Blockchain & Supply Chain

“I can still hear you saying you would never break the chain” – Fleetwood Mac, the Chain

Interesting to hear comments on blockchain from both speakers this week, with both Carl Eschenbach (Sequoia, ex-VMware) and Jeff Welser (IBM) making glowing comments about the underlying technology, while expressing concern about scale and minor mention of the speculation in cryptocurrency markets.

At the risk of posting yet another blockchain post, let’s investigate one of the most promising use cases for the technology: supply chain.

Before we get started, an important thing to remember is that the blockchain itself is simply a cryptographic, distributed ledger¹. Significant uncertainty remains around how large the technology will get – it may be a bit like saying the internet is just a bunch of connected computers, or smartphones are just computers for your pocket. Or the final market for blockchain may be much smaller.

One thing that is clear about the distributed ledger is that it fosters transparent communication and data ownership. Sanjay Almeida of SAP calls it “a federated trust model” that distributes ownership of data that all participants agree is secure, and most importantly, correct (https://www.forbes.com/sites/joemckendrick/2017/04/21/why-blockchain-may-be-your-next-supply-chain/#5f94266813cf). It is unclear at this time whether the market-dominant blockchain for supply chain will be public or private, with small start-ups and even established companies such as IBM offering privately stewarded ledgers (https://www.ibm.com/blockchain/supply-chain/). With advances in product tracking (i.e. RFID and/or more advanced sensors) and automation of terms such as payment through the use of smart contracts, the possibilities are significant for supply chain.

One current problem with the supply chain is that it spans hundreds of companies and geographic locations (https://techcrunch.com/2016/11/24/blockchain-has-the-potential-to-revolutionize-the-supply-chain/). That means that at each transfer of custody, a product enters a new system and its history is lost to any subsequent customers. If there are any problems downstream of a given transfer of custody, it can be very cumbersome to track the issue back to the origin and at a minimum would involve individuals from a number of separate companies.

In contrast, a distributed ledger would track the entire history of a product and any associated data that the participants agrees is important. A common example given for when this can be a significant problem is in contaminated foods. When large organizations face issues with contamination at only one of their thousands of global suppliers, it can be very time-consuming to track down exactly where the contamination occurred and put an end to it, as Walmart and Chipotle both experienced in recent years (https://hbr.org/2017/03/global-supply-chains-are-about-to-get-better-thanks-to-blockchain#comment-section, http://fortune.com/2016/10/19/walmart-ibm-blockchain-china-pork/). This is especially problematic when a quick response is critical to avoiding a scandal. A distributed ledger could track the entire history of each delivery – including location, transit time, temperature, all the way back to the livestock or farm of origin and associated vaccination or sanitization record. This would make it easy for the organization aggregating the products, or even the end customer, to track the product’s history.

I will leave it up to Chipotle whether to disclose to its customers how many times the pig in their burrito bowl was vaccinated. It isn’t difficult to think of markets (diamonds? energy?) where customers may be more interested in the origin of the products they purchase.

¹ 3Blue1Brown, Ever wonder how Bitcoin (and other cryptocurrencies) actually work?