By Fabrícia Fedoci and Tatiana Revoredo
Introduction
Supply chain represents all links involved in creation and distribution of goods, from raw materials to finished product, which is in consumer’s possession.
Currently, supply chains comprise hundreds of stages and dozens of geographic locations, making it very difficult to track events or investigate incidents. Customers and buyers cannot reliably verify and validate the actual origin of products and services purchased, so that the price paid for such products and services do not reflect the real cost of production. Moreover, lack of transparency in supply chain makes it extremely difficult to investigate and hold people accountable for any illegal activities that have occurred along the chain, which explains numerous cases of fraud, forced labor and several scandals in supply chains that stain reputations and cost millions to the companies involved.
Thus, this article seeks to demonstrate what value blockchain and IoT technology can bring, and how they can help in challenges of traceability and supply chain origins.
Supply chain current challenges and risks
Companies have difficulty managing sudden changes in demand and, in their suppliers’ operations, face embarrassment to master acquisition and information flows. This happens because, while outsourcing for business leverage, companies fail to seek transparency throughout their supply chain.
There are many examples of fraud in food, pharmaceutical or automobile industries, which in turn, result in high financial losses due to recalls and drop in sales.
In this sense, Deloitte’s recent Global Supply Chain Risk [1] survey identified the following impacts, risks, and challenges:
· Erosion of profit margin and sudden changes of demand—
Unstable environments require quick reactions to sudden changes in demand, because with globalization, fiercer competition has pressed profit margins.
· Alterability effects as a result of extended value chain—
Today’s extensive supply chains, made up of numerous layers of stakeholders (such as suppliers, distributors and customers), significantly raise instability risks in supply chain.
· Supply chain inefficient risk management—
Elaboration of supply chain risk management programs is essential to monitor, provide assertive predictability of risks and obtain proper response.
· Lack of end-to-end visibility—
Absence of transparent visibility in supply chain, both internal and external, exposes companies to different types of risks, such as fraud, and violation of codes of conduct, among others.
· Technology obsolescence—
Advanced supply chain management tools are a major challenge for most companies because they demand high investments on ongoing basis, which also applies to inherent implementation risks.
Importance of Reliability and Parameters for an Ideal Supply Chain
As information flows in a supply chain depend on data being effectively collected and made available through information networks of several stakeholders, it is evident that the entire system depends on reliability.
Reliability, in turn, can be identified in the four elements explained below:
· trust
Stakeholders should trust each other regarding their willingness to communicate true information.
· effectiveness of the lowest common denominator
Effectiveness is limited by the weakest link in supply chain.
· reconciliation
Since there is no continuity in providing information, each participant needs to reconcile data to ensure accuracy and effectiveness, which impairs efficiency.
· Information flow limited manifestation
Ability of collected data to effectively and accurately represent real-life objects or events is limited by systems placed in supply chains to monitor and track supplies.
Thus, considering impacts, risks and challenges in supply chain, besides the importance of reliability, it is possible to identify which requirements should be fulfilled for an ideal supply chain.
Parameters for an optimal supply chain:
· End-to-end visibility (transparency)
· Flexibility
· Trust (truthfulness)
· Control.
How blockchain technology, integrated with IoT, can help?
Blockchain and IoT capabilities can increase traceability and reliability of information in supply chain
As the purpose here it´s a brief analysis of how such technologies could add value to the supply chain, we are going to stick to some possible functions and qualities, without delving into issues such as the difference between Blockchains and Distributed Ledgers that, due to the breadth, deserve own article. In order to understand this text, Blockchain technology can be defined as a distributed open-source arquitecture that allows digital and permanent record of transactions in a P2P (peer-to-peer) network
Qualities of blockchain technology, which are responsible for increasing innovation potential of all major industries, can be summarized as: low cost, transparency, auditing and reliability (resilience). In supply chain, such features help reduce intermediaries (trusted validators), resulting in increased efficiency and reduced costs.
Internet of Things (IoT), in turn, links physical world to digital world, allowing decisions to be safely made, and behaviors to be effectively adapted. Through real-world data collection, communication, compilation of said data into information and, finally, presentation of assertive results, IoT acts complementarily to blockchain technology, allowing systems and users to aggregate data, analyze trends and perform preventive monitoring. However, it should be noted that IoT does not only cover devices (things, sensors), but rather a whole system (architecture, infrastructure) that should be effectively implemented (sensors and things, networks, integration layer, etc.)[2].
Solutions at Blockchain and IoT can therefore provide continuity in information sharing, helping companies reduce operational risk, ensuring continuous, reliable and invulnerable global flows. That is, they add value to supply chain, because they increase capacity to control and verify flows from suppliers, enable reliable and shared tracking system, distributed and certified with significant benefits to consumer (which, for example, can make sure that their goods are transported in proper conditions and time, verify origin of goods and trace the whole manufacturing process in blockchain, verify and prove authenticity and origin of goods through IoT devices, etc.).
Blockchain and IoT Use Cases for Supply Chain Management
There are already numerous possible cases of use of blockchain and IoT application in supply chain management. In this topic, we bring some of them, seen through the lenses of different industries.
In the agricultural food supply chain, production is fragmented (due to planting mainly occurs in remote and developing areas), with volatile prices, under constant threat of climatic variations. Both blockchain technology and Internet of Things may not solve all these problems, but they can contribute to transparency and increased efficiency in coffee supply chain. It is in this context that Bext360, a software platform (SaaS) focused on critical supply chains, such as coffee, cocoa, seafood, palm oil, minerals (coltan, cobalt), wood and cotton, which after data collection across all stages of supply chain, puts them in blockchain, creating an unchanging record, to better track the entire chain, from producer to consumer, and thereby increases supply chain productivity and efficiency.
In pharmaceutical industry, in turn, issues related to drug safety in supply chain are a matter of extreme relevance. This is because tracing “active” pharmaceutical ingredients during manufacturing is a difficult process, due to failure in identifying drugs that do not contain active ingredients can ultimately cause harm to patients, or even the death of final patient. Hence, the importance of Blockchain application development, which can provide basis for complete traceability of drugs, from manufacturer to final consumer, and ability to identify exactly where supply chain breaks during a problem.
Blockverify emerges within this context. It is a solution that proposes using blockchain traceability and transparency to detect and effectively combat fraud in pharmaceutical industry through IoT resources, “widely discouraging” the distribution of counterfeit drugs.
Finally, there is Riddle & Coce that develops security for IoT features using distributed accounting technologies to keep data and communications confidential.
Final considerations
Blockchain technology, coupled with IoT (Internet of Things), is a great promise to drastically improve Supply Chain efficiency and reliability across industries. According to International Data Corporation (IDC) [3], spending on blockchain solutions worldwide is expected to reach US$ 2.2 billion by 2018, more than the double of US$ 945 million spent in 2017. By 2021, annual spending is expected to reach US$ 9.7 billion (according to Biannual World Bank Expenditure Guide with Blockchain 2017H1)
The potential for applying said technologies to supply chain is significant. Leaving the concept and pilot tests to effectively implement feasible solutions, in contrast, will still require blockchain technology to be developed more deeply, in addition to the need for organizational transformation, as well as desire for collaboration among all those involved.
For now, IoT and blockchain technologies are evolving and need to mature to ensure effective traceability throughout supply chain and reduce risks via increased efficiency.
However, this evolution will not take place without joint efforts of all the various actors in supply chain, and a regulatory environment that leads to implementation of said technologies.
By Fabrícia Fedoci and Tatiana Revoredo
Notes
[1] Deloitte, Deloitte Consulting’s 2013 Global Supply Chain Risk Survey (2013)
[2] World Economic Forum, The Internet of Things’ potential to recast supply chain management, 2017
[3] International Data Corporation, Global Blockchain Market: Size, Trends & Forecasts (2018–2022), 2018.
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