Blockchain can build a better supply chain

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Blockchain technology was initially created as a decentralized and distributed public ledger for cryptocurrency transactions – but its power extends much further. Today it is set to become a real game changer in the manufacturing industry.

In a blockchain, digital transactions are securely recorded in a sequential chain that utilizes cryptographic digital keys authenticated by the network. Information, once entered, is extremely difficult to change by anyone else in the chain. The beauty of blockchain is that any document that requires independent verification and recording can be inserted into the chain. This is where its potential was spotted for streamlining and securing areas of manufacturing such as smart contracts, supply chain and asset tracking.

IDC forecasts that by 2021, one quarter of large manufacturers will depend on a secure backbone of embedded intelligence to automate large-scale processes and accelerate completion times by a quarter. This will be built on Internet of Things (IoT), Artificial Intelligence (AI), machine learning and blockchain technologies. The latter brings with it a number of benefits according to IDC, including trust and security in transactions and authenticity and quality of products.

Blockchain not only speeds up processes, it also underlines trust in these processes and provides a level of confidence and transparency that modern manufacturing supply chains demand. Smart contracts, for example, can automatically start commercial actions made on predefined principles – rationalizing processes, saving time and cutting costs.

Smart contracts meet supply chains

Manufacturers typically deal with many contracts between suppliers, distributors and buyers. Both paper and digital contracts are potentially open to alteration and fraud. Smart contracts, another step in the broad use of blockchain technology, could help overcome this hurdle.

Smart contracts should not be confused with legal contracts: they are basically self-executing programs, enabling smart assets to be controlled digitally. They are made up of computer code that can monitor, execute and enforce agreements.
Smart contracts placed on blockchain can be verified, recorded and monitored for compliance by the entire network of computers connected to a blockchain.

Smart contracts can speed up transactions and reduce costs, creating far more agile value chains that enable closer cooperation and trust between manufacturers and their partners.

As well as automating areas such as invoice settlement, smart contracts will also be able to help in areas such as customer service, where it has been difficult to track device contracts. Here smart service contracts can be attached to devices and easily tracked. Manufacturers can more easily let customers know when products need servicing or trace suppliers of faulty parts more efficiently and recall products swiftly, containing the problem and saving costs.

Blockchain could also help in the pharmaceutical industry, for example, where counterfeit drugs are estimated to cost the industry $200 billion a year and also put people’s lives at risk. The World Health Organization estimates that 120,000 people a year die in Africa alone due to fake anti-malarial drugs. Blockchain is a viable solution for tracking and tracing drugs, providing transparency and traceability.  

Transforming business models

Supply chain is another area where blockchain technologies can re-work existing business models and help improve efficiencies.

Supply chains by their very nature are complex. There are many go-betweens between companies, which take time and effort. Often those in the chain have to deal with third-party entities, which can turn a simple transaction into a long and unnecessary process. Blockchain has the potential to add greater visibility across the supply chain and improve customer, vendor and supplier relationships.  Invoices, for example, could be automated across the blockchain without the need for any third parties, reducing transaction times and delays, while highlighting transparency. Benefits include increased traceability of the supply chain to ensure corporate standards are met and improved visibility over outsourced contracts.

Take cold store temperature monitoring, for example. Some food and pharmaceutical supplies in a chain may need to be kept at special storage temperatures. Sensors on products can record these and log them in the blockchain. If there is a problem, it is there for the entire supply chain to see. Smart contracts can be triggered if this escalates, where for example, products may need to be destroyed as a result.   

Moving forward

Blockchain is still a nascent technology, and there are issues to be addressed such as integration and migration concerns. To be a success, it will also require buy-in from the manufacturing industry, which will necessitate a huge cultural shift in decentralizing processes. But in the long term, it promises a much more collaborative, transparent and secure supply chain ecosystem.

Discover how the IoT, data and blockchain will power the Factory of the Future.

Adam Ouorou

Adam Ouorou is the Director of Trust and Security Research at Orange Labs. He received his PhD in applied mathematics from Blaise Pascal University in Clermont-Ferrand, and his accreditation to supervise research in applied mathematics from Pantheon-Sorbone Paris I University.