How to make blockchain the game-changer for supply chain

Managing a modern supply chain is rather like solving a Rubik’s cube. It’s multi-faceted, and actions taken in one plane have consequences in others. Keeping track of them all can be difficult.

In fact, supply chain management is, if anything, more complicated than this. Several factors are beyond your control – regulatory changes, for instance – whereas a Rubik’s cube simply does what it’s told.

In this paper, we’re going to look at some of the obstacles that can be encountered in the supply chain, and the degree to which blockchain technology can change the game for the better.​

Damien de Chillaz, Head of Blockchain & B2B Platforms, Business Services

Sudhir Pai
Sudhir Pai, Chief Technology Officer, Capgemini’s Financial Services

Adrien Calvayrac
Adrien Calvayrac, France Innovation Ecosystem Lead, Capgemini AIE Network

Supply chain challenges

While modern supply chains take advantage of technology in various ways, they still face significant challenges:

  • Complex ecosystem – global enterprises have gradually developed an intricate web of suppliers and logistics channels, operating at regional, national, and international levels
  • Lack of traceability – the complexity of the supplier network can make it difficult to pinpoint provenance
  • Lack of responsiveness – process mismatches within and between individual countries and operating companies can cause delays
  • Lack of visibility – if processes are mismatched, barcodes may not be enough to keep track of goods in transit
  • Data reconciliation – different processes are also likely to log data in different ways. This, too, can be a problem
  • Lack of trust – if systems and processes aren’t transparent, there is less chance of a single source of truth around which organizations and their suppliers can congregate.

It’s the complexity that’s at the root of all these challenges. In the past, a company may have had a limited number of preferred suppliers, and it would know what to expect, and whom to call in the event of problems. However, in today’s business ecosystems, participants often don’t know one another and don’t always have the visibility into multi-tiered supply structures, as well as each other’s data and activities, which can catalyze exposure to risk. Can they go back to their old practices? No: the markets they serve are too big and too complicated now. Instead, a new way needs to be found to achieve transparency, and to build trust.

Complexity is also an issue in supply chain-related due diligence. It’s a time-consuming paper-based process, suffering from inconsistent or missing data, as well as from tight budgets allocated to compliance requirements in areas such as modern slavery, working conditions, foreign bribery, conflict finance, and environmental impacts such as pollution. Building sustainable supply chains has become a strategic objective for many organizations across sectors.

The blockchain principle

Blockchain technology provides a means to address these challenges. It has been described as “an open, distributed ledger that can record transactions between two parties efficiently, and in a verifiable and permanent way.”[1]

Several of the words in that description are crucial:

  • Open and distributed – it’s effectively a database that’s shared by all active parties
  • Efficient – the system can trigger transactions automatically
  • Verifiable – every record is identified and validated
  • Permanent – every record is also protected from deletion, tampering, and revision.

Challenges ahead

Right now, organizations are still exploring proofs of concept for blockchain-enabled solutions, taking some of them into production, and are looking to establish networks with like-minded businesses for potential mutual benefit.

Progress, however, has been slow. Enterprises have hesitated for several reasons. For example:

  • They have been debating which platform will offer them the best fit in areas such as security, privacy, scalability, integration, and customer experience
  • They have been unsure of the regulatory and compliance implications of deployment, and also about questions of ownership and interoperability with other technologies
  • They haven’t been able to identify their best potential use case, or how comprehensive it should be, and most importantly how to structure the right business case around it
  • Nor have they been able to decide whether to make the first move in creating a consortium, or whether to join an existing one
  • They have been aware of the extensive communication, interaction, and change management effort needed ahead, which has also put up mental hurdles.

They have several tactical and technological issues to address, including performance and scalability, data governance, enterprise architecture, change management, and business process design.

How blockchain can help

If organizations are able to resolve their questions, they will find that blockchain can make a significant difference to their supply chain operations.

First of all, blockchain’s decentralized approach to data management and sharing isn’t necessarily more efficient than centralized systems, but it is uniquely able to resolve important issues of trust, visibility, and accountability. It provides a shared and dependable platform for the trusted exchange and referencing of information between organizations that are active in the supply chain.

Next, its time-stamping and identification attributes make it easier to automate transactions and repetitive processes such as billing and shipping. This, in turn, facilitates a move to the real-time handling of events.

Blockchain also enables the creation of smart contracts, to ease the burden of several heavy supply chain transactions, such as those involving transfer of ownership or of intellectual property.

What’s more, the immutability of the technology means that blockchain provides a single, shared, and tamper-proof source of truth, and hence a verifiable audit trail for all transactions.

Drawing on our cross-industry research, as well as on interviews with experts and startups, we have identified a number of blockchain use cases across the value chain, which we have segmented based on their complexity and adoption levels. They can be seen in the graph below.

BlockChain-Graph

The same Capgemini Research Institute survey identified several benefits that participating organizations anticipated from blockchain projects in the supply chain. Almost nine out of ten respondents (89%) expected to achieve cost savings. Also, just as in a public survey conclusions can be drawn not from detailed responses but from general trends, so with blockchain, the outward identifiers of blocks can be expected to enhance both traceability and transparency. As many as 81% (traceability) and 79% (transparency) of our respondents foresaw these benefits.

How to implement a successful blockchain program

Let’s assume an organization has taken a long, hard look at itself. It has acknowledged that it faces several of the challenges articulated earlier in this article, and it recognizes and wants the benefits that blockchain can bring to its supply chain. What are the steps it should take?

In fact, the long, hard look is a step in itself, because first, it establishes the need, and second, it assesses readiness: organizations will have a sense not just of the strengths upon which they can build, but also of the hills they will have to climb.

Next, they should start to develop their strategy. Within the organization, they should attempt to remove as many sources of friction in the supply chain as possible before embarking on the transition to blockchain. At Capgemini, we use the Digital Global Enterprise Model (D-GEM) – our proprietary business transformation platform – to help our clients deliver significant improvements in terms of productivity, performance, scalability, and data governance – and indeed also in terms of enterprise architecture, change management, business process design, and the business case as a whole. remain competitive in a rapidly changing, business context. This, in turn, enables, what we call, the Frictionless Enterprise.

Their strategy also needs to be developed in the context of the environment they occupy – of their market position, and also of their specific supply chain ecosystem. The current approach will not be a one-size-fits-all model – it will be something that has developed over years in response to specific needs. In this respect, at least, the blockchain model will be no different. It will need to be tailored to circumstances, which is why those circumstances need to be thoroughly understood.

Organizations will of course also need to know what success looks like. How will it be measured? Which metrics will be key? What will be the project management milestones for the implementation of technical solution elements including information systems integration, IoT implementation, the incorporation of user apps, and of course the transition to blockchain?

In addition, businesses will need to implement robust security controls from the outset, and especially before scaling up the initiative.

And they will need to define the governance strategy. This is likely to be a collegiate decision, working closely with other parts of the supply chain – and possibly also with other enterprises operating in the same space. The result could be a standard set of principles that the industry and its regulatory bodies will recognize and accept.

The importance of focus

In short, blockchain can play a major role in the enterprise, by catalyzing the emergence of more efficient, reliable and sustainable supply chains.

But as with so many desirable goals, a little effort and patience are required.

Effort, patience – and focus. Blockchain isn’t a buzzphrase, and it isn’t a panacea. If organizations truly want it to deliver, they need to keep business impact and value creation in the very front and center of their thinking.

In the next paper in this series, we’ll be looking at how blockchain can help to deliver next-generation traceability. In the meantime, watch a video on how blockchain can foster reliable and sustainable supply chains.

 

[1] Iansiti, Marco; Lakhani, Karim R. (January 2017). “The Truth About Blockchain”. Harvard Business Review. Harvard University.