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7 steps to implementing blockchain in the supply chain
If your organization believes blockchain will bring greater visibility to the supply chain, first understand the critical steps needed to enable a successful implementation.
Blockchain in the supply chain is being touted as the means to greater trust and visibility.
Within any supply chain, stakeholders deal with a myriad of interdependent, globally dispersed parties that must exchange timely and accurate information, said Andy Stinnes, venture partner at Cloud Apps Capital Partners.
Yet, these parties often operate under different jurisdictions and lack singular global oversight.
"In most cases, central governing bodies or intermediaries are either not available or can't be trusted," Stinnes said.
Therefore, a global distributed system that provides insight is a unique alternative, he said.
For all its promise, blockchain is in its infancy, and it's important to approach its implementation carefully. These seven steps can help you do just that.
1. Determine blockchain's use case, feasibility
A strong business case is a must and should dictate the adoption and application of blockchain in the supply chain. It can help determine whether blockchain is actually the right technology for your organization.
"Begin with the end in mind," said Tammi Kay "TK" George, product marketing manager at IBM Watson Supply Chain. "Get prescriptive with a use case that is going to deliver results [and] best practices, and deliver more than cool technology."
Evaluate the readiness of your organization's digital networks, processes and transactions and focus on where your digital readiness and optimal business value intersect, she said.
Tammi Kay 'TK' GeorgeProduct marketing manager, IBM Watson Supply Chain
"Evaluate if blockchain is the right technology for your use case," George said. "Blockchain is not a hammer for every nail, but it is uniquely able to provide capabilities that other technologies cannot."
For many organizations, a wait-and-watch approach is best as blockchain benefits prove themselves and the current implementation complexities yield best practices.
"Compared to most other supply chain technology efforts, blockchain deployments remain among the most challenging," Stinnes said. "It shouldn't surprise anyone that, to date, there are still only very few such initiatives that are reaching scale and momentum."
2. Find the right blockchain partners
By definition, using blockchain in the supply chain is a collaborative effort that involves third-party data contributions, vetting and sharing.
Find partners who want to explore the advantages with you, even if that is only for a proof-of-concept execution, said Renée Ure, vice president for global supply chain at Lenovo Data Center Group. "There are some things you can't do alone."
Blockchain requires many different and independent partners to simultaneously embrace a , unproven technology that offers limited value in its infancy, Stinnes said.
"The true benefits to blockchain increase as the number of participating partners increases." he said. "Since there is no third party like a government or large association to mandate or guide and no startup to drive adoption, adoption and governance are often hugely problematic."
Stephanie SoChief development officer, The Geeq Project
Unfortunately, supply chain security issues are real because not all potential partners or their data is trustworthy.
"The ledger entries are only as reliable as the quality of the data that is entered," said Stephanie So, co-founder and chief development officer at The Geeq Project, a public blockchain infrastructure as a service provider. "If one is thinking about many participants, some of whom may be dishonest, and there is enough willingness to accept, or to not care, about the data that is passed along, then a blockchain might not help the business very much."
When assembling partners, it's important to remember that accurate data is the entire point of the exercise when it comes to using blockchain in the supply chain.
"The blockchain proof-of-concept should answer questions around what's working and what's not," Ure said.
To that end, determine if it has served the intended purpose, she said. If the goal was efficiency, investigate whether the process gained efficiencies. If the goal was transparency, look closely at the results related to that goal.
"Can you trust the information, and how does it compare to when it's done without blockchain?" Ure said.
3. Identify best areas for blockchain implementation
If you've been thinking about implementing blockchain in your supply chain but don't know where to start, look for areas that exhibit all of the following characteristics:
- Data is exchanged between a number of unrelated parties.
- No central entity or authority is available, and undue reliance on a single entity is prohibitive.
- A simple, consistent transactional process with well-defined data standards such as electronic data interchange (EDI) exists.
- The value proposition is shared across partners, and everybody involved has the incentive to adopt a technology and processes.
- The digital asset -- the information that will actually be exchanged in blockchain, such as an electronic letter of credit -- has value in and of itself.
4. Aim for data interoperability
To get the most from blockchain, the technology must be well-integrated into the current technology ecosystem.
"Blockchain technology must be implemented as a feature adhering to your wider data governance strategy," said Brian Platz, co-CEO and co-founder of Fluree, a blockchain-based data management platform.
Blockchain technology should incorporate data management that is interoperable with the organization's standard ERP systems, he said.
"Too many times have we seen a disconnect between public blockchain platforms with obscure programming languages like Ethereum and enterprise data requirements," he added.
5. Envision blockchain's potential
A focus on interoperability might also help multiply blockchain's benefits.
Blockchain can boost the value you gain from investments in EDI and automation processes, bringing immutability, security and visibility to your connections with partners and systems, George said.
"The ability to integrate with your current ecosystem will accelerate connectivity and information flow between parties and allow you to realize faster time to value," she said.
As you evaluate technology options, think about how you will use it to tackle additional use cases and solve challenges. For example, addressing the challenge of transaction visibility for permissioned partners from order to delivery might be a step.
"From there you might add invoice reconciliation capabilities, then returns management and extend to additional solutions," George said.
6. Understand blockchain volatility
Organizations should also expect changes in the technology and accordingly.
"While the underlying technology and architecture are important, these are changing rapidly and most blockchain solutions are likely to undergo a change in their technology before they become mainstream," said Jeff Stollman, principal consultant at Rocky Mountain Technical Marketing, which advises clients on technologies.
The blockchain platform market is huge but fragmented, according to Gartner. Some current blockchain offerings focus on confidentiality, while others focus on tokenization or universal computing. Gartner deemed most blockchain offerings too immature for large-scale production work and its supporting systems and security, but predicted these issues will change within three to five years.
Don't forget to for governance changes as blockchain evolves.
"The governance rules need to keep the coalitions from breaking up the way so many early blockchains have done via hard forks that split the stakeholder base," Stollman said.
Bitcoin, Bitcoin Cash, Ethereum and Ethereum Classic all demonstrate this, he said.
7. Test the technology
Whatever path you decide to take with blockchain in the supply chain, a pilot program with part of the chain is a great way to test it.
"A good pick would be where you have the greatest control; then add a select trading partner on either side," said Ajay Chidrawar, vice president of global product management and customer success at CGS. "For example, if you're a wholesaler, then choose a factory and a warehouse services provider."
After testing the blockchain platform, consider expanding the network of testers.
"Expand the success by onboarding other trading partners -- for example shipping companies or retailers -- in the supply chain," Chidrawar said.