Four Ways Blockchain is Modernizing Supply Chain Management
2020 was a whirlwind year for everyone. In the middle of all of the disruption, blockchain continued to make some truly fundamental changes to supply chain management and trade. These are the kind of changes that are difficult to see when you’re on the ground in the middle to trying to just make things work.
Let’s look at how today’s supply chains in 2021 are different than they were before blockchain.
The first big difference is the use of tokens for internal settlement and accounting. If you’re a large retailer like, say, Target, you need to settle balances from multiple field sites at the end of each day. Big firms like this often have sites or even departments that effectively operate as multiple independent companies that share a color scheme and a logo. There will be errors and corrections in the following days and all of this is losing money.
The peer-to-peer payments that we first saw with bitcoin have been translated to internal accounting. Rather than settling each account individually, increasingly large, diversified companies are using coins to do internal settlement in a simpler and more transparent way. Wells Fargo bank has a particularly clever solution where it settles all 57 branches at one go using Wells Fargo Coin.
The ability to represent non-divisible assets with tokens has given rise to some surprising new ways of monitoring quality through to indirect suppliers. Today, consumers are very interested in the origin and qualities of the products they buy. Did the diamond come from a conflict-free zone? Were the eggs from free range chickens? It’s difficult to know the entire supply chain from end to end. Most buyers know and monitor their direct suppliers, but few monitor indirect suppliers.
If the product is tokenized from the first step, it becomes considerably easier to do what we’ve called inferable provenance. The buyer and even the consumer can know if that cut of beef was from a cow that was grazed in a way that contributed to deforestation in Brazil for example.
Moving the competition line
A third change that has become indisputable in the supply chain space is that we have moved the line on collaboration. Competition is a key innovation driver in all sectors. But it also means that innovation occurs at the firm level, not at the level of the sector or the industry. This is despite the fact that there are issues that are tough for all companies — like on-boarding new suppliers. If you look at how big industries like the automotive sector or maritime shipping have approached blockchain, it is clear that there is a shift towards industry-wide innovation. This is made possible via the consortia that are forming and hammering out industry standards that benefit everyone. A recent panel of consortia CEOs made this point exactly.
Blockchain’s rise came after years of a global focus on building digital infrastructure. This included extending internet access, the rise of cloud computing, and the use of APIs to connect. But rather than digitizing the world, this led to islands of digitization since most efforts were proprietary and platform based. Customized systems means that they are not able to communicate with each other.
But with blockchain, all regions, all governments and all central banks are exploring the same technology at the same time. This means that the full force of the market is rolling over. Unlike, say EDI, blockchain is not one technology among many types, it is a fundamentally different way of doing business. It is leading to new domestic and global legislation that will enable it to operate across borders and allow the types of direct integration that allows things like demand forecasting and behavior-based insurance.
What’s next this year?
Now that we’ve made it to 2021, we can see that these 4 trends are beginning a wave of regulator activity. Global institutions are getting involved as well. In particular, the ICC has activated its networks both to develop new rules around digital trade, and the UN’s MLETR initiative is gaining speed.
But the main thing you can expect through 2021 is to not know that you’re using blockchain. Projects have embedded blockchain into multi-system digital solutions that optimize supply chain management in a myriad of ways. 2021 will be about new identity formats and optimized integrations as digital gains acceptance as the new standard of trust.