What will Blockchain mean for Procurement and Supply Chains?

What will Blockchain mean for Procurement and Supply Chains?

What will Blockchain mean for Procurement and Supply Chains?

Junior Consultant at Procura Consulting

‘Blockchain’ is the buzzword in many conversations from conferences to panels to start-ups, and while many of us nod along and acknowledge it as a revolutionary technology – we wanted to understand in more detail what blockchain is and what impact it could have on supply chains.

Blockchain initially emerged in the context of the cryptocurrency Bitcoin in 2008, but blockchain and other digital technologies are revolutionising a wide array of industries beyond the world of cryptocurrencies. Referred to as Industry 4.0, there is a major technological transformation underway and procurement will be heavily involved.

So, what is Blockchain?

CIPS define blockchain as ‘an encrypted network that stores records of a transaction and communicates this to all other node points within the network’ [1].

Let’s look at this in more detail…

  • Blockchain’s network is a type of ‘Distributed Ledger Technology (DLT)’.
    The ‘ledger’ in DLT just means that it is a database or store of information holding data which could be documents/spreadsheets/a record of transactions. It is considered ‘distributed’ as there are multiple copies of this database that form a collaborative network. Within this network, the copies remain identical and thus cannot be changed unless an update is made to them all simultaneously. In blockchain terminology, each of these copies is referred to as a node.
  • Blockchain technology is made up of decentralised nodes.
    This means that no single entity will own the ledger but rather ownership is across all the nodes (identical copies).
  • Blockchain is secure as all the information is encrypted.
    Having a copy of the Ledger means that you can access it, however all data within the blockchain is encrypted.
    Without a digital key, the data cannot be decoded, so even if data is stolen or intercepted, it cannot be viewed or altered meaning that it can be shared amongst parties and organisations with confidence.
    This is of utmost importance as blockchain and DLT’s are all about having networks of organisations working together.
  • Blockchain records data in a timestamped block. Each block holds 3 key things:
    1) data (which could be a transaction or a particular action)
    2) a hash which is essentially a unique code (a bit like a fingerprint to a human)
    3) and finally, the hash of the previous block. When a new block is added to the chain, it is cryptographically linked to the previous block through the hash and timestamp, so each block follows another in a sequential chain. Because it is entirely linked, essentially, if you try to change anything within the sequence the blockchain will reject it – this means that the blockchain is ‘immutable’ i.e., impossible to change. This entire system allows for a perfect single source of truth to be achieved between organisations.

 

What does Blockchain mean for Procurement?

There are multiple use cases of blockchain within procurement which drive benefits in transparency, efficiency, collaboration, and security;

  • Transparency – Blockchain allows for data to be shared simultaneously across the entire network which allows stakeholders to monitor what is happening across the supply chain in real time.
  • Security – As data within the blockchain network is encrypted, only those with permissioned digital keys can access and view the ledger and the data stored within it.
  • Efficiency - Streamlining processes to allow for interoperability,
  • Collaboration - Embedding Trust which allows visibility and decentralisation. Organisations are then able to leverage each other’s data and can function on a singular agreed common truth.

 

BlockChain benefits

One example is by Siccar who are developing a Blockchain-based interface to support the MRB (Manufacturing Record Book) process for supply chains in the oil and gas industry [2].

MRB’s are often used as documentation to follow high value complex goods through a supply chain. They can include documents such as certification of testing/design and all information to do with its sourcing etc. There have been stories of entire shipping containers filled with associated documents arriving with the machinery itself. The blockchain platform allows participants to view the composition of the MRB and the parties that are involved in each step of the supply chain.

The business need in this case study was to address the administration issues that occurred due to the high volumes of documentation arriving with equipment. The key benefits to the stakeholders involve include:

  • Increased safety throughout the supply chain. Oil rigs can be extremely dangerous and susceptible to a high standard of regulation, thus it is important that all standards are complied with and if any errors occur it is easy to trace where the faults lie. This also ensures that in the case of fault, there are no disputes between the parties involved as the blockchain ensures a single common source of truth.
  • Another benefit is efficiency as a result of streamlined administration tasks across the supply chain. For example, the manufacturer easily guaranteeing the steel is from a reputable supplier or insurers confirming that all required testing has been conducted properly – there is no waiting to get information as everyone has visibility on all the necessary information.
  • Finally, it creates a positive environment of collaboration and transparency for organisations throughout the supply chain.

 

While Blockchain is a standalone piece of technology, its full potential is realised when used alongside other technology. Aveda, an Estée Lauder company, are piloting blockchain technology combined with Mobile Data Capture and QR codes in their Madagascan Vanilla Supply Chain in Spring 2021[3].

They are using blockchain to trace and verify steps from 450 smallholder vanilla farmers who capture data using QR codes and mobile phones at the point of sale in Sambava, Madagascar to LMR, ELC’s natural ingredients supply chain partner in Grasse, France all the way to Aveda’s manufacturing facility in Blaine, Minnesota.

The program will bring traceable vanilla to more than 125 Aveda products. 80% of the world’s vanilla comes from Madagascar and it is becoming increasingly important to consumers that they know where their products are sourced, that they are sourced ethically and that they are of good quality. It is also in line with new sustainability standards that Estee Lauder and Aveda have set for themselves – alike to what a wide range of organisations (like Procura) are also doing.

In the future, the potential to combine Blockchain’s features with a range of other emerging technologies such as Artificial Intelligence and Internet of Things is even greater. For example, utilising ‘smart’ contracts to automatically send RFI/RFP’s or to automatically make payments to a supplier once shipment of a product is received.

 

A Digital Business Network. On board once - connect on demand to many

 

Supply Chain

The graphic above depicts a comparison between a traditional supply chain and the issues these bring such as delays due to the lack of transparency [4]. In comparison, a digital supply chain ecosystem enables blockchain to operate as a ‘control tower’, allowing each stakeholder to rely on the blockchain platform to function collaboratively and efficiently. Both the Siccar and Aveda case studies are great examples to bring the potential of blockchain based digital ecosystems to life.

The crux of blockchain technology is in enabling trusted collaboration between organisations across various verticals and horizontals. Procurement is ideally placed to leverage blockchain technology in the connections between suppliers and organisations, and through entire supply chains.

 

Ready to go or technology hype?

Every year, Gartner publish ‘hype cycles’ that plot emerging technologies on a graph. Gartner have identified that they all essentially follow the same path from innovation to a point where they become the norm [5].

According to their predictions, in supply chain management, blockchain could still be 5 to 10 years away from what they call the “plateau of productivity”. Right now, we see early prototypes beginning to be worked into practical applications.

However, with a technology that brings combined benefits of transparency, trust, security, and collaboration, we foresee Blockchain having a huge impact in procurement and supply chain, with the potential to revolutionise the flow of information, finance and material through supply chains.

 

Hype Cycle

 

Simple steps to begin thinking about how Blockchain can enhance your supply chain:

  1. Use this article to share the potential uses of blockchain in Procurement.
  2. Consider if any pain points in your supply chain can be relieved using blockchain – also consider whether alternative (more mature) technologies can help.
  3. Source the right technology partner based on your business requirements.

 

Procura’s Digital Procurement practice helps companies identify technologies to enable procurement excellence, so give us a ring today so we can begin to discuss your potential opportunities!

References

[1] CIPS 2021 - https://www.cips.org/knowledge/glossary-of-terms/

[2] Siccar 2021 - https://siccar.net/project/nmis/

[3] Aveda 2021 - https://www.aveda.com/living-aveda-article-our-blockchain-pilot-program-launch

[4] SMMT 2020 - https://www.smmt.co.uk/2020/09/member-profile-one-network/

[5] Gartner 2020 - https://www.gartner.com/smarterwithgartner/5-trends-from-the-gartner-hype-cycle-for-supply-chain-strategy-2020/

 

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