Blockchain Technology for Logistics and Supply Chain
What if this decade brought to us a brand-new era of logistics, with no intermediaries and micromanagement? Perhaps, in the future, all supply chain processes could be coordinated without multiple third-party partners. This can already be achieved with blockchain for the supply chain — a decentralized technology that can decrease the complexity of logistics operations.
As for now, more than 55.3% of logistics providers are already investing in blockchain research. These numbers lead us to think that innovation will be actively explored in the near future, but the niche has a lot of room for development. How can logistics companies implement blockchain in their supply chain, or even develop scalable solutions that could impact the entire industry? We’ll take a look at possible scenarios in this post.
What is blockchain in the supply chain?
The term blockchain stands for a distributed ledger that records data transactions in an immutable way. Blockchain allows all participants to share databases directly, with no intermediaries needed for transaction verification. The blockchain history is permanently stored in the network — it can’t be altered and deleted. This alone makes blockchain and supply chain an optimal combination for increasing logistics transparency.
Blockchain is a decentralized data storage. Instead of saving information to data centers, it’s distributed among all connected devices. There is no single party that’s responsible for data storage. For the network to be broken, all devices would have to be unavailable, which is highly unlikely.
Key features of blockchain
The technology is characterized by four key aspects: security, transparency, ownership, and smart contracts. Let’s take a look at each of these features.
Blockchain in supply chain management can remove intermediaries, provide transparent access to transportation history, and track product movements.
Use cases of blockchain supply chain management
Supply chains are falling behind other industries in their adoption of digital transformation. Its efficiency, tracking, documentation, and resource management need new and faster practices. In container transportation alone, documentation accounts for half of the transportation cost.
Logistics security could also use significant improvements. Industries like luxury, pharmaceuticals, fashion, and electronics are constantly susceptible to counterfeiting. Let’s see how blockchain can resolve these issues in blockchain supply chain use cases.
Supply chain management blockchain can be used to help manufacturers and logistics providers to locate lost or stolen products by assigning a unique copy to each item. It’s possible to make a digital copy of each physical item and connect them with a barcode. All supply chain participants will get updates on the product’s license, the transportation route, and the current location.
In 2017, global losses due to online counterfeiting were more than 323 billion dollars. Blockchain can verify the sources of products and share their history among all supply chain stakeholders.
Since blockchain is an immutable ledger, it’s impossible to substitute original data on the product’s history. If the manufacturer identified the original product with a unique code, its certifications, documents, and origin location would forever be recorded in the decentralized database.
Blockchain technology in supply chain tracking
Logistics is a highly competitive and differentiated industry. International companies have to cooperate to deliver a seamless experience, and this creates multiple barriers. Companies can’t synchronize their tracking systems and provide each other with transparent updates — this leads to delays and downtimes.
Blockchain systems allow performing shipment tracking in decentralized databases. Each participant of the chain can see the progress of a given product at any stage of the chain, and identify its exact location. Stakeholders see bills, custom documentation, and time spent on transportation. All this data is tamper-proof because blockchain doesn’t allow changing data that was entered into the system.
Enhancing trade agreements
Smart contracts increase logistics traceability by automating the process of creating and fulfilling agreements. Supply chain contracts can be written in blockchain code, where it’s signed by both parties. When the contract is approved by stakeholders, it becomes part of the blockchain network and is stored there immutably. When the conditions are met, the contract is executed automatically, with no chance of corruption or human error. Once the contract is executed, the parties are obliged to satisfy the conditions of the agreement.
Examples of blockchain in the supply chain
Even though blockchain is labeled by many as the technology of the future in logistics, it’s currently in use by big, medium, and small logistics companies. Some providers create internal solutions for their own needs, while others prefer to scale and distribute their innovations to other companies. The market of blockchain in logistics is actively growing, so there are many opportunities for global growth — as we’ll see in real-life examples.
This ocean carrier provider released a pilot version of the software that creates digital real-time versions of lading bills. These documents store the information on goods that are shipped, their characteristics, size, origin, and destination. It also specifies how the products should be transported and labeled.
ZIM uses a blockchain database to store this sensitive data and shares it with all stakeholders. Using a traditional centralized data center could be dangerous, because single storage, even a well-secured one, can still be easily compromised. A blockchain network, on the other hand, distributes the information among hundreds of devices, and it would be impossible for hackers to get access to them all.
Walmart implemented a blockchain tool that traces the origins and transportation progress of food products delivered from distant locations, like China and Mexico. The first step is to document each food product and label it with a crypto key. If there is a contamination case, Walmart can easily track the source and contact the responsible party.
Additionally, they used IoT sensors to determine whether the food was stored at the proper temperature and transported under standardized conditions. If there was even the slightest violation of storage and transportation requirements, the company could immediately track the unreliable partner. The company has recently announced the development of the Blockchain Food Safety Alliance, a partnership between logistics companies and food providers to increase food supply chain transparency and safety.
The company uses the Internet of Things and Artificial intelligence to control and approve payments in shipping. The solution tracks the conditions of products’ transportation, calculates the total time and distance, and provides detailed reports on finished operations. Clients of logistics providers know exactly what they are paying for.
It’s currently one of the most successful supply chain logistics technology startups with more than 30 million in investments. ShipChain uses blockchain to track containers, their origins, arrival times, and the nature of products in the container. Clients and providers have an immutable database on all transported containers, they can verify long-distance operations and long-term partnerships.
This startup is a successful example of adapting blockchain to logistics in a specific industry. Modum targets pharmaceutical companies that would like to avoid counterfeiting of their products and to ensure compliance with the transportation standards. Smart contracts control the compliance requirements: clients and logistics providers sign a blockchain-based agreement, where they specify the details of the deal and delivery. For smart contract execution, the company uses custom crypto tokens — its 2017’s token sale raised more than 13 million dollars.
Challenges of implementing blockchain in supply chain management
Despite offering many benefits to logistics and supply chain management, only a third of all providers are currently implementing the technology. What’s holding companies back from implementing such an efficient innovation? Let’s address the most common concerns.
On-boarding suppliers to blockchain platforms
Logistics providers can be enthusiastic about implementing immutable ledgers into their workflow, but suppliers are often unfamiliar with the benefits offered by the technology. Some of them might be skeptical about the idea, while others think it’s too difficult. Logistic companies need to show the clear benefits of using the platform. All successful examples provide partners clear benefits — increased transparency, improved product control, and more comfortable billing. If logistics providers can communicate this additional value, it’s possible to navigate through the doubts of suppliers.
The complexity of the blockchain
The technology itself can be difficult to grasp for people with no deep technical expertise. Understanding the structure of the immutable ledgers, their security protocols, and data algorithms take a lot of time and research.
Poor compatibility of blockchain with ERPs
Most logistics providers heavily rely on enterprise resource planning software to manage their supply chains. Existing solutions don’t support blockchain deployment, and blockchain tools also aren’t designed with integration in mind. This issue, however, can be fixed with the AWS blockchain-as-a-service platform — a backend website where companies can deploy blockchain and connect it to existing web and desktop solutions.
The lack of IT infrastructure
Many logistics providers haven’t embraced digital transformation yet, nor have they established an IT infrastructure powerful enough to deploy blockchain. It would, therefore, take research, re-organization, development, and investments to set up the conditions for implementing such a demanding innovation.
Sharing confidential information
Blockchain implies that all logistics data is distributed among all network participants. Even though it’s protected by crypto keys, suppliers and providers are hesitant about taking their data out of their central storage. Plus, their transactions and commute history would have to be public — otherwise, the solution won’t be transparent — many companies aren’t ready to share that much information.
Blockchain benefits outweigh the challenges of its implementation because they offer transparency, traceability, and cost reduction to logistics providers and suppliers alike. To understand the impact of the technology and execute it on the platform, enterprises and startups need an experienced development team with deep expertise in blockchain and logistics.
Amconsoft’s team revolutionizes supply chains by working with enterprises, startups, and governments all over the world. We build management solutions, adapt CRMs and ERPs to new technologies, and deploy the solution.
Our team can implement blockchain in the organization of the supply chain, order processing, reporting, cargo control, and deploy it in the web or desktop solution. Drop us a line if you’d like us to build a scalable and powerful blockchain platform for your company and partners.