer cracks will exist through which counterfeit goods can be slipped into the consumer supply of goods.
Automated Purchasing and Planning
When one tech company automated 95% of their order-to-ship processes, they reduced end-to-end processing time by 60%. Quicker processing resulted in the ability to order inventory and coordinate elements of the supply chain more precisely, thanks to the greater information they had on hand sooner. There’s good reason why 66% of supply chain managers are clamoring for advanced supply chain analytics — in a consumer environment where orders must be filled near-instantly and product shelf life remains low, analytics equal major savings. That’s why 44% of respondents in one survey are beefing up their Enterprise Resource Planning (ERP) systems to provide greater supply chain visibility. The blockchain is yet another means to unify, and therefore broaden, the supply chain record, improving the speed and depth with which information is shared to help managers make more informed, cost-saving purchasing decisions.
Enforcing Tariffs and Trade Policies
One affiliate of the Chinese aluminum manufacturer China Zhongwang has been accused by the U.S. Department of Justice of evading $1.5 billion in import duties. Additionally, the approximate $200 billion worth of American business secrets that are stolen each year by Chinese entities highlights the complete disregard for international regulation. This exhibits why $50 billion in tariffs on Chinese-manufactured goods have been put in place, and why stronger systems for trustless oversight on trade are needed.
Even when tariffs are put in place, the practice of funneling a lot of goods through a non-sanctioned nation, slapping a “Made in Vietnam” sticker on those goods, and avoiding higher costs is far too easy. Those who have proposed the blockchain as a solution to track all goods from their original manufacturer using an immutable record of transactions believe that tariff and regulatory avoidance in international trade will be far less pervasive under such circumstances.