Most of today’s supply chains are complex, black boxes of trade. We don’t know where our goods are at a particular point, who processed them, when something went wrong, or what is real or fraudulent. Consider a simple example of a sand-to-touchscreen chain. There are so many stakeholders involved – ranging from raw material suppliers to glassmakers. From a buyer’s perspective, she doesn’t care about this intermediate analysis – all she wants is the end product. But just consider that if one is able to understand supply chains better, she will be able to detect potential frauds and inefficiencies and therefore remove them. This will result in a cheaper and better end-product, which, at the end of the day, is what a consumer wants.
Currently, about 70-80 % of supply chains worldwide are operated via paper documents. We all know it’s not too difficult for someone to forge a paper document – hence the implicit corruption in a typical, traditional supply chain. Since these chains are already a complex network of suppliers, processors, consumers, and middle-men, the inefficiencies and frauds involved are simply difficult to detect and fix. It is not the complexity of the supply chain itself but often the lack of management, transparency, and monitoring that causes the most significant mishaps in global trade. But guess what – we already have a tool which can prove to be a complete game changer for global supply chain business and can result in a more transparent trade. This tool is the very idea of distributed ledgers – the technology underlying today’s crypto-currencies, more commonly referred to as the blockchain.
At its core, a distributed ledger is a database – a database which is replicated across multiple nodes (i.e, computers). So there is no single database server but all computers (nodes) in this network have the copy of the database. Since each node has a copy, there is room for consensus – so nodes can agree on what is true and what is not. The cool (and relevant for supply chain business) thing about this network is that we can now utilize it to enable a secure audit trail of what is happening and what is not throughout our supply chain. Blockchain will change this paper-based business because:
- Blockchains will allow not only digitizing these documents but also cryptographically securing them – so there’s no room for forging.
- They will allow recording events efficiently so we know who processed what and at which point in time through the supply chain.
- They will allow automation of processes happening in the supply chain. Code can be written, for example, to issue bills after certain events (like loading of goods in a container ship at a port) and triggering other actions based on that event. This will remove the friction (and potential fraud) of manual processes.
Also, the global supply chain business currently has a problem with data integrity. There is no foolproof mechanism to ensure that the data we receive from a trader/supplier is correct and to prevent the forging of data in one’s own database. Blockchain will solve this problem by the inherent consensus algorithms it has. It will thus establish trust throughout the chain and prevent tampering of data at any point. Now, there are already traditional blockchain systems which target this problem, but most of them are general platforms for smart contracts and distributed apps, and see this issue as one of many use cases of distributed ledger technology (DLT). However, IOTA is a platform which has this issue as one of its core “verticals”. On the official IOTA website, the verticals listed are mobile and automotive industry, eHealth, smart energy and global trade and supply chains. They claim that “with the IOTA distributed ledger, collective transparency, authorized and authenticated participation [as well as] immutability records, will build trust between all actors in the trading process”. Since IOTA is a non-profit organization, one can safely say that they’re working on this to truly improve global trade and have no bias or personal benefit involved. They provide many additional functionalities for supply chain business which other platforms lack, like offline document security. As mentioned on their supply chain page, “the technology behind IOTA is the only technology that can scale and support the millions of transactions that global trade depends on. It is feeless and can support partitioning – meaning that local transactions can be secured in periods without direct access to the internet such as remote areas and during ocean transport.” Furthermore, to prevent hype, they also mention that this technology isn’t perfect yet and its real-life implications are not fully understood. For this, they constantly invite participation from active businesses to discuss new modes of regulation around DLTs and other nontrivial implications. The focus points in the blockchain implementation are tracking and tracing goods, documentation flow and transparency. Tracking would benefit from the immutable event records provided by the blockchain, and secure documentation flow can be established via cryptography. IOTA says “a harmonized B2B and B2G (business-to-government) electronic permitting tool would massively accelerate the release and clearance of such goods through customs, and ultimately consolidate technologies such as e-signatures, e-permits and e-payments into a single process.”
Now supply chains will no longer be the black boxes they used to be, but be open and transparent systems which can be continually improved.
Saurabh Chaturvedi is a freelance developer and technical writer with a keen interest in blockchain, Bitcoin, and other cryptocurrencies.
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