The Growing Maturity of Blockchain for Supply Chain Management

I have stated that I consider Blockchain the least mature of the emerging technologies poised to impact supply chain management. Based on what I heard at ARC’s annual forum about Blockchain for supply chain management, I need to revise that opinion.

Speakers from the technology community included Anant Kadiyala, Director of Blockchain & Industry Solutions at Oracle; IBM’s David Noller, Executive Architect Watson IoT – Blockchain and Industry 4.0; and Steven Kim, a Senior Director at SAP.  The user community was represented by Jeff Denton, the Senior Director of Global Secure Supply Chain at AmerisourceBergen.

Blockchain technology is incredibly elastic.  It can be shaped in different ways, to fit different processes, network node architectures, and participants.  It is difficult to generalize about Blockchain for business in a way that is universally true. But IBM, Oracle, and SAP – probably the three largest players in the business application Blockchain space – were all addressing this topic in a very similar way.

One point all participants agreed on is that Blockchain for business applications is not Bitcoin.  Bitcoin was the first blockchain application, it is an unregulated shadow-currency, and it appears to be a mechanism more conducive to financial speculation than conducting business.

IBM, Oracle, and SAP all built their blockchain platforms on Hyperledger, a technology more suitable to building business applications. Like Blockchain for cryptocurrencies, there are mechanisms to make sure transactions are authenticated across a network of participants with distributed databases.

There has been a scalability/security tradeoff surrounding Blockchain in supply chain management (SCM). Cryptocurrencies are hyper secure and hyper resource intensive.  The math problems they solve to verify financial transactions require “miners” with big, fast computers who take several minutes to verify transactions. These miners are very well paid for their authentication role.

Business blockchain still uses math to verify transactions and creates a single source of truth around a set of linked transactions.  But the math verification process is much less intensive – and thus less secure and more scalable – than cryptocurrency blockchain applications. This allows authentication to occur in near real-time. Further, the supply chain parties that verify transactions are not paid for this task. Because they are parties to a supply chain network, it is considered their responsibility.

Even though Blockchain for SCM is more scalable, I have heard companies that have investigated this technology express concerns about whether it is scalable enough as the supply chain network of participants grow.

There are other differences between cryptocurrencies and Blockchain for SCM. Business Blockchain does not include a cryptocurrency, although there may be network style applications that develop that will punch out to the banking system; it is not an open community that any participant can join, but will instead generally involve closed networks of supply chain partners that have been invited to join; Blockchain for managing an end to end SCM process can, and probably will, include more business logic and can even utilize IoT sensor data.

Currently Blockchain in SCM is not in general usage.  But Oracle, SAP, and IBM all have customers working closely with them on proof of concepts and pilots.

What are the attributes of a good use case for Blockchain? Mr. Noller of IBM provided a slide that I thought summed this up nicely. He did stress, however, that while these “are good indicators,” it is quite possible that a use case will emerge that does not meet all of these attributes.

USE CASE ATTRIBUTE	EXPLANATION
Enterprise Impact	The use case should have significant impact on the enterprise and be supporting key goals of the organization (e.g. supply chain optimization)
Business Network	Blockchain does not really make sense unless multiple entities are collaborating around shared information (e.g. an OEM, suppliers, end customers, regulatory).  For only one organization, a database centered application likely makes more sense.
Industry Impact	Blockchain may be a good approach for industry wide problems, such as information shared amongst partners in a consortium or for a marketplace (e.g. cloud manufacturing services).
Shared Ledger	A use case involving multiple parties using transactions (e.g. EDI) to synchronize ledger information is a good candidate for blockchain.
Immutable Record	Use cases that require “immutable” records need to be shared among diverse partners in a supply chain

 

Mr. Denton of AmerisourceBergen’s proof of concept certainly had the attributes of a good use case laid out above. AmerisourceBergen is one of the largest distributors in the world. This industry is subject to Drug Supply Chain Security Act (DSCSA) act which was passed in 2013. The act establishes a national system for tracing pharmaceutical products through the supply chain with progressively more stringent requirements that kick in over a 10-year period. It also sets a national licensing standard for 3PL’s and wholesale distributors and establishes criteria for handling suspect and illegitimate products.

Requirements	Effective Date
Transactional Information Provided by Manufacturer, Wholesaler and Re-packager	1/1/2015
Standard Operating Procedure to identify Suspect & Illegitimate products	1/1/2015
Authorized Trading Partner	1/1/2015
Transactional Information Accepted by Dispensers	7/1/2015
Federal Licensure Standards Wholesale/3PL	12/31/2015
Manufacturers Serialize	11/27/2017
Re-packagers Serialize	11/27/2018
Wholesalers Accept/Sell Serialized Product & Validate Serialize Number on Saleable Returns	11/27/2019
Dispensers cannot accept product that is not serialized	11/27/2020
Complete Traceability	11/27/2023

AmerisourceBergen could have chosen, and still may, to meet these requirements using traditional data exchange methods. But these stringent regulations seemed perfect for testing out whether Blockchain offered a better way to resell returns that have no quality issues while meeting traceability regulations.

There was, after all, enterprise impact. Wholesale distributors process a huge volume of salable returns, 59 million units per year, and because these returns represent two percent of all units sold, there are impactful financial implications to this. This is also a business network process, a process involving drug retailers, carriers, distributors, and potentially manufacturers. Drug Supply Chain Security Act clearly creates an industry impact. And the shared ledger and immutable record look to be a good way of handling exception management processes involving electronic file activity between trading partners. For example, receiving product for which no serial number is found or receiving data which suggests there are more packages in the shipment than are received. SAP is AmerisourceBergen’s technology partner in this endeavor. Based on this trial, AmerisourceBergen has concluded that there are many more use cases involving the exchange of transaction data among multiple parties where Blockchain might be valuable.

The audience had many questions for the panelists. One astute question came from an audience member that worked for a steel supplier to the auto industry. This questioner stated that there was real interest in blockchain among automotive OEMs. His CIO was asking, “when should we get involved?” In technologies early in their maturity, jumping on too early can be a waste of time. Mr. Denton’s answer was that AmerisourceBergen believed it was important to get involved early to have a seat at the table and shape the way these industry solutions end up evolving. He also said that initially his company just wanted to play with this technology and explore its viability, but for a wide variety of use cases, Mr. Denton now believes you start by assuming Blockchain will be the answer and only explore other technologies if you can prove Blockchain doesn’t work.

There are still challenges associated with blockchain. But the challenges are less technical than based on the issue of how to standardize on a network solution in a committed community of industry participants. According to Mr. Kim of SAP, “2018 will be a milestone year that we will see the adoption of a first set of blockchain solutions in enterprise applications – from securing the pharmaceutical supply chain to eliminating inefficiency in international logistics.”  Mr. Noller of IBM and Mr. Kadiyala of Oracle agreed.