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Blockchain technology may be shaking up a supply chain near you. It's smarter, it's faster, and it gets more participants on board.
In a recent piece at Harvard Business Review, Michael J. Casey and Pindar Wong observe that blockchain -- an online globally distributed general ledger that keeps track of transactions via online "smart contracts" -- will produce "dynamic demand chains in place of rigid supply chains, resulting in more efficient resource use for all." They observe that a number of startups are springing up around blockchain-enabled supply chains, and companies such as Walmart, IBM and BHP Billiton are launching efforts to better track the movement of goods and information.
Blockchain -- enhanced by electronic tracking technology -- can only help speed up supply chains, while adding greater intelligence along the way, they argue. "It could be especially powerful when combined with smart contracts, in which contractual rights and obligations, including the terms for payment and delivery of goods and services, can be automatically executed by an autonomous system that’s trusted by all signatories."
A panel discussion held at the recent 2017 SAP Ariba LIVE conference in Las Vegas grew more animated when the subject of blockchain came up. The panelists, tech leaders at SAP Ariba, explored the potential of advanced cloud services in helping to apply artificial intelligence and machine learning to a range of business supply chain processes. Dana Gardner, principal analyst at Interarbor Solutions, moderated.
Blockchain "will have huge impact on the way people look at the business network," predicted Dinesh Shahane, chief technology officer for SAP Ariba. "Blockchain reaches out to the boundary of your network, to faraway places that we are not even connected to, and brings that into a governance model where all of your processes and all your transactions are captured in the central network."
Blockchain will work in enabling more intelligence business processes because of its distributed trust and transparency, which in turn will bring more people into connected supply-chain networks, said Sanjay Almeida, senior vice president and chief product officer of Network Solutions for SAP Ariba. "We have more than 2.5 million buyers and suppliers transacting on the SAP Ariba Network — but there are hundreds of millions of others who are not on the network. Obviously we would like to get them. If you use the blockchain technology to bring that trust together, it’s a federated trust model. Then our supply chain would be lot more efficient, a lot more trustworthy. It will improve the efficiency, and all the risk that’s associated with managing suppliers will be managed better by using that technology."
The power in blockchain is its ability to scale, Almeida continued. "You have to have the scale of an SAP Ariba, have the scale from the number of suppliers, the amount of business that happens on the network. So you have to have a scale and technology together to make that happen."
There are challenges that need to be addressed before blockchain can proliferate across supply chains, however. First, there's the need to overcome embedded, calcified corporate thinking. Business leaders and organizations need to open up to the sharing of information with mainly unseen network partners. "Enterprises are not used to really exposing that kind of information in any shape or form – or they are very secretive about it," said Sudhir Bhojwani, senior vice president of the product suite for SAP Ariba. "For them to suddenly participate in this requires a change on their side. It requires seeing 'what is the benefit for me, what is the value that it offers me?'" This kind of thinking is slowly coming around, he added. "You hear more companies — especially on the payment side — starting to participate in blockchain.... It’s still a technology only until the companies want to say, 'Hey, this is the value … but I have to change myself as well.'”
In their article, Casey and Wong also observe that overall governance and standards are challenges to implementing blockchain to manage supply chains on a global scale. There will be the open, public blockchains, but, "inevitably, private, closed ledgers run by a consortium of companies will also arise, as their members seek to protect market share and profits." In addition, "there needs to be interoperability across private and public blockchains, which will require standards and agreements."
Laws and regulations -- which vary from country to country -- also pose a challenge to global scaling of blockchain, Casey and Wong add. "Even before governments can be convinced to support this effort, and to do so in a globally coordinated way, industry must agree on best practices and standards of technology and contract structure across international borders and jurisdictions."
But changes in thinking are inevitable, Bhojwani believes, noting that major shifts have already taken place in the consumer world. The incoming generation of employees and business leaders will help drive this change as well. "I personally believe in next three to five years when there are more-and-more Millennials in the workforce, you will see people adopting blockchain and new ledgers at a much faster pace," he predicted.