As witnessed across various industries, digitalization is drastically transforming the supply chain landscape. As business leaders in this field, we need to remain one step ahead and embrace the opportunities digital technologies present. Blockchain is one of the technology trends to watch as it is likely to challenge the way we do business.
What is the value behind this trend? How does it apply to logistics and most importantly – how is it likely to reshape the future of this industry? Here are my thoughts on the topic.
Blockchain – Explained
Simply put, blockchain is a technology that enables the processing and storage of data following a unique methodology. The data is not typically stored centrally but dispatched on a distributed ledger across a network of computers. These computers would process every transaction and hold a copy of the blockchain. The data is stored in “blocks” which are linked to each other using cryptography: each block contains a “fingerprint” of the previous block. This approach is particularly relevant for use cases that require:
- Immutability – data on blockchains cannot be altered retroactively without collusion
- Transparency – data changes are publicly viewable by all parties
- Robustness – no individual node is crucial to the database as a whole
- Disintermediation – transactions contain their own proof of validity and authorization, no central authority is needed
The benefits of blockchain become more tangible as we take a closer look at use cases in the logistics sector.
Blockchain – Applied to Logistics
Blockchain applications in the logistics industry are currently at a pilot stage. However, I believe many of these applications show real potential. The most tangible benefits I see in our industry are:
- Tracking of items provenance and the visibility on handling conditions
- Facilitating interaction between multiple parties within a supply chain.
1. Tracking of provenance and handling conditions
How does this work? All parties involved in a manufacturing and logistics process can trace the process steps in a blockchain application. The data is disclosed to all stakeholders within the value chain, including the end-consumer. This gives the consumer visibility on the shipment origin and handling conditions. Smart sensors and the Internet of Things (IoT) can facilitate this information flow.
Such a function delivers tangible value by providing proof of legitimacy for pharmaceutical shipments, or proof of authenticity for luxury goods. Walmart showed the way by cooperating with IBM to test blockchain solutions for tracing the provenance of products such as Chinese pork and Mexican mangoes. In case of contamination, the source can be identified easily.
In a pilot run by BASF, IoT-enabled pallets were used to record ambient temperature for cold chain transports, and the location of potential impact damage. This application allows the company to verify compliance to handling requirements, and mitigate loss of or unexpected damage to shipments.
2. Facilitating interaction between multiple parties
The processing status of all parties involved in a specific logistics process is automatically tracked and saved digitally on the blockchain application. All parties have direct access to the data, which creates mutual trust and makes a trusted ‘coordinator’ superfluous. This results in a faster and more transparent process.
The port of Rotterdam, for example, tests applications to share trusted information amongst their numerous stakeholders (customs, port authorities, stevedores, freight forwarders, road carriers, shippers, consignees, banks and more). Speeding up their processes ultimately reduces the time a vessel spends in the harbor.
The city of Dubai aspires to become the blockchain hub and has initiated multiple initiatives. Blockchain solutions are used to integrate all stakeholders in the commercial process to make import-export activities more efficient. Ultimately, paper-based contracts would be replaced with smart contracts where supply chain stakeholders would be able to access information about the location and status of their goods in real time.
The Outlook
Blockchain is regarded as a disruptive trend. The use cases are still at the experimental stage and the technology hasn’t matured yet. However, the applications described, show that this trend has the potential to reshape the structure of logistics processes and the handling of information flows. Blockchain solutions enable peer-to-peer networks based on mutual trust. This removes the need for middlemen and is very likely to impact logistics companies whose value is to act as a ‘trusted’ party coordinating other supply chain players. Today, the logistics data is held proprietarily by the logistics company who shares it further with its customers. In the future, this same logistics company will add its information to the overall information pool shared with the customer by the blockchain application. Contrary to today, the information will become public and accessible by all within the network.
Moving forward, providers of blockchain applications for overall logistics processes are expected to gain in importance and their profit share in the logistics industry is likely to increase. Tapping into the opportunities that blockchain provides rather sooner than later is a must to ensure competitiveness and sustainable industry growth.
What is your perspective on the viability of blockchain in logistics? I look forward to exchanging with you on this topic on my blog.
Thanks a lot for your insights on this topic. Blockchain and especially in logistics is an interesting topic to observe. As you indicated decentralising the control function by taking out the intermediary, who can be trusted is a strong argument. Nevertheless it needs to be reviewed on a case by case basis whether the transaction costs for establishing the, let’s call it technology baked in trust, in areas of well established trust agents. Especially the technological maturity along standards and adoption volume is yet to come.
Are you aware of any standardisation activities in the logistics industry which target to create a set of principles or baselines which allows the logistics sector overall to move into the blockchain direction?
Furthermore, do you see any areas where you would see Blockchain not being suitable or unlikely to be adopted?
I fully agree that the use cases are still at the experimental stage and the technology hasn’t matured yet. I do believe that blockchain will reshape the structure of logistics processes and the handling of information flows in the next years. However, blockchain is not a solution for all data and visibility issues in a supply chain.
Hi Sabine,
Thanks for sharing. I’m agree with you that blockchain will reshape the structure of logistics processes and handling of information flows, and more…,but I thing it will have an exponentially grow. I think many companies are not aware of this and will walk behind. Within 2 years the frontrunners will have the competitive advantage. I follow/invest in some blockchain projects (ICO’s) and I see how fast this goes. We do not live in the 90s :).
Nice article, Thank you Sabine.
The key issues for application in logistics, same is in some other areas, remains that there are quite a few market players who’s business model was based on non-transparency or the transmission of information itself. The perfect blockchain application, would drive itself and destroy the business models of quite some of those players, thus giving them reasons to work against it.
Further, the best application of blockchain would have no one driving it, yet somebody would need to drive it at least initially, to get the supply chain stakeholders on board. A bit of a dilemma, as there seems to be no real business model for the operator of the blockchain, for the basic logic of this technology would actually not require him.
Lastly it would be a great opportunity for regulators to take the lead on this, for example in regards to the supply chain for foodstuffs or customs processes.
Lets see what the future holds, the experiments to far are interesting but have not yet resulted in much. For the logistics industry as a first step it remains essential that they digitalise their data, information flow and processes, if information is in no system but mainly in peoples heads, plugging it into a blockchain will be impossible anyway.
Hi Ruben, I think full transparency will come. It is a matter of time. Today, the logistics data is held proprietarily by the logistics company who shares it further with its customers. In the future, this same logistics company will add its information to the overall information pool shared with the customer by the blockchain application. Contrary to today, the information will become public and accessible by all within the network.
Rather than protecting as is, I recommend the logistics providers to stay ahead of the curve. Sabine
I believe the drive will come from the industry itself.
For example, if I want to contract a new trucking company it represents a risk that I have to manage. Usual way would be to test that new company on certain routes for certain period of time, until they prove the quality of service. What blockchain offers is that I can rely on that company’s existing “pedigree” based on its historical performance. Consequently I can engage new company faster, with lower risk, and save substantial amounts in the process.
The same drive would force digitalization of data. Company which can not report on location of goods and consequently have precise date of delivery will lose the market. Blackchain data would potentially inform the customer on performance of every player in the chain.
Kind regards, Milos
Milos,thank you so much for your comment. I fully agree. The use cases are still at the experimental stage and the technology hasn’t matured yet. However, I am fully convinced that blockchain will reshape our industry. Best regards, Sabine
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Hi Sabine,
I strongly believe that concepts such as Blockchain will allow us to create more transparency and trust.
PoC’s and pilots are important to show the value for the different actors in the supply/value chain.
In the food supply chain for instance waste can be drastically reduced through greater transparency which can have enormous financial and environmental impact.
I support your view that logistics companies should lead the way by experimenting and staying ahead of the curve. This goes for all new technologies and concepts, in most cases the value of combining these (e.g. IoT + AI + Blockchain) will create even more value than anyone of them separately.
This calls for a holistic approach looking at the total ecosystem (from farm to fork, from raw material to consumer etc.) where understanding the information flows created during physical flows is key.
Logistics will go through a further digitalisation where the information collected and created in the chain may become more valuable than the physical logistics.
Looking forward to this exciting journey!
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Thanks for this great article. Very informative.
I am very interested in technologies and trends regarding Supply Chain Management, specially those that can help improving sustainability and Block Chains certainly have that potential by keeping track of hazardous materials, keeping dangerous mix elements separated, keeping track of the number of places a product touches to find efficiency improvements/alternative local sources, etc. I will start following up this trend.
One concern I would have if I was participating at any point on the evolution of this technology, is the availability of public information. Some information needs to be kept confidential. Hazardous materials could be quickly found by people/organizations for the wrong purposes, Launching of new technologies/brands could be followed up by competitors to disrupt, block or anticipate a competitor’s move, etc. I guess what I’m trying to say, is there should be protocols to keep only the right players in the loop without blocking regulatory authorities out. I guess all of this will be part of the complexities of the development and the test cases selected for that development.
A quick note, in your explanation point #4, I think you are trying to say “Decentralization” (removing the need of a central authority) rather than Disintermediation (removing a player from the chain to connect two points directly)
Thanks again for your article!
Hi Victor, private Blockchains are more suitable for business use cases in as far as transparency and sharing of data and information is concerned. This should not be confused with public ledgers like Satoshi Nakamoto’s peer to peer network that hosts cryptocurrencies like Bitcoin.
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Hi Sabine,
thank you for your great article. It describes the possible capabilities of blockchain-backed applications in a very understandable way. A colleague of mine worked on a POC for tracking digital assets in a blockchain solution:
https://blog.codecentric.de/en/2017/10/blockchain-in-the-supply-chain/
https://blog.codecentric.de/en/2017/10/applying-the-blockchain-in-the-supply-chain-domain-building-a-solution-blockcentric-3/
This might add some technical aspects to your very great article. I would be very curious to run such a prototype on a greater scale! I think this would offer a lot of great opportunities …
Jannik
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Thanks John