Integrating Blockchain into Supply Chain Management

A Toolkit for Practical Implementation

Matthew A. Waller, Remko van Hoek, Marat Davletshin, Brian Fugate

• Publisher: Kogan Page
• Year: 2019
• Print ISBN: 9780749498269
• eBook ISBN: 9780749498252
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Blockchain provides a secure ledger of transactions, programmable smart contracts, and real-time trustworthy visibility and insight into the supply chain process.

For all the promises it offers to supply chain professionals, however, there's very little guidance available on how organizations should begin evaluating and using it. Integrating Blockchain into Supply Chain Management provides that much needed step by step guidance.

Integrating Blockchain into Supply Chain Management is a very practical book of tools, frameworks and case studies. It will help students and supply chain managers to evaluate the value proposition blockchain brings. It will then guide them through essential processes for making informed, practical, timely, and business-savvy decisions for using blockchain as an effective supply chain tool. It includes a valuable benchmark survey of the state of play in blockchain in supply chain management, including organisations such as Tyson Foods, IBM and Coca Cola, as well as downloadable frameworks and tools.

Part ONE

Linking blockchain to supply networks

02

Blocked and loaded

The temptation is to launch any discussion involving blockchain by answering the obvious question: What is blockchain? The technology you end up using in your supply networks, however, might not even be blockchain, at least not in its original form. More like an illegitimate second cousin twice removed.

So, why bother defining blockchain? Because to understand that cousin – what it is or what it might be – the best place to start is by understanding its origins and its evolution. And its origins, of course, take you back to blockchain.

Defining blockchain, however, is no simple task, because there’s no fully agreed-upon definition. The word wasn’t coined (so to speak) until 2011. As of early 2018, the Oxford Dictionaries and Google Dictionary both had an entry for the word that was specific to blockchain’s use with cryptocurrencies. The Cambridge Dictionary added an entry later in 2018 that also was specific to cryptocurrency, while Merriam-Webster added an entry that was more general but still focused on financial transactions.

Most definitions you’ll find have some common elements, but each seems to take a slightly different focus. Some are pretty simple and straightforward, but they don’t really tell you much about what blockchain does. Others only describe what it does, not what it is. IBM defines it as a “shared, immutable ledger for recording the history of transactions” (IBM, 2018), while SAP calls it “a reliable, difficult-to-hack record of transactions – and of who owns what” (SAP, 2018). Those are great, but for a broad definition, we’re partial to Zach Steelman, an assistant professor of information systems in the Walton College of Business at the University of Arkansas. He defines blockchain as “a distributed database backed by cryptography that has consensus mechanisms to agree on when it’s distributed”.

Those are all pretty concise, but deeper descriptions of what blockchain does and how it works can quickly turn complicated. One blogger, for instance, promised a simple explanation of blockchain in an article with the sub-title, “The ultimate 3,500-word guide in plain English to understand Blockchain” (Mamoria, 2017). This begs the obvious question: if it takes 3,500 words to explain it, can you really call it simple?

Within all the common explanations you’ll find about blockchain are a whole bunch of mind-numbing terms, many of them accompanied by mind-numbing acronyms that further confuse the issue. The various experts and developers, meanwhile, all have their preferred jargon. You’ll see terms, for instance, such as distributed ledger technology (DLT), shared ledger technology (SLT), public ledger technology (PLT), Blockchain as a Service (BaaS), decentralized database, immutable ledger, trustless trust, nodes, gas prices, miners, hashes, crypto-signatures and platforms. We’ll use some of those terms out of necessity, but we promise to do so in the least mind-numbing way we can.

It’s hard to avoid the techno-jargon, because, when you boil it down, here’s what blockchain really is: code. That makes it geek food. No one but coders really understands what it is, and they apparently need at least 3,500 words to explain it. That’s OK. No one but the geeks knows what the Cloud really is or what the internet really is. But the mere mortals among us know what the Cloud and the internet do for us. We know how to use them to suit our various purposes, and that’s enough.

Organizations with competent information systems departments should lean into their expertise when evaluating the potential uses of blockchain and how to execute them. Others may need to hire outside experts if and when the time comes to build the technical aspects of a test case. But here’s what they’ll all tell you: the technology is the easy part. That means you, as a supply chain leader, get the hard part – figuring out if and how to use the technology wisely in your business. And to do that, you first need a basic understanding of what the technology can do for supply chains. Thankfully, anyone can learn what blockchain technology does and, perhaps more importantly, what it and its hybrid illegitimate cousins have the potential to do for supply networks. That’s what matters, so that’s how we’ll approach it.

When it comes to supply networks, we define blockchain as a technology platform that establishes secured and trustworthy visibility into a database of transactions between multiple participants. It can create a transparent supply chain, because it allows for an encrypted, shared database that stores and verifies transactions, records, and just about anything digital you want that’s related to the supply chain process. And unlike most existing options, it goes beyond one-on-one, point-to-point connections and can be used by entire supply chain ecosystems.

The chain of events

Blockchain’s short history and meteoric rise to fame originated with the development of bitcoin, the encrypted cybercurrency that has no centralized administrator (like a government or bank). An unidentified person or group using the name Satoshi Nakamoto released the open-source software for bitcoins in 2009, and one of the fundamental features was, and is, blockchains.

For bitcoin to work, its masterminds needed secure, verifiable transactions that everyone using the currency could trust – even if the users who traded in the currency didn’t know or trust each other. So, they develop a public digital ledger that could track, verify and record every interaction into encrypted blocks that couldn’t be changed or deleted. The transactions are verified by independent users (known as nodes, which often are computers running sophisticated programs) that reach a consensus partly by solving complicated maths problems.

As you can see, blockchain isn’t your grandparents’ ledger. In its basic form, it’s distinct in at least six significant ways. We’ll take a quick look at each, both in the context of the classic, cryptocurrency version and as it relates to the emerging options that are more suited to supply networks.

First, it’s decentralized … and centralized. No single user or group of users controls a blockchain platform. The information isn’t stored on any one mainframe; instead, it’s stored on the Cloud. Microsoft, for instance, has more than a hundred data centres in nearly 40 regions across the globe for Azure, its Cloud computing platform that supports blockchains. Nearly 60 per cent of executives surveyed for the 2018 NHI Annual Industry Report say their organizations have already adopted Cloud computing and storage, and that figure is expected to rise to 90 per cent by 2023.

Public blockchains, the version that originated with bitcoin, have no owner, but permissioned blockchains have shared ownership among partnering organizations. The data are still stored on the Cloud, but these private or semi-private blockchains can have pre-established controls and limits. That leads some purists to argue that they aren’t actually blockchains.

“There’s really two different mindsets,” Steelman told us. “The people who started in the blockchain space, the crypto-kiddies, as they call them, they want decentralized, completely public-accessible blockchain. That works in certain use cases, like with money, where you want to transfer with anyone. But in situations where you need private information, like a supplier–vendor relationship, that just simply doesn’t work. And it will never work. Because suppliers shouldn’t be able to see their competitors’ prices” (Steelman, 2018).

Permissioned blockchains, once set up and running, can’t be controlled or manipulated by any user without the other users knowing, which is one of the elements that creates...

Table of contents

• Cover
• Dedication
• Contents
• About the author
• Foreword
• Preface
• Using this book
• Acknowledgements
• 01 Pain of the chain
• Part I Linking blockchain to supply networks
• 02 Blocked and loaded
• 03 The power of hype
• 04 Barriers to adopting blockchain
• Part II Supply ecosystems
• 05 Networking supply chains
• 06 Sustainable supply chain management
• 07 Inventory management
• 08 Demand management
• 09 Supply management
• 10 Transportation management
• Part III What’s the use case for blockchain?
• 11 Learning from RFID
• 12 Make the case
• 13 Load up the bus
• 14 Get the party started
• 15 Enter the learning loop
• 16 Off the chain
• Appendix
• Index
• Copyright