Special Feature
Part of a ZDNet Special Feature: How Blockchain Will Disrupt Business

How using blockchain in the supply chain could democratize innovation itself

The distributed ledger technology could help increase transparency, adding visibility and improving supply chain economics.

Opinions about the business value of cryptocurrency are mixed, but the blockchain technology that underpins it has emerged as one of the potential next big things in enterprise technology. Organizations are just beginning to dip their toes in the blockchain waters, but a few industries have emerged as ripe for blockchain disruption.

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Chief among those: Supply chain.

For the uninitiated, blockchain is a decentralized, distributed ledger technology that maintains transactional records known as blocks. The blocks are cryptographically secured and are immutable, making it easier for members of a given blockchain network to track the transaction history of a given asset and confirm its provenance. So, it's pretty clear why this would work so well for a supply chain.

"There are many ways blockchain can be used across the supply chain, providing transparency, traceability and visibility into processes and operations, all while enabling revenue opportunities," said Anoop Nannra, head of blockchain initiatives at Cisco.

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First, it's important to look at how the technology is being used in the supply chain. The most glaringly obvious use case is services and asset management, where blockchain is used to track ownership of items and minimize leakage, Nannra said.

However, blockchain can also help with managing suppliers. The ledger can be used to validate certain reputation scores, Nannra said, and offer the aforementioned visibility into risks in a given supply chain and a given supplier's compliance standards. Blockchain can also be used to maintain pricing integrity, uphold contract terms, track chain of custody and automate logistics, and add traceability to combat counterfeit products, Nannra added.

Blockchain efforts in the supply chain are still nascent, but are showing progress in agriculture and food, shipping and logistics, government, oil and gas, healthcare, and manufacturing.

The food industry is particularly lacking in digital prowess, so the arrival of blockchain and the Internet of Things (IoT) at the same time will help it link the physical and digital world in food supply chains, according to Csilla Zsigri, senior blockchain analyst at 451 Research. One good example, Zsigri said, is Walmart's blockchain experiment.

"Using blockchain technology, the company was able to trace a package of sliced mangos back to the farm in 2.2 seconds, which previously, through a mixed digital and paper-based method, had taken nearly seven days," Zsigri said. "These kinds of business outcomes can help drive adoption of blockchain. Although, it's important to emphasize that it's not blockchain alone, it's a set of technologies including blockchain, that can help drive efficiencies across the supply chain."

The impact on logistics is pretty substantial as well, as noted in blockchain's ability to establish chain of custody and automate certain processes. In March 2017, for example, IBM and Maersk announced a joint partnership to create blockchain tools for cross-border transactions for multiple actors in the logistics supply chain.

Government systems like identification are also utilizing blockchain, Zsigri said. Microsoft has laid out a plan for a blockchain-based ID, and the Dubai government is using blockchain to reach its goal of becoming fully digital by 2021, Zsigri said.

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Healthcare has its own problems that blockchain can solve. Data is siloed and there are too many intermediaries to make health data properly accessible, Zsigri said. "Using blockchain alongside other technologies can help shift focus to the patient by giving it control of its medical data and drive efficiencies within the ecosystem. In Estonia, for example, each citizen has a trackable e-health record," she said.

In the energy sector, blockchain is used in streamlining financial processes, especially around trading. Companies like BP and Wien Energie are investing in the technology, Zsigri said.

Early days

Despite the potential use cases and market applications, actual usage of blockchain in supply chains is very limited. Zsigri said that, according to a 451 Research report, more people are talking about the technology than actually using it -- only 4 percent of enterprises are using blockchain in production.

Andrew Stevens, a research director at Gartner, said that "through 2020, 90 percent of supply chain blockchain initiatives will remain at the proof-of-concept stage."

Stevens also noted that blockchain is "very much in a learning and development phase for many, many organizations." He said companies have to balance the press to get involved with it, without jumping in too early.

However, once blockchain does advance in the supply chain, Nannra said, new methods for financing the movement of physical assets will emerge. It will also lead to a renaissance of the Circular Economy.

"As supply chain asset metadata attribution takes hold on blockchain, having full visibility into the genealogy and upkeep of an asset may also drive more value for produced goods as they come onto the secondary market," Nannra said. "We are already starting to see this in the heavy industry space for mining equipment. As a result, new business models are emerging in this space that normally would only be associated with high priced collectors' items."

So, what will it take to get there? It starts with clear messaging, Stevens said, both internally and across supply chain partners. As Zsigri noted, it must provide value and make sense for each participant in the supply chain. There also needs to be clear understanding of the IP generated and who owns the data.

It also requires a certain level of digital prowess and interoperability.

"There are elements of a requisite level of what we like to call 'supply chain interoperability' that does need to be established for those participants, those companies, and peers, and trading partners to be at that level of digital maturity so that they can really optimize any discussions around blockchain itself," Stevens said.

In order to take advantage of blockchain, Stevens said that a company needs a good level of understanding of how the technology will impact their business and what areas of their supply chain will actually benefit from the introduction of blockchain.

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