Challenges in Today’s Supply Chains

A supply chain describes the cooperation of all companies in the cross-company value chain and thus aims primarily at the links between the network partners. Given the assumption that members of the network primarily focus on their objectives, data is difficult to manage in a supply chain.

In Supply Chain Management (SCM), all parties involved are controlled within the value chain, which is why it plays a central role in the company. As part of the company’s internal SCM, companies worldwide already operate computer-aided enterprise resource planning (ERP) and supply chain management software. However, despite these huge investments in digital infrastructure, most companies have limited information about where their products are after shipping and what is happening to them. Despite the advancing digitalization, there are “analog gaps” between systems within enterprises and across enterprise boundaries.

A further problem is that a variety of data sources, interfaces and IT systems already exist within the company, which are connected to each other at great expense. Moreover, disparate record-keeping and reporting systems can lead to scattered, incomplete and unreliable data, certifications etc. Missing documents, forfeited data, cash flow tied up in goods at ports awaiting trade documents to be produced are all daily challenges in the industry.

Even the best-planned supply chain can be thrown into chaos by natural disasters, unforeseen shortages, spikes in demand or a litany of smaller issues. With today’s elongated supply chains, any delay or faulty delivery can impact production. Knowing that a shipment is incomplete or at risk can instantly trigger remediation actions like supplier substitutions or price adjustments — before a crisis emerges. Here the bullwhip effect is particularly to be emphasized: Locally limited information and local decisions with minor fluctuations in customer requirements lead to ever greater scattering of demand quantities at every further stage of the supply chain. This means that small changes in customer demand are increasing in a backward direction. This change in demand continues along the logistics chain. A major reason for this effect is the lack of coordination among the participants in the supply chain.

The challenges in today’s supply chains can be summarized as follows:

Lack of transparency
Visibility and data consolidation
Real-time issue resolution
Ineffective supply chain risk management
Sudden demand changes/bullwhip effect

Blockchain technology is a suitable solution for the above-mentioned challenges. Blockchain makes it possible for companies and suppliers to share important information within the supply chain network and make it transparently accessible.

Use Cases

There are many use cases for blockchain in SCM and logistics. Many use cases can be summarized to the three following:

Anti-counterfeiting

Counterfeited products account for 2.5% of world trade ($461 billion). Oftentimes these goods are luxury items such as expensive wines, diamonds, handbags or watches. The same holds true for partially ineffective and expired rabies vaccines enabled by forged data that led to a huge scandal in China and that affected hundreds of thousands of children. These in some cases lethal counterfeit products are difficult for consumers to verify.

Forgery may occur at the transfer of goods or documentation from one actor in the supply chain to another. These processes often rely on paper certificates that can get lost or tampered with: whether a diamond’s certificate is genuine or fake and if the diamond was stolen — is not always easy to determine. With the help of a digital token, the physical item is associated with it. In case of counterfeit drugs, blockchain could improve patient safety through establishing supply chain transparency from manufacturers through wholesale and pharmacies to the individual patients.

Origin tracking

The traceability of materials is a well-known topic which has come to the fore in recent years. Due to globalization, the number of goods to be transported has increased exponentially. As a result, the complexity of global supply chains has multiplied. Most companies have little or no information about the origin of their materials and precursors. In a complex supply chain, such information is usually stored asynchronously on different servers or storage media of the individual suppliers, so that there is no continuous insight into the origins of a product and its intermediate product.

The blockchain as a decentralized, distributed network represents a legitimate solution for a company’s supply chain. All information about a product or its preliminary product is collected and stored equally, and a copy of all this information is stored with each party involved. The information can be recorded over an entire product life cycle and a secure and distributed flow is created between the previously created information and the information still to be created.

How does such a system work? Lets take a typical food supply chain as an example. The chain typically consists of planting and feeding (production), picking/slaughter, processing, warehousing, distribution and sales. The basic concept of a tracking system for vegetables and meat is as follows: RFID collect, transfer and share data in each of the mentioned supply chain steps. The ledger then ensures that all information is credible and authentic. The approach also includes government departments or third party regulators and gives them the possibility to check the real-time safety status as well as an emergency response in case of a food safety accident.

Unlocking value in logistics/Ease paperwork processing

The information flow in international trade is complex, involves many parties, and is documentation heavy. Due to the fragmented and competitive nature of the logistics industry, there is a significant amount of trapped value in logistics. Many parts of the logistics value chain are also bound to manual processes mandated by regulatory authorities. For example, companies must oftentimes rely on manual data entry and paper-based documentation to comply with customs processes. All this makes it difficult to track the status of shipments as they move along the supply chain. The cost of the trade-related paperwork processing is estimated to be between 15 and 50 percent of the costs of the physical transport. Blockchain can help overcome these inefficiencies and can achieve cost savings by powering leaner, more automated, and error-free processes. By enabling data transparency and giving access to the data among relevant supply chain stakeholders, trust is created that is necessary in order to share information between stakeholders.

Benefits of Blockchain in SCM

The benefits of blockchain technology in SCM are manifold. The efficiency of the financial flow through supply chains can be improved significantly. Imagine an automatic release of a payment to the supplier after goods have been received at the warehouse that were tracked via RFID chips. There are also fewer intermediary fees because the payments are processed peer to peer with no third-party intervention.

Due to the traceability, supply chain auditing through blockchain can give a clear view into where inefficiencies lie. Auditing is an essential practice for businesses who seek to prevent such breakdowns before they occur. Ultimately, the blockchain can help supply chain auditors make more informed decisions about which suppliers to audit, where to focus auditing resources, and which recommendations to make based on the findings.

Obviously, data also plays an important role. The continuity of and accessibility to information can be improved greatly through the immutable properties of blockchain. A whole supply chain produces a massive amount of data, so fast and transparent blockchains will provide the necessary access to information.

Furthermore, with reducing counterfeit goods as well as proof of origin, consumers can be offered additional product value while companies can gain valuable insights into consumer behavior and other data. The tangible value of provenance is undeniable since many studies show that consumers were willing to pay more for e.g. ethically sourced products.

#Blockchain Projects Tackling these Problems
Public Blockchains

Vechain (VET) is a public blockchain with the goal to build a trusted and distributed business platform to enable a transparent flow of information, efficient collaboration and fast value transfers. Companies use Vechain for a number of things:

Verifying and ensuring the authenticity of products along the entire supply chain,
Digitisation of assets,
Monitoring of data from Internet of Things (IoT),
Optimization of the supply chain and
Interact with customers, distributors and products in a reliable and secure environment.

To achieve this, IoT devices are used. VeChain uses QR codes as well as NFC chips and RFID tags, which enable automatic and contactless identification and location of objects. At the same time, decentralized applications (dApps) run on the platform, which can be individually adapted according to the company.

Application examples are the authentication of products in the food, luxury goods and clothing sectors as well as vaccines, the storage of real-time information during the supply chain, or risk management in supply chains.
Well-known partners have included BMW, DNV GL, Deloitte, BYD, Bright Foods, Haier IoC, PICC, H&M/Arket, DB Schenker and PWC.

This can be illustrated by the following example:

In supermarkets, products are already available that are marked with a QR code. When scanning the code, the consumer should be presented with a website to demonstrate the authenticity of the product. This, however, poses two crucial problems:

QR codes can easily be forged. Thus, the manufacturer of a counterfeit product could easily legitimize that product. For example, it is reported that 80% of Italian olive oil is counterfeit. This puts olive oil in first place among the food products most susceptible to fraud. It is stretched, diluted, adulterated or re-declared. This is hardly noticeable to consumers. For counterfeiters, however, this business is very lucrative.

Even with authentic products, the consumer must rely on the information provided by the manufacturer. There is no way to check the information.
The solution developed by DNV GL and VeChain is called MyStory. In the case of food and beverages, data is collected along the entire production process using the IoT sensors already mentioned and combined with independent audits and verification services. In the case of wine-growing, the data can be can be subdivided in

Data from cultivation (fertiliser use, pesticide use, energy consumption, control of grape ripeness);
Data from production (pressing and fermentation, monitoring and analysis of process parameters, chemical and sensor tests);
Sales data (process data for filling, activation of digital product content, monitoring of product transport); and
Marketing data (digital customer interaction, selecion of data sets and claims to be shared, other customer retention programs (survey, loyalty, etc.))

Using the properties of the blockchain, these data provide consumers with insights into the properties and production processes of the product. “The product characteristics have been verified by DNV GL throughout the manufacturing process,” says Luca Crisciotti, CEO of DNV GL — Business Assurance. By scanning the QR code on the product, the consumer has access to the entire history of the product. But it’s not just for consumers that this offers an immense advantage. “Brands, retailers and processors will have access to verified data to better understand their supply chain while improving every aspect of the products in terms of economic, qualitative, safety, environmental and ethical criteria,” Crisciotti continues.

Besides VeChain there are other projects tackling similar problems. Waltonchain (WTC) is a platform that combines Blockchain with the Internet of Things (IoT) through the use of Radio Frequency Identification (RFID) technology. Waltonchain has set itself the goal of creating a management system for the supply chain. This includes tracking the items through the delivery process from the point of manufacture to the customer, reducing human interaction in monitoring these items where human error is common and can lead to loss of items and slow processes. Other projects are Modum, OriginTrail or WaBi.

Private Blockchains

In logistics, the best known blockchain pilot program involved Maersk and IBM. The solution will help manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process from end-to-end to enhance transparency and the highly secure sharing of information among trading partners. When adopted at scale, the solution has the potential to save the industry billions of dollars.

Walmart is also leveraging IBM’s blockchain network (co-developed with the Hyperledger Project), but this time to optimize foodstuff traceability for products such as chicken and bananas. There are several components in the food industry supply chain, as mentioned above. Unfortunately, the process’s complexity leaves room for mistakes and deceit. Maintaining digital records available to all parties streamlines product deliveries and reduces waste.

These are just two examples of private blockchain use in supply chains. Whether a public or private blockchain, many large companies are currently testing blockchain to digitize their supply chains.

Author — Tobias Huber

Tobias Huber is an industrial engineer with a strong focus on sustainability and supply chain management. He took an interest in blockchain in 2017 and especially VeChain due to their focus on enterprise applications.

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About VeMag: VeMag aims to be a VeChain encyclopedia as well as provide in-depth analyses about VeChain’s developments, ICOs and all VeChain related projects — in German. In addition, the basics regarding blockchain, crypto currencies and Internet of Things are also examined.