The success of a manufacturing supply chain is crucial to the success of its participants. Each participant is reliant on every other participant, but generally contracts only with those directly above or below it in the supply chain. This means the full nature and extent of the chain is often obscured, even to those that are a part of it.
Improving transparency and efficiency, as well as generating trust and confidence, is clearly in the mutual interest of the whole supply chain. But how can it be done?
The blockchain proposition
Blockchain proposes an alternative to the current system, where all parties in the supply chain work from one shared set of records. This shared record is achieved by way of a transparent, decentralised ledger of the transactions at each step of the supply chain, which can be viewed by any party that has been granted access. As an unbroken chain of individual, time-stamped blocks it acts as a single point of reference for all those with access. This allows buyers, sellers and desirable third parties like banks, regulators or investigatory bodies to view the records where necessary. Amendments must be validated by the network and can be used to ensure the accuracy and reliability of the chain. Once validated, a change to one transaction in one block causes a domino effect of updates throughout the chain.
In this way, blockchain provides the potential for an immediate, verifiable and comprehensive record of an item's journey without delayed response times or human error. In particular this has the potential to help with:
Partner confidence
The Global Brand Counterfeiting Report 2018 estimates that online counterfeiting alone caused losses of at least US$323 billion in the year 20171, with luxury brands being hit especially hard. The immediacy and reliability of the information harnessed by blockchain can be used to demonstrate authenticity by creating direct accountability throughout the supply chain through automatically recording each step in the manufacturing process. In a verifiable way, all participants throughout the supply chain can know that products are authentic and more confidently rely on one another. Promoting both partner and consumer confidence is crucial in a supply chain where mutual reliance is key.
Arguably, widespread use of this technology could deter unscrupulous market participants and so reduce the number of counterfeit goods.
Risk management and opportunity
A shared, decentralised ledger allows for real time monitoring throughout the supply chain. In turn, this means significant and unforeseen events can be identified and issues can be rectified in a way that minimises negative impact.
In addition, because all supply chain participants have access to the shared ledger there is an increased likelihood of issues being spotted. It could also lead to opportunities for improvement being identified and taken.
Efficiency
Blockchain could have day-to-day benefits to the manufacturing supply chain too. Digital tracking removes the need for inefficient and error-prone analogue tracking systems. A centralised and verified recording system would do away with painstaking record-keeping and auditing, therefore potentially cutting costs and saving manual input and checking time.
Increased visibility throughout the supply process could also give an overview of unknown, entrenched inefficiencies. Remedying these inefficiencies could save time and money. Remotely and immediately tracing everything from point of origin to time spent in each location could provide new insights and associated benefits.
Is it as easy as that?
Any change comes with risks and overhauling the mechanics of such a long-established system is no exception. One of the biggest challenges will be for parties that are used to dealing with the members of the supply chain who are directly above or below them adjusting to, and ensuring there are appropriate processes to enable, the multi-party approach that deploying blockchain effectively could require. In particular, consideration needs to be given as to how best to create and formalise strategic partnerships and agreements to utilise blockchain so that the potential benefits can be maximised for all parties.
Blockchain in itself, with relatively new and developing uses, can introduce additional complexities and considerations. Some of the key areas for consideration are:
- ensuring third party intellectual property is not infringed and proprietary intellectual property is sufficiently protected;
- ensuring data protection requirements and confidentiality controls are met. Businesses can face heavy penalties for non-compliance with rules on the processing of (broadly defined) "personal data". Blockchain applications that fall within the scope of the GDPR – perhaps particularly those based in the EU or which extend to individual EU consumers – will have to deal with the fact that GDPR was designed with centralised rather than decentralised networks in mind; and
- ensuring transparent pricing and dominant platforms do not inadvertently create competition issues. As explored above, one of the potential attractions of blockchain for the manufacturing industry is greater transparency, but participants will need to ensure such transparency does not include commercially sensitive information in a way that could dampen competition or cause legal problems. Likewise, if blockchain platforms come to account for a substantial part of the market there will be either a single dominant platform or a number of competing ones. Any platform or group of platforms occupying a dominant position will need to ensure that there is nothing in its structure or behaviour that tends towards abuse of its market power in relation to either customers or competitors.
Many of these areas will need to be addressed through a mix of legal, operational and technical solutions, which, if not considered and addressed appropriately, may result in any reputational or financial benefits being negated. This does not by any means reduce the utility of blockchain in trying to address the challenges faced by the industry and blockchain is already being used successfully in a variety of ways. But, as with anything, a proper understanding and considered approach is required to ensure the reality can live up to the hype.
Written by Henrietta Baker & Jay Olpherts-Forrester.
Footnote
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