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Supply chain blockchain is quickly taking hold

The pieces needed to create supply chain blockchain networks are emerging. But blockchain won't fix all the problems that supply chains face, such as theft and data accuracy.

Supply chain blockchain will play a major role in ensuring the authenticity of products. They may help firms digitize ERP processes that may be partially paper-based and that rely on spreadsheets. And they may eventually replace technologies such as Electronic Data Interchange-based transactions.

But blockchain won't fix many of the problems that trouble supply chains today, such as copycat products and theft. Data in a blockchain may be immutable, but that doesn't mean it is accurate, analysts said.

Nonetheless, businesses and platforms that will make supply chain blockchain possible are emerging, and investment is soaring. Businesses that may have a major impact on supply chain blockchain adoption, such as Walmart, are moving quickly. The retail giant was recently awarded a patent for a blockchain-enabled package delivery system. In an unrelated action, Oracle recently announced general availability of its supply chain blockchain PaaS.

Oracle's platform has been in beta for months, and one of its users is Certified Origins, which produces extra-virgin olive oil produced by small family farms. It wants customers to be confident in the source of the product.

Certified Origins' blockchain offers an additional safeguard to olive oil producers' existing traceability systems. "Blockchain further validates that traceability system through a single distributed ledger, inviting all participants in the supply chain to the same ledger," said Susan Testa, director of culinary innovation at the firm, in an email.

Blockchain alone won't fix supply chains

Forrester Research analyst Martha Bennett said two requirements need to be fulfilled for a blockchain network to be useful.

A blockchain on its own won't solve the issue of authenticity.
Martha BennettAnalyst, Forrester Research

All the required data needs to be in digital form and add up to a complete, unbroken trail, Bennett said. Secondly, physical fraud has to be eliminated. The blockchain doesn't know if a product has been tampered with or replaced, and "somebody could enter false data -- just because it's been recorded on a blockchain doesn't mean it's true," she said.

Innovation is underway to create digital fingerprints or unique identifiers, along with tamper-proof packaging and QR codes that can't be copied, Bennett said. "A blockchain on its own won't solve the issue of authenticity -- all the other pieces of the puzzle need to be in place as well," she said.

Stacey Soohoo, research manager at IDC, added that, for blockchain to be effective, physical security controls will need to work, and firms will need to be certain about who is entering data. They may also turn to sensors and "possibly IoT applications that are collecting data and ensuring that these are accurate."

For ERP systems, adoption of supply chain blockchain will lead to digitization of services, said Frank Xiong, Oracle's group vice president for blockchain technology. There are firms that are using spreadsheets, faxes and paper, Electronic Data Interchange and other services for supply chain management. But once they get into blockchain smart contracts, which can execute payments or confirm deliveries, the process becomes digitized, he said.

Blockchain investment is skyrocketing

Blockchain attracts a lot of investment. IDC recently estimated that overall spending on blockchain systems is expected to reach $1.5 billion in 2018, double from last year. Spending is forecasted to rise to $11.7 billion by 2022.

Soohoo said approximately 40% of that blockchain spending is supply chain-related.

Big-box retailers and major producers, such as automakers, may have a significant impact on supply chain blockchain adoption by requiring its use by suppliers, Xiong said.

Users of the Oracle blockchain platform will have interoperability with other blockchain networks. A supplier can join a Walmart blockchain network, but it will also operate with other supply chains, Xiong said. These networks will be "cross-operating" with each other, he said.

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