Block Chain in Supply Chain Logistics
By Mahaboob Ahmed, December 7, 2017
What is blockchain?
In 2008, Satoshi Nakamoto created a fully distributed digital currency system using Blockchain technology. For several years, this system was unnoticed by the society, but after the breakthrough of Bitcoin, many scientists and developers became interested in the technology that allowed Bitcoin to be the best crypto currency in the market.
Many visionaries believe that Blockchain could be as revolutionary as the Internet was. They envision many ways to adopt such technology. As a result, several different applications appear on the market, from time to time.
Market analyses found many exciting benefits in the area of Logistics and Supply chain by application of Blockchain Technology.
The current situation of industries can be described as challenging. There are many difficulties concerning the transparency, security and visibility of various operations across the supply chain or transportation. Therefore, in this blog, I will attempt to bring out what benefits blockchain could bring to these industries and which problems it can solve.
Basics of Blockchain
Blockchain is a distributed digital ledger of transactions that cannot be tampered with due to the use of cryptographic methods. This short explanation includes the three most important properties of a Blockchain: decentralized, verified, and immutable
- It is decentralized because the network is entirely run by its members, without relying on a central authority or centralized infrastructure that established trust. To add a transaction to the ledger, the transaction must be shared within the Blockchain’s peer-2-peer network. All members keep their own local copy of the ledger.
- It is verified because the members sign the transactions using public-private key cryptography before sharing them with the network. Therefore, only the owner of the private key can initiate them. However, the members can stay anonymous because the keys are not linked to real-world identities.
- It is immutable through its consensus algorithm: One or more transactions are grouped together to form a new block. All members of the network can verify the transactions in the block. If no consensus on the validity of the new block is reached, the block is rejected. Likewise, if consensus exists that the transactions in the block are valid, the block is added to the chain. A cryptographic hash is generated for each block. Each block not only holds transaction records but also the hash of the previous block. This creates a block interdependency linking up to a chain – the Blockchain.
Altering a transaction on the Blockchain retroactively would require not only to alter the local records on most of the networks’ members’ devices, but also altering the cryptographic hash of every block down the chain.
A distributed system, like a Blockchain, holds benefits over centralized architectures as it provides the same, verified information to all network members. It creates trust between the parties by eliminating the need for the traditional concept of trust. Blockchain can record the transfer of assets between two parties, without the need of a trusted intermediary.
Blockchain in Logistics and SCM
As introduced, Blockchain is considered to offer great potential for improving processes and enhancing business models in logistics and SCM. However, Blockchain is only known to some logistics experts and even fewer pursue implementation plans.
The below chart summarizes the potential use-cases of Blockchain. These represent four major ideas currently explored in both theory and practice. They are in fact also, the only four single ideas out of a yet unmapped sea of opportunities.
Use Cases for Implementing Blockchain in Supply Chain & Logistics Domain
The approval process in the Customer Contract goes through multiple levels, involving multiple parties and a lot of documentation carried out outside any transactional system.
Using Blockchain, the process can be made transparent by having the shared record of the contract status which is updated as the contract progresses. The record is available to all parties to the agreement, their banks and partners. This increases the efficiency and transparency across the supply chain. Also improves risk management through the near real-time update of all contracts.
The value of connected smart vehicles is limited by the ability to interact with business systems. Blockchain can manage automated interactions with the external world by ordering for Service / Maintenance Requests and paying for the same and arranging for its own software upgrades and tracking its warranty.
The benefits are
1) Business value from connected technology
2) Efficiencies in network and supply chains
3) Transparency for all network members
Open & Trusted Supply Chain:-
Nowadays, consumers demand transparency in where and how their products are made. In some countries the government requires more information about corporate supply chains, with penalties for non-compliance.
Blockchain enables safe digital transfer of property across the end-to-end supply chain.
The benefits being
1) Verifiable, preventing any party from altering
2) Efficiencies through greater transparency
3) Consumers can make informed purchases
4) Governments get reliable information