Revolutionizing chains: The impact of blockchain

An essay by Carolina Gonzalez Aces

Carolina Gonzalez Aces is a supply chain manager at Accenture. Based in Frankfurt, Carolina helps transportation and logistics companies to shape their digital supply chain strategy and unlock the potential of blockchain.

... and Magdalena Kleeberger

Magdalena Kleeberger is part of Accenture's Technology Consulting practice focusing on Industry X.0.
Blockchain is currently her favorite technology.

From "Companies' Stocks Are Skyrocketing When They Pivot to Blockchain" to "Blockchain: the Unchangeable Gamechanger," headlines are rife with optimism about blockchain's potential. Thanks to its best-known use case as the underlying technology of the cryptocurrency Bitcoin, early applications focused on financial services. But the technology has now gone far beyond these parameters to things like identity, healthcare, telecom and media. Virtually every industry will likely see some application of blockchain, including the logistics industry and the supply chain.

At its most basic level, blockchain is a new type of database system that maintains and records data in a way that allows multiple stakeholders to confidently and securely share access to the same data and information. Blockchain (sometimes also referred to as Distributed Ledger Technology, or DLT) is protected by cryptography, which allows a network of nodes to collectively maintain a shared ledger of information without the need for complete trust between the nodes. This mechanism guarantees that, as long as the majority of the network validates the entries (i.e., the "blocks") posted to the "chain," the information stored can be trusted as reliable. In many instances, the role of intermediaries as the means to verify, record and coordinate transactions could become obsolete when using DLT.

Allowing access to data via a blockchain leads to several benefits that apply to every node of the chain. Encryption of each block of data assures the shared data is secure. If anyone tries to tamper with, alter or erase any of the information, all stakeholders will know. The result is a tamper-evident, single source of truth. Additionally, blockchain increases automation as the network self-validates all ledger entries and enables near real-time data and transaction processing. This can lead to reduced costs and higher efficiency in industries where there are still highly manual and paper-based transactions, because the use of blockchain releases trapped value. In terms of operationalization, transparent track and trace reduces auditability efforts and enforces mutual consensus through a decentralized system.

Leveraging blockchain technology in the supply chain overcomes challenges with faster and leaner logistics in global trade, comprehensive transparency and traceability, and improved automated commercial processes backed up by smart contracts, which are agreements that are automatically executed by nodes once certain precoded conditions are fulfilled.

Global trade is highly complex and involves many parties with conflicting interests. A simple shipment with a cooling chain from East Africa to Europe involves more than 30 nodes including over 200 interactions and communications - many still paper-based, and all in different systems where the data needs to be reconciled after every update. Storing the relevant data on a shared and secure database based on blockchain technology would allow records to be accessible by all stakeholders in near real time and would reduce mistrust and costs. On the other side, it increases efficiency and accelerates logistics as it enables direct communication between all parties without the need to rely on intermediaries.

Imagine a supply chain where the complete history of a product is available - from the source of origin of the raw material, to the procession within production until the arrival at its final point of consumption. This information, stored via blockchain technology, improves supply chain transparency and enables monitoring provenance, giving supply chain participants more comprehensive track-and-trace capabilities than ever before. Companies can use this information to provide proof of products' legitimacy, for example, proof of the authenticity of consumer products and goods. Not only companies could profit from blockchain - consumers can learn about the products they are buying, for example, their ethically correct sourcing, their authenticity and the preservation of correct conditions.

This type of transparency and verification to the point of origin could also save lives. According to Interpol, more than 1 million deaths each year are attributed to counterfeit pharmaceuticals entering the supply chain. It is estimated that 50 percent of pharmaceutical products sold via unauthorized websites are fake, and up to 30 percent of pharmaceutical products sold in developing countries contain ingredients that are ineffective. Besides the serious effects on people and their health, this can also have a negative impact on pharmaceutical companies' reputation and revenue flow. Capturing the complete history of a unit of medicine, via the blockchain, as it moves from the point of origin through warehouses and onto the shelves of authorized distributors, would reassure customers that the medicine they are taking is authentic.

DHL and Accenture have developed a solution to overcome this major challenge in the health and life sciences industry and help consumers verify the legitimacy of pharmaceutical products with a blockchain-based track-and-trace serialization prototype. In a lab simulation, the system monitored each step that a pharmaceutical product takes from the manufacturer to the end consumer.

Bureaucracy is another driver of supply chain complexity. This complexity can be reduced with the use of smart contracts. If conditional triggers are added, the contract is executed each time the conditions are met, e.g. when contract parties have fulfilled the required tasks written in an underlying contract. Automated processes could replace paperwork such as letters of credit, bill of lading and other functions, for example transportation management, route planning and delivery scheduling.

To achieve success in a blockchain-based supply chain, you need to take a few factors into consideration.

First, collaboration is the key to success as the full potential of blockchain is best realized when all relevant stakeholders take part. That might sound daunting, but economies of scale increase the value of blockchain and explain why several blockchain consortia are on the rise in logistics.

Second, blockchain know-how and capabilities need to be built among the supply chain participants. That's not to suggest that you need a PhD in math to understand the potential of blockchain. On the contrary: Exploring the foundational aspects of the technology can go a long way in determining the best business cases, testing their feasibility and determining how they fit within your current business ecosystem to ultimately unlock real value.

Third, get started and engage with your stakeholders on blockchain opportunities and prototypes. While the technology is still in an early stage, it is gaining momentum quickly. But framing realistic expectations among all participants will nevertheless establish applications at scale and unlock the business value of blockchain, as well as open up new business models.

Published: June 2018

Images: Nina Tiefenbach for Delivered.; Accenture