The sequence of processes involved in producing and distributing commodities is vast and complex. As the internet of things (IoT) gathers and provides vast amounts of data, blockchain has the potential to make that data more transparent, decentralized, and secure. As these two relatively new technologies combine to disrupt supply-chain management as we know it, businesses will be challenged to decide if and how to buy into them.
While the IoT gathers granular data about the life of a product, blockchain can track transactional data and make it available to all members of the chain via a virtually incorruptible ledger. International consulting firm Deloitte published a 2017 report titled “Using Blockchain to Drive Supply Chain Innovation,” which asserts that the information available within blockchain “can increase traceability of material [in the] supply chain, lower losses from counterfeit and gray market, improve visibility and compliance over outsourced contract manufacturing, and potentially enhance an organization’s position as a leader in responsible manufacturing.”
To fully realize blockchain’s promises in the realm of transparency, collaboration among all stakeholders within the supply chain is key. This means businesses must cooperate to implement and maintain blockchain at equivalent levels — for example, by agreeing that all products will be tagged digitally, and their data integrated into the IoT via compatible protocols. All parties involved will benefit from this equivalent visibility.
At present, the IoT utilizes a centralized method of communicating data, by which devices are connected to servers that store and share massive amounts of data at high rates of speed. This method is expensive, difficult to scale, and vulnerable to failure at single points. By contrast, blockchain leverages a decentralized model for communicating data peer-to-peer, which can heighten efficiency and build trust in the system, as well as the data moving within it.
Ahmed Banafa, IoT expert writing for IEEE, asserts that “A blockchain is decentralized, so there is no single authority that can approve the transactions or set specific rules to have transactions accepted. That means there's a huge amount of trust involved since all the participants in the network have to reach a consensus to accept transactions.” This concept of building trust through decentralization has potential to enable better regulatory compliance, and fundamentally change how businesses along the supply chain work together.
While many industry experts tout the infallible security of blockchain, largely due to its transparency and decentralization features, Mike Orcutt, associate editor at MIT Technology Review, posits that “ the security of even the best-designed blockchain systems can fail in places where the fancy math and software rules come into contact with humans, who are skilled cheaters, in the real world, where things can get messy.” In addition, the IoT is not without its own set of security concerns, for which blockchain is not a complete solution. When deciding to implement blockchain, businesses along the supply chain must partner to identify and mitigate security vulnerabilities and test thoroughly before rolling out the new process.
In its report, Deloitte identifies five areas a business might consider when deciding whether a blockchain implementation is a worthy endeavor:
Traceability needs of the supply chain,
Characteristics of the materials to be tracked,
Trust among members of the supply chain, across layers,
Technology environment of all involved parties, and
Regulations across a global supply chain
Trust, technological capabilities, and regulatory considerations aside, businesses will also need to assess what they stand to gain in the realms of operational efficiencies and revenue. Since the technology is so new, little information about its return on investment exists. This hasn’t stopped certain industry leaders such as Maersk and IBM from announcing ambitious projects, the results of which will surely inform decisions across global industries.
There is no doubt that the supply chain of the future will embrace the power of data supplied from the IoT, and the means of handling this data will require innovation in the realms of transparency, decentralization, and security. What remains to be seen is how businesses will coalesce around the emergent technology of blockchain, and how that process will shape the relationships that make up the supply chain of the future.
Teresa Tomas is a writer and supervisor with DO Supply, Inc.
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