Today’s supply chain models are swift, yet often rigid. Brexit presents one particular set of uncertain challenges. Perhaps a more profound and longer term one will come from blockchains. This is what Michael J. Casey argues in an opinion piece for Coindesk where he is the chairman of its advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.
As Gideon Greenspan, CEO of Coin Sciences, has warned, “If your requirements are fulfilled by today’s relational databases, you’d be insane to use a blockchain.”
Today’s supply chain models
In the opinion piece, Mr Casey posits “Supply-chain managers are typically found only at big, downstream companies, such as Walmart. These experts have real influence in the management of many consumer brands. Smaller upstream players occupying spots earlier on in the chain are outgunned by the bigger players and generally can’t influence the activities of others enough to warrant employing a supply-chain manager. Yet, ironically, improved chain transparency and visibility from better supply-chain management would help them gain bargaining power vis-à-vis the big guys.
“So, when we hear about supply chain managers giving thought to blockchain solutions to their problems, it’s worth remembering where they are coming from: they represent large buyer companies and tend to view their supply chain proprietarily. They see it as an exclusive club over which they control access, one with a clearly defined, existing set of members.
“It’s a static vision, not a dynamic one, and it’s marked by a power imbalance in their favor. From that perspective, it’s understandable –in fact, appropriate – that many are asking why they should bother with the cat-herding challenge of getting their supply-chain partners to jointly create a complicated, costly, multi-node computing network to run a distributed blockchain ledger.”
A different supply chain future
“The supply chains of the future will be much more dynamic, flexible and customer-responsive than those of the present. Geography and longstanding relationships will be less of issue. This suggests that supply chain managers should not only be looking at blockchains but also striving for the most open, permissionless model they can handle. ..new manufacturing technologies such as IoT and 3D-printing contain enormous decentralizing potential. By empowering people and businesses to do more with less, they reduce transaction costs, which means they can break down barriers to entry and challenge the economies of scale that have hitherto advantaged big, centralized companies.
“… imagine a world in which 3D printing – known as additive manufacturing in the industrial world – is ubiquitous. Now imagine a German auto-parts producer receiving a request for quotes from an Argentine car assembler, a customer it has never previously dealt with, and for delivery in two days. The German company knows it’s highly likely that competing manufacturers in the U.S., Brazil, India and South Korea have also received offers. The only way to meet the order is to tap a hitherto untested 3D-printing company in Buenos Aires.
“How can it trust this supplier? The time and cost of applying current due diligence, credentialing and approval procedures to onboard this company into an approved list of suppliers would take too long and cost too much money. It would leave the German company outcompeted for the job.
“As supply chains start to function more like the demand chain of this scenario, trust dilemmas like this may force manufacturers to look to blockchain solutions.
“There’s a lot of work going into how to use blockchain-based input logs and unique identifiers to prove the veracity of data emanating from interconnected devices such as 3D printers. Applying a similar change-of-state log for alterations to software, blockchains could also assure users that the code in a particular file used to print the relevant part complies with the specifications as advertised, that it hasn’t been tampered with. Cryptographic proofs of the integrity of a 3D-printing process may well allow manufacturers to hire a supplier in minutes, whereas previously they could never do so without face-to-face meetings.
“This kind of blockchain model could greatly speed up the onboarding process. But it would need to be based on permissionless, open access for new suppliers.”
What does this mean
To Mr Casey: “New IT technologies like 3D printing are an extension, or perhaps an acceleration, of the disruption unleashed then when the Internet decentralized the information-gathering process and removed barriers to communication. The next big step-function change will come from decentralizing the trust barrier.”
This is the essence of what will likely become an entrenched battle – between the accepted and the new. It will affect:
- not only supply chain owners and the manufacturers who contribute to supply chains
- but also the suppliers of the software which enables supply chains, and not least vendors like SAP, Oracle, NetSuite, Ramco, IFS, Infor, Epicor, ECi and others.
The ability to verify and follow the web that a supply chain weaves would potentially be a game changer. It is not here yet and there is one real question: who is the chicken and who is the egg? Will the supply chain owners demand blockchain capabilities or will ERP vendors lead by example? Or will it be supply chain ‘members‘?
Much is unknown. But the potential for blockchain technology to enhance supply chain performance, and flexibility, is clear to see. For those who think that blockchains are disruptive only in a financial context, this should come as an early warning.