Recent articles in the New York Times and in the International Business Times highlight the emerging role of blockchain as a key enabler of improved integration between parties in the extended global supply chain. For instance, IBM and WalMart are partnering to begin tracking The blockchain — the buzzy, bewildering technology behind cryptocurrencies like Bitcoin — is starting to be applied to real-world problems like tracking pork chops, shipping containers and footwear with a speed and security not currently possible. The IBM-Walmart partnership is one of the biggest practical tests to date.
IBM seems to be leading this charge. Recently, the Supply Chain Club in the Poole College of Management featured a presentation by IBM Vice President Steve Rogers from IBM, discussing how BlockChain represented a new opportunity to drive trust between parties in the end to end supply chain.Believe block chain will change our lives. Steve discussed blockchain as the “trust” protocol, the Internet Axis, the Internet Value, the Democratization of the Digital World. He began with a history of block chain, dating back to 1989 and a paper was released by Timothy Berners-Lee, called “Information Management: A Proposal“. Which laid out the basis for the WWW. They released it and the Internet was born. Now 3B people use it every day. New business models came about and new information. It also changed how people interacted – and how business occurred and how governments are run.
But there is a flip side, some would say the darker side, to the Internet. You get cyber bullying, phishing, identify theft, and online fraud. You could argue the Internet has a trust issue. And then someone called Sakoti Nakamoto published a paper on what he called Bitcoin, which was a peer to peer cash system. He laid out the details about creating what he called a cryptocurrency. It was in October 2008. This was the time of the economic crisis collapse, and confidence was at an all-time low.
A blockchain simply refers to a bookkeeping method that “chains” together entries so that they are very difficult to modify later. It provides a way for large groups of unrelated companies to jointly keep a secure and reliable record of their transactions. More then anything – it is a technology, upon which transactions can be layered over it.
This approach has real implications for the world of supply chain and supply chain financial transactions. As Spend Matters Pierre Mitchell notes, there can be value realized in 1) the elimination of redundant data maintenance activities across the supply chain, 2) the reduction in PO or AP mismatch issues on the transaction side and 3) ease of access to a wider and more universal sales/sourcing network that is not closed to participants based on membership and network fees. Also, he imagines a world where a supplier could publish information about itself in a peer-to-peer blockchain-type distributed and discoverable registry!
There are also other potential benefits for shippers. Maersk had found that a single container could require stamps and approvals from as many as 30 people, including customs, tax officials and health authorities. Pilots with IBM have shown that all these documents can be captured in a blockchain, and could potentially reduce shipping delays due to lack of paperwork..
But there are lots of issues here to work out. For instance, what happens if you are the Middleman between customers and suppliers? You are then not the supplier of record. How do you keep the trust of both without having to share that trust end to end? That is how middlemen make money – they sell at a higher cost than they buy at. How would they be able to build trust with this transaction flow?
There are also lots of concerns about who will own the technology. Critics are concerned that IBM will corner the market, although they have maintained an open source approach. The Times article notes that
“Many technologists who got excited about Bitcoin have said that the newer, corporate-designed blockchains — like the one being built by IBM — are missing one of the main elements of Bitcoin’s success, namely the extremely decentralized structure. Anyone in the world can join Bitcoin and, in effect, study its ledgers. But only a limited set of participants can gain access to ones like IBM’s. That could make them more vulnerable to attack from, say, a hacker who targets a few of the participants. Even though the IBM technology for tracking shipments is more decentralized than previous methods, “it still concentrates power in a handful of entities,” said Emin Gun Sirer, a professor at Cornell who studies distributed systems.”
There are certainly many issues to work out in this space. But there is no doubt that companies are beginning to invest in Blockchain technologies, and may even begin to start working on their own corporate platforms. Keep an eye on this one…