With heavyweights like IBM and Maersk jumping on board, blockchain technology is set to revolutionize the supply chain
Blockchain. It’s the latest high-tech buzzword to find its way into the realm of the supply chain, but it’s a technology and a concept that can be so broadly and variably applied that the industry is still coming to terms with what benefits it truly brings and how they will be adopted.
At its simplest, PwC describes blockchain as “a digital, decentralized ledger that keeps a record of all transactions that take place across a peer-to-peer network. The major innovation is that the technology allows market participants to transfer assets across the Internet without the need for a centralized third party.”
This description makes it sound like the technology is perfectly suited for use in the supply chain, and while that may be true in theory, getting the entire industry to agree upon the details and implementing common or at least compatible solutions, is a trick nobody has worked out yet in this early stage of blockchain experimentation and adoption.
Originally, blockchains evolved as permissionless, completely open public networks. Anybody (any node) could access them, send transactions over them and participate in the consensus process which regulates and monitors which transactions (or blocks) get added to the chain and what the current state of the chain happens to be. This type of blockchain is most closely associated with cryptocurrencies such as Bitcoin.
As the technology has evolved beyond cryptocurrencies and been accepted as a business tool, a different type of blockchain has emerged. Permission-based blockchains are now being operated by industry consortiums which set the rules about how disputes are resolved and decide who can join. Typically, potential members need to prove their identity to the consortium to demonstrate they could add value to the chain and should be part of it. Sometimes these are referred to as private blockchains, although that is a bit of a misnomer, as a fully private blockchain is one that is operated by a single company or entity and doesn’t allow in any outside party.
Earlier, the term node was mentioned. Depending on the type of blockchain, nodes can have slightly different definitions. In a permissionless blockchain there are usually differences between full nodes and lite nodes. A lite node only verifies a limited number of transactions. Full nodes enforce all the rules of the blockchain. In a consortium system, nodes may be limited to major players such as banks or international carriers or major retailers, some of whom may even download full copies of the blockchain and host it locally. They act more like stewards of the blockchain, whereas less influential organizations such as a local farmer or a small machine shop may just access the blockchain more in the capacity of a simple user, sending information about the products they contribute to the supply chain.
No matter whether public or consortium, blockchains need to develop what is known as a minimally viable ecosystem in order to truly function. This means having participants in all stages of a process. In the supply chain that could be customers, tier one and tier two suppliers, or shippers, customs brokers, carriers and warehousing companies.
So far, the supply chain has seen both the implementation—at least at the pilot stage—of both public blockchains and consortium-based blockchains.
Toronto-based Sparx Logistics Canada, which moves between 70,000 and 100,000 containers per year, took part in a blockchain pilot project with Wave Bill of Lading, an U.S. and Israel-based start-up technology company. Wave has built an application that allows companies to digitize official trade documents and share them over the blockchain, eliminating the need for the original documentation to be couriered from one company to another. Its solution is currently based on a fork (a technological off-shoot) of the underlying Bitcoin blockchain technology. In the trial, Sparx moved three containers from China to Canada, and from the moment they were booked until they arrived at the company, all of the paperwork was digitized and transmitted through the blockchain.
According to Sparx president David Pupco, the company’s office saved about an hour’s worth of time using the blockchain technology.
“An hour of a working person, if you are shipping thousands of containers—just imagine how much money you can save. And I don’t know how much time they saved on the China side. We definitely saved the courier’s time.”
Ninety per cent of goods in global trade are carried by the ocean shipping industry each year. A new blockchain solution from IBM and Maersk will help manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process.
In contrast, IBM Corp. and A.P. Moller-Maersk have joined together to create a yet-to-be-named company that will take the lead on an industry consortium blockchain designed for global trade. The underpinning blockchain technology solution offered by this company is IBM’s Blockchain Platform, which itself is built upon The Linux Foundation’s Hyperledger Fabric version 1.0. Hyperledger currently has the backing of major technology companies, banks, and international accounting firms, many of which have members on Hyperledger’s governing board.
New York-based Ramesh Gopinath, vice-president of blockchain solutions for IBM, said even though the new entity was founded by IBM and Maersk, they will be two among equals.
“We will have an industrial advisory body that will evolve the direction these products evolve. The industry at large will influence the direction the joint venture will take. It’s at an arm’s length even from Maersk so others can feel comfortable. Maersk will be on an even playing field with respect to this product in this joint venture,” he said.
At this point, it’s too early to tell if public or consortium blockchains will gain dominance in the supply chain, but Dawood Khan, co-founder of TransformationWorx Inc., a Toronto-based company that teaches executives about blockchain technology and business applications, explained there is room for both.
“You can have hybrid solutions. You can have implementations where you are doing something on the private blockchain or a consortium blockchain and then you take certain elements of that and connect it with a public blockchain,” he said.
Khan gave an example of a company or a government agency that needs to have an open procurement process, but still has a list of pre-approved suppliers that have the right to bid on contracts to resupply inventory. That company’s or government’s inventory list could be stored in a private distributed database or ledger. Once inventory levels drop below a predetermined threshold, that event could trigger the issuing of an RFP to a vendor record list that is kept on a public blockchain.
“Maybe you stamp something on a public blockchain then, and say ‘here’s a situation where something has changed’ and all that vendor community is doing is sensing and looking for that change. As soon as it sees it on a public blockchain, it says ‘something has changed with the government of Canada in the area of widgets. There has been a delta, so let me go figure out what that is, because I might be interested in supplying these widgets.’ I could be a vendor anywhere in the world monitoring that on a Bitcoin public-solution blockchain. As soon as that happens, I go back, I say, ‘here are my credentials, I’m a vendor of record, please tell me what you need.’ Then through a consortium or private blockchain, they could exchange that information.”
Concerns about competitors, such as suppliers to a large retailer, having access to each other’s proprietary information on the blockchain is a real concern, said Iliana Oris Valiente, the Toronto-based managing director and global blockchain innovation lead for Accenture’s emerging technology practice group. This issue, however, is being addressed by the blockchain technology industry.
“We are starting to see more and more privacy-preserving techniques being introduced, and I think they are going to be important down the line. Organizations will all be running separate nodes, but there are ways of configuring the blockchain implementation where the network knows a transaction has occurred but the organizations are not able to see the details of it unless they were one of the parties that was part of the transaction.”
One group of parties that has a definite interest in what is happening with blockchains in the supply chain space are government regulators, said Oris Valiente, adding that many regulators are likely to operate nodes on what prove to be the most widely used trade blockchains. She also expects that self-regulation will become more popular among blockchain participants.
“For the regulators, they recognize blockchain is the new paradigm shift and whereas the Internet was great for the transfer of information across borders, blockchain enables the transfer of value across borders and it really does question how the regulators will carry out their duties. Many of the regulators we have engaged with have recognized this is an opportunity for them to go back to first principles and understand what is their function, what are they there to ensure happens and could they achieve their mandate while also embracing new technologies.”
As to how blockchain users will interact with the technology, that will depend on their internal needs and usage requirements. For some, they will likely treat the blockchain along the software-as-a-service [SaaS] model where they just log in and interact with the blockchain application directly. Others will have a need to bind it more tightly to their business processes.
“Shippers, customs, ports, they all have their own internal systems,” said Gopinath. “If I’m a customs officer used to using an internal IT system to sign off on a customs document, then this solution needs to be integrated in that context. You don’t want to change that user experience or log into a different system and sign off. That doesn’t work. There are examples where you need to actually do that integration.”
As to whether the supply chain, an industry that has been known to drag its heels a little bit when it comes to the adoption of new ways of doing business or new technologies, is ready to adopt blockchain, not to mention smart contracts that are built on blockchains or other technologies like Internet of Things (IoT) that can work in conjunction with blockchains, Wave Bill of Lading co-founder and CEO Gadi Ruschin says it absolutely is.
“Blockchain has started a lot of discussion regarding payment and the transfer of value and the transfer of items—things that I would say were traditionally considered as things that you cannot change, but now may have to change. There is just a lot of innovation and a lot of disruption in the world and the supply chain, or trade, is the biggest industry in the world, so the players in international trade want to benefit from those efficiencies as well.”