Why Bitcoin’s Blockchain Technology Could Revolutionize Supply Chain Transparency Spend Matters Team - November 9, 2015 8:18 AM | Categories: Finance, Innovation, Technology | Tags: Technology, Technology Disrupters Certainly you’ve heard of bitcoin. But do you know about blockchain, the technology behind bitcoin? If not, you should. We believe it has the potential to be one of the top technologies in the supply chain. Few have written about blockchain to date with the same level of analysis as bitcoin, but those who have been are singing blockchain’s praises. “Pivotal” and “potent,” as it’s been called, the technology could meet the growing demand for transparency in the supply chain. But what is it? A blockchain is a shared, distributed ledger — really a new type of database structure — that runs without a single centralized operator. It is a secure, public and external system of record that participants can inspect, audit and update, and within it, all transactions are recorded. As The Economist reported, “It is what makes possible a currency without a central bank.” Information stored in the blockchain system is boiled down into a code or “hash.” If someone tries to change the information, the hash will appear different, making it easy to detect any foul play. The security of the technology is designed to prevent any one person from altering the legitimacy of the information being exchanged over it, which is why it seems like a great approach to bring more transparency to transactions in global supply chains. Dr. Jutta Steiner, chief operating office of Provenance, a real-time data platform that helps companies increase transparency, said blockchain can “entirely change the game” around certifying and determining the true origin of products — something consumers are increasingly demanding. It’s a level of transparency not attainable when companies put third parties in charge of overseeing supply chains, she said. If just a single party is overseeing this process, a bias can develop. This is especially true if the brand itself is overseeing its own supply chain. In this case, the brand is likely to be selective about what information it discloses, the op-ed continued. More reliable, true information is achievable with a blockchain system, however. Blockchain has the potential to do away with the problems associated with “opaque supply chains,” Steiner wrote. Or as Adrian Gonzales suggested in an article from earlier this year, blockchain could become a new “supply chain operating system” based on its decentralized architecture, which “has the potential to trigger a new wave of innovation in how supply chain applications are developed, deployed and used. The blockchain, in essence, could become the new operating system for supply chain operating networks — like Descartes, Elemica, GT Nexus, LeanLogistics, One Network Enterprises, and others that combine B2B connectivity with software applications — and also help federate those networks.” To this list we also might add Ariba, which has direct materials network ambitions, GXS, Coupa, Nipendo, SciQuest, Tradeshift and others. But why does our own supply chain expert Jason Busch think this technology is so valuable? We asked him: What makes blockchain such a game changer for the supply chain? Jason: It has implications far beyond payments via bitcoin. The ability to truly externalize a ledger with n-tier participants is incredible. For example, think about the ability for cascading POs, invoices, change orders, receipts, ship notifications, other trade-related documents and inventory data across a supply chain to move beyond basic matching to trigger threshold-based payments, replenishment, aggregation programs and more based on codified rules in a specific blockchain. What makes this possible is a new, externalized platform — a radical new type of system of record that brings with it shared rules, understanding and more. Imagine the combination of Amazon AWS, Force.com, FASBI, FINRA, SEC and related types of capabilities, standards bodies and oversight authorities wrapped in one. The system of record inside a company would essentially take a back seat to new external, autonomous systems of record between organizations, which, theoretically, from an accounting and ledger standpoint, would be far more secure than internal systems needing to be audited internally or externally with judgement calls made as to particular treatments. What do people need to know about blockchain? Jason: Get smart on the implications and the possibilities. Do your homework on both the underlying technology, the use cases — just as you would explore cloud-based solutions today — and technology disruptors. For example, as The Economist suggests in one example: “All sorts of companies and public bodies suffer from hard-to-maintain and often incompatible databases and the high transaction costs of getting them to talk to each other. This is the problem Ethereum … wants to solve. The brainchild of Vitalik Buterin, a 21-year-old Canadian programming prodigy, Ethereum’s distributed ledger can deal with more data than bitcoin’s can. And it comes with a programming language that allows users to write more sophisticated smart contracts, thus creating invoices that pay themselves when a shipment arrives or share certificates which automatically send their owners dividends if profits reach a certain level. Such cleverness … will allow the formation of ‘decentralised autonomous organisations’— virtual companies that are basically just sets of rules running on Ethereum’s blockchain.” Who is maintaining the blockchain in supply chain scenarios? Jason: The blockchain is maintained by the participants collectively and potentially enabling third-party delegates, participants or providers. How can users apply blockchain technology to their supply chain transparency efforts? Jason: This is where, on a philosophical basis, blockchains become true disruptors. Imagine any type of object that flows through a supply chain having a permanent, unalterable recording of its activities — what it did, who touched it, how it was touched, how it became part of a bigger object — attached to it. Think of it as a fractal bill of material with provenance. The implications are huge. For example, there would be no need for conflict mineral surveys of suppliers, since all the underlying tin, gold, tungsten and tantalum that goes into a particular SKU would have a “stamp” going back to the smelter or mine and that would travel with whatever that gram, ounce, pound or kilo of material became. In short, for transparency, it’s not just game changing. It’s trade changing. Sorry I could not resist with that last quip, but I have been won over to the concept in large part because the underlying technology systems exist today to bring the blockchain to the supply chain and it’s so critically needed in the market. 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I am not sure that any company will want their competitors to see the supply chain data (such as supplier lists, raw materials mixes, prices etc). This is foundational to the blockchain approach to let the open world maintain the ledger. 2) Supply Chain Data is relational, while blockchains are not. The blockchain was designed to track the history of currency. Supply chains are all about the inter relatedness of data. POs related to Invoices related to ASNs related to Payments. Or Orders related to Lines related to Items related to Subcomponents etc. Since blockchains can’t be split and then merged or transformed and since blocks can’t be split we can’t track relationships effectively. 3) Time Matters. An inherent aspect of supply chains is that movement in time is an essential component of understanding supply chain data. Blockchains are not designed to sync to specific times, in fact an essential part of block chains is that data is orphaned depending on which part of the chain is longer (not which data is most timely). Again, I think the basic ideas behind blockchains are interesting, but the blockchain technology will need to significantly morph before it is useful. Reply Casey Lawlor: 09.11.2015 at 5:28 pm Great article. A forensic audit trail and a single source of truth for an entire supply chain is a very powerful thing. Thanks, Casey Reply Shane Gordon: 09.11.2015 at 11:44 am Bitcoin has seen numerous types of applications since its inception as a form of trade, but this really could shake up the way that purchasing orders and transactions are done within a supply chain. The biggest apparent advantage of this is that it completely exists within an autonomous system that records these transactions instantaneously. And having the ability to be safeguarded from any changes after the transaction date ensures a strong reliability. But, one should look at the inherent cautions within this system, mainly, from a security standpoint. Bitcoins are still in their infancy in its usage as a currency, so this isn’t exactly applicable to every player in the game. At the same time, blockchain needs to be tested and utilized in steps in ensuring that information stays secure and is only accessible to those with permission. Until this system is up to date with todays storing systems, then this should solely remain a trial program to implement. Reply Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of follow-up comments by email. Notify me of new posts by email.