The Implications of Blockchain in Supply Chain

By Marisa Brown

June 22, 2018 at 8:24 AM

Blockchain.jpgBlockchain, or distributed ledger technology, is an automated way to record transactions among different parties without the use of intermediaries such as financial institutions. An APQC survey, in partnership with the Center for Global Enterprise, found that one-third of participating supply chain professionals believe that blockchain has the potential to create a competitive advantage for their organization over the next 10 years.

Even with the potential of blockchain, more than one-third of supply chain professionals surveyed are either extremely or moderately unfamiliar with it. Some organizations have begun investigating blockchain and considering its uses for their business, but they are still exercising caution as they weigh the potential benefits of this technology against the barriers to its implementation.

CURRENT USE

Blockchain technology enables each data element recorded in a ledger to be encrypted in a block. These blocks are chained together across a network accessible to the entities involved in the transactions (e.g., suppliers, customers, or any other key business partners). A collective agreement on the transactions that take place across the network is reached among the entities through a consensus algorithm. Once a consensus is reached, the data for the transactions cannot be changed and becomes the data of record. The storage of data across the network, rather than in one place, and the inability to change data make blockchain a secure way of recording transactions. For the supply chain, this means more consistent records rather than disputes and corrections. This technology also has applications for any tracking that occurs in the supply chain since it enables organizations to maintain accurate and secure data among partners.

Blockchain clearly has the potential to improve the way organizations conduct transactions and track items within the supply chain. Yet this research indicates that only 1 percent of responding organizations are currently using blockchain in their supply chain operations, and nearly 50 percent of organizations are neither using nor exploring the use of this technology.

FUTURE USE

When asked to consider the biggest opportunities for blockchain by the year 2020, respondents rated billing and payment processing highest, recognizing blockchain’s strength at facilitating this process. Beyond that, respondents see potential opportunities specifically within supply chain. The second biggest opportunity is visibility into product tracking and integrity, followed by logistics, visibility into supplier compliance, and self-executing (or smart) contracts.

Organizations also recognize that adopting blockchain has its barriers. The most widely held concern is finding people with the necessary skills to use blockchain technology. Because it has yet to be widely adopted, organizations may struggle to find qualified staff who can help them initiate and sustain its use. The barrier rated a close second is the adoption of the technology by other companies. This can be concerning, because if many organizations are cautiously waiting to see how the use of blockchain technology plays out, the number of partners willing to adopt the technology is limited.

BALANCE CAUTION WITH INNOVATION

Blockchain technology presents an opportunity for organizations to create a shared network that builds on supply chain systems and processes already in place. In fact, several large organizations are already using blockchain technology for their supply chains. They have applied the technology to tasks such as tracking shipping containers and food products, as well as for more traditional uses such as facilitating financial transactions.

As one of its initial steps, an organization considering blockchain should evaluate the types of relationships it has with its business partners and whether both they and those partners are willing to adopt blockchain as a way to strengthen the relationship while improving efficiency, security, and performance.

Some of the hesitation organizations have expressed is related to the largely uncharted waters of applying blockchain to supply chain processes. Although several leading organizations are well into the adoption of blockchain within their supply chains, those organizations not in a position to be on the leading edge of this trend must balance their need for caution with the potential benefits they could reap from blockchain’s application.

Organizations would do well to make sure they understand the investment required as well as the full scope of what they will need to do to establish a blockchain network with their business partners.

For more information: Blockchain and Its Potential for Supply Chain Innovation

 

APQC helps organizations work smarter, faster, and with greater confidence. It is the world’s foremost authority in benchmarking, best practices, process and performance improvement, and knowledge management. APQC’s unique structure as a member-based nonprofit makes it a differentiator in the marketplace. APQC partners with more than 500 member organizations worldwide in all industries. With more than 40 years of experience, APQC remains the world’s leader in transforming organizations. Visit us at www.apqc.org, and learn how you can make best practices your practices.



Tags: procurement blockchain distributed ledger supply chain blockchain supplier blockchain
Category: News Article

Marisa Brown

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Marisa Brown has more than 25 years of experience in business, research, writing, speaking, and consulting. Currently, she focuses on the in-depth needs of APQC’s members in supply chain management and product development as she develops and oversees APQC's supply chain management research agenda. She leads APQC’s supply chain team that conducts research to provide insights into benchmarks, best practices, and process improvements in supply chain planning, procurement, logistics, manufacturing, product development, and innovation.


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