Analysts, consulting firms, blockchain platform providers, enterprise software vendors, logistics services operators, tech startups, academics, journalists, retailers and consumer products manufacturers have all weighed in on how global supply chains will benefit from blockchain. Meanwhile, investments in blockchain-powered supply chain offerings have been plentiful – from startup companies to global giants.
While some retailers and consumer brands are engaging in early proof of concept pilots with their chosen suppliers of blockchain technology and services, others are observing from a distance to learn how well the solutions work, how fully the promised value can be realized, and at what cost.
For leaders of retail and consumer products global supply chains, global sourcing operations or import logistics functions, this article discusses:
Potential use cases in global supply chains where value may be realized.
Obstacles to industry-wide adoption.
A simple framework for assessing where and when blockchain may add value.
Potential use cases for blockchain value-add
In my neck of the supply chain woods, I work with retailers and consumer brands to improve global supply chain performance on the inbound side. That incorporates a broad functional scope that includes everything from initial product concept and planning to arrival of the goods (usually from overseas) at the distribution center.
Often, retail product lifecycle management (PLM) systems are used to unify processes and data across this scope, as summarized in the blue boxes of the following diagram, which are representative of general merchandise. Processes in orange boxes are usually supported by other enterprise systems:
So, where can blockchain add value in this type of retail supply chain?
Taking a simplistic view, blockchain solutions are most likely to add value in processes where… multiple parties collaborate on transactional processes where there is duplicative data storage and clear opportunity for simplification. Let’s use these ‘value test criteria’ to test for potential areas of blockchain value. There must also be an actual problem to solve or opportunity to exploit or else there is no justification.
While different retailers have nuances, at the highest level (dark blue boxes above) the early processes of trends, design and product development are often proprietary and while there may be some collaboration with consumers, manufacturers and vendors, data is fluid at this point and it is all ahead of any transactions. None of the value test criteria are met, so not much potential for blockchain yet.
Then, for global sourcing, PO management, logistics, global trade and finance, external collaboration with multiple parties starts to ramp up. Transactions take place too – vendors and global sourcing managers agree to specifications, quotes are provided and purchase orders are placed. Third-party auditors and test service providers check that factories meet social compliance standards and execute the agreed product compliance test protocols for pre-production, production and pre-shipment inspections. Shipping instructions are issued, bookings are made and retailers, vendors, freight-forwarders, customs brokers, carriers, their agents and many other parties exchange a deluge of documents. Banks finance deals and ultimately, goods are received, invoices are matched to purchase orders (2-way matching), and receiving information (3-way matching), and inspection information (4-way matching), as applicable and vendors and service providers get paid.
Estimated landed costs are then compared to actual landed costs, lessons are learned, and it all starts over again for the next product. For some retailers, there can be tens of thousands of products that move through this process concurrently.
As previously mentioned, PLM systems together with merchandise planning systems, transportation management systems and other systems, have enabled retailers to manage these workflows consistently, control external collaboration, and unify supply chain data sets. This centralized approach has provided new levels of visibility into the status of products in the supply chain with only ‘one version of the truth’ across the enterprise and ecosystem.
So, back to our question… where can blockchain add value here?
While PLM systems have done a great job of unifying data and processes for any one retailer, there are many non-compatible PLM systems on the market and vendors of retail merchandise and other service providers must work with multiple retailers throughout multiple asynchronous supply chains. The compound math of connectivity and collaboration permutations is frightening.
Also, taking global logistics as an extreme example, there could be 25+ documents across the ecosystem for each container shipment with a dozen or more parties involved, each duplicating data validation, entry and retention in their own systems as well as transferring key data manually or automatically to the retailers’ systems.
For global logistics and global trade alone, there could be a significant value proposition for using a blockchain solution. Let’s check against our value test criteria… there are multiple parties collaborating on transactional processes where duplicative data storage abounds and there is clearly significant opportunity for simplification. The problem to solve for the retailer is reduced burden in global logistics troubleshooting, reporting and management and the opportunity to exploit is the reduction of shipping costs, better analytics and faster time to market from fewer process steps and potential automation. This is not to say that the industry is ready to support such a solution, but the potential could be there.
For earlier processes in the retail supply chain such as global sourcing and PO management, the number of parties involved per product is not as high as the parties involved per container shipment in global logistics. The total number of parties (vendors) that have to be managed, however, is very high, driven by the volume and variety of products. Vendor management is complicated further because each domestic or foreign vendor has different relationships and associations with the overseas factories they use. The blockchain solution value test criteria may indicate a value opportunity here, but the problem to solve may end up being the main lever driving adoption of blockchain solutions for these processes because retailers face growing product safety regulations and social compliance hurdles in distant, low cost of labor countries. Having full transparency and traceability for each product back to source is key and many of the current pilots are focusing on this, including Walmart’s Food Trust initiative.
Of course, global supply chain visibility and traceability is a key opportunity to exploit for all retailers and as hybrid blockchain / IoT solutions mature, they will offer tremendous value as they solve what has been the biggest issue for supply chain leaders for years… better visibility. Removing ambiguity from product transactions is another value driver.
While value opportunities do seem to exist for blockchain solutions in the retail global supply chain, there are obstacles that prevent more rapid, cross-industry adoption and hence, true value realization.
Obstacles to industry-wide blockchain adoption for global supply chains
When will blockchain solutions be ready to realize value in these use cases and other potential areas of retail global supply chains?
The short answer is when industry-wide adoption reaches critical mass. For that to happen, some obstacles need to be overcome. Here are just a few key ones:
Global industry standards are needed for the distributed digital ledger so that members of a supply chain ecosystem and other enterprise systems can connect, use, transact, collaborate, submit and share data. GS1 or a similar industry body is needed for this.
A critical mass of service providers in the global ocean container shipping industry needs to operate on compatible blockchain service platforms so that there are no competitive or technical barriers to collaboration for all container shipments. Why choose this use case? Because of the sheer size of the ecosystems impacted and potential for industry disruption and transformation. All eyes are on this use case and the pilots underway. Results will affect the future direction of, and investment in, blockchain solution development for global supply chains.
Retailers have made large investments in retail PLM and other enterprise systems for supply chain ecosystem collaboration and centralization of global supply chain product data. Even if business cases and the ROI are positive, there may be reluctance to augment with, or switch to, blockchain solutions.
Perhaps less likely, evolving regulations for cross-border data retention and currency management may slow blockchain solution deployments.
Competing platforms are likely to prioritize differentiation over interoperability, delaying standards development. Each platform provider will be looking to monopolize.
Note: This article ignores technical obstacles and scaling because history has shown that technical issues tend to get fixed if the prize is big enough.
A simple framework – is blockchain right for my supply chain?
This isn’t the first time a technology-enabled wave of hope has threatened to revolutionize global supply chains for the better. From early industrial revolutions to Industry 4.0, we have seen innovations such as mass production, ocean containers, databases, bar codes, RFID, mobile devices, artificial intelligence, IoT, analytics, automation, drones and now blockchain promise supply chain improvements to help drive top and bottom line growth.
Some of these innovations required cross-industry adoption before being useful (eg ocean containers), others are tools that individual companies can adopt irrespective of industry trends (eg analytics and AI). Some require open industry standards before adoption (eg barcodes), others can deliver benefits through closely-held intellectual property and proprietary know-how (eg aps for mobile devices).
Hindsight is a great tool for knowing where the value lies and when to invest in new technology enablers. Sometimes, of course, using hindsight leaves you at the station, with just the smell of the steam engine in the air as the train disappears down the tracks. With increasing technology solution proliferation, this will only happen more often and more quickly.
As blockchain solutions start to build up steam, retailers and consumer brands need a simple framework to understand the added supply chain value that blockchain solutions can bring, and then know when to start investing in proof of concept initiatives and pilots.
A simple framework is a challenge as the question of whether and when to invest is more compound and complex than it may seem. In today’s business environment, any technology solution must effectively be self-funding, or have a rapid and significant ROI. In addition, economies and other benefits delivered by the solution might only be realized if there is wide-spread, cross-industry adoption. Furthermore, a global supply chain is a complex beast with numerous and diverse software applications supporting different parts of the process (ERP, PLM, TMS, WMS and more). Blockchain solutions may have beneficial impact in some sub-processes, but not others.
There are many sources discussing the value of blockchain, including the IBM commissioned Forrester report: “Emerging Technology Projection: The Total Economic Impact™ Of IBM Blockchain” which is a useful read for your business case.
Before then, you will need to stay close to developments and continually test whether / how blockchain solutions add value to your supply chain.
Here is a simple framework of questions to test IF a blockchain solution might add value to your supply chain. The process/es the blockchain solution enables or supports should:
be transactional in nature
involve collaboration and data input or validation from multiple parties
require immutable, irrefutable and secure data retention and retrieval
become simpler for everyone in the ecosystem
have a lower total cost across the ecosystem (people, process & systems)
replace duplicative data stores across the ecosystem
Also, make sure you can clearly state:
the problem that the blockchain solution is going to solve
the opportunity that the blockchain solution is going exploit
any remaining obstacles to industry-wide blockchain adoption for global supply chains
Ultimately, you will need to build a business case that considers total cost and ROI when you move forward with a blockchain initiative in your supply chain. But before you get anywhere near that, you will need a very simple value test framework tailored to your business to help focus your efforts. The trick is keeping the evaluation framework simple.
Please contact me if you would like to discuss further.
Colin Taylor
Cleaca Consulting LLC
www.cleaca.com
info@cleaca.com