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Blockchain in Supply Chain Management

11 Sep 2018

In our first article, we reasoned that the benefits of using Blockchain technology easily extend to Supply Chain Management (SCM), through cost savings, increased visibility, security and trust. But which specific Supply Chain challenges can be addressed? What impact will it have on the design of future Supply Chains? And how can a potential prototype combine the strengths of a shared ledger technology like Blockchain to address these challenges? In answering these questions, we will focus on the high-level “Deliver” process from the SCOR (Supply-Chain-Operations-Reference) Model.

Figure 1: The “Deliver” process as part of the complete SCOR Framework

Key design principles for future-proof “Deliver” processes

The future challenges in SCM are manifold. Especially in the processes of “Deliver”. Production sites, sales- and buying markets are diversifying all around the globe, while customers (in B2B and B2C) expect short and flexible lead times, transparency and additional digital services at nearly zero cost. These developments are reinforced by the general and ongoing efficiency pressures, making “Deliver” a critical success factor for future Supply Chains.

To outperform the competition and to overcome the explained challenges, companies must be aware of the following key configuration elements for “Deliver” in their future Supply Chains:

Reactivity through real-time tracking

Reactivity is a primary design principle for future supply chains, as current supply chains have become increasingly susceptible to negative events. These have become more likely due to more frequent ‘just in time’ deliveries, high product variances and complex delivery chains with many parties involved. Additionally, the logistical relationship of source and sink, flanked by increasing distances, is becoming more and more complex, leading to rising lead times. If companies would be able to respond to unforeseen events in real-time, however, negative consequences can be avoided or reduced, for instance by implementing real-time tracking to maximize reactivity. In such a case, if goods are harmed during transport, companies can directly reorder to avoid stockouts.

Autonomous processes using Smart Contracts

Autonomy is the next major design principle. As mentioned before, Supply Chains become more and more complex. For instance, supply chains evolve from evolved from simple chains to agile networks with myriad stakeholders all interacting with each other. Collaboration between these stakeholders becomes more refined and detailed. As more and more networks develop towards such a new level of maturity, the complexity of associated processes (e.g. supplier monitoring, payment processing) can no longer be handled by humans. For that purpose, machines and systems will become indispensable. One way to automate Supply Chain execution is the implementation of Smart Contracts, where defined events are executed autonomously when the needed parameters are fulfilled. For instance, the automatic payment to a hauler after goods receipt.

Transparency through shared data sources

The third major design principle is the creation of transparency. Customer centricity becomes more and more important in supply chain management. This leads to the fact that companies must be able to answer questions like ‘where exactly are the goods right now’? In which status are they? And when will the goods arrive? Transparency also enables companies to make better decisions by using more information. Additionally, the creation of transparency is important for documenting all relevant information regarding the transport of goods which is one enabler for recording clear product history. Transparency can be created by real-time tracking (see above) and the usage of shared data sources. By using data lakes which gather data through the entire Supply Chain, companies can reduce the variability e.g. caused by the bullwhip-effect and increase capacity utilization and efficiency.

Figure 2: Configuration of delivery process with blockchain.

By comparing the described guiding principles with the benefits of a shared ledger technology like Blockchain in Supply Chain Management, the hypothesis arises that the usage of Blockchain can be a key success factor for future Supply Chains. To investigate this hypothesis, Capgemini used the described configuration elements to design a prototype based on Blockchain technology.

From a Smart Container to a Smart Supply Chain

The Smart Container was the starting point of our Blockchain projects in the Watson IoT Center in Munich. But what happened with the first prototype? To clarify this, an initial description will help. The Smart Container is a transportation container, that has been equipped with various pieces of sensor and transmission technology. This basic IoT solution transmitted the sensor data into the Blockchain. The combination of real-time transmission of the container conditions and storing of the data enabled an unprecedented level of security and visibility within this Supply Chain process.

But the holistic vision of a Smart Supply Chain requires more than a 4.0 track-and-trace solution. Therefore, the supply chain environment was enhanced with additional IoT devices to face the needs of an autonomously controlled Supply Chain and to increase efficiency dramatically. For example, short-range wireless technologies such as NFC, RFID and Bluetooth, are now available to identify objects or people in the physical world. These technologies were added to the Smart Container. In addition to that, a display has been attached, which shows the individual shipment address and further information. Apart from the physical, initial features on the software side such as Smart Contracts are implemented to automate processes. These software and hardware components alone do however not make a viable product yet. To fully monetize these investments, the above-mentioned visibility, autonomy and awareness play crucial roles.

Figure 3. Sensors added to the Smart Container in the Watson IoT Center

For this reason, the Smart Supply Chain is a self-aware IoT environment, which interacts continuously on a shared ledger. Smart Contracts cover every influence or event in a simple but highly efficient way. This additional awareness and security enables automation. This will gain a high impact within and beyond the “Delivery” process. Furthermore, each stakeholder of the supply chain (e.g. customs, insurance firms, transportation companies) are able to shape new ways of collaboration and diversify their portfolio through additional digital services. The following scenarios outline our hands-on experience.

Awareness & Visibility through advanced real-time tracking

After starting a new shipment, each of the above-mentioned stakeholders has his own interest in knowing what happened with it. In order to understand who is responsible for the container at which point in time, a link between the digital to the physical world is required. Similar to a fingerprint in the physical world, each participant receives a unique identifier. In addition to the real-time tracking, each handover process of the container between two representatives will be documented using their unique identifiers. Autonomously, a Smart Contract verifies the expected location for the transfer, the individual identification and the healthiness of the container depending on the goods shipped. If all factors are matching, the digital responsibility will be transferred. For this purpose, each IoT device, such as a smartphone, which can identify itself in the digital world is usable. This allows immediate interaction between the stakeholders, like the exchange of a digital certificate between customer and supplier. At the same time, the openness of the network also allows additional stakeholders to join.

Autonomous processes using Smart Contracts

Autonomous processes, like acknowledgements of receipt or quality gates, are implemented to capture several scenarios. If unexpected events during a shipment process occur, which could cause a breach of the delivery contract (e.g. by leaving the expected route or through severe temperature changes that influence quality), a Smart Contract will modify the delivery address of the good, or enforce other contract terms. However, if there is no behavior out of the ordinary and the shipment reaches its destination, a Smart Contract authorizes the payment, and a second one updates the inventory records. For each good, all historical events like the location, the consigner, the expected route and the health history will be reviewed to procced with the payment. These payments are made with state-of-the-art crypto currencies, or online payment solutions like PayPal. In this way, there is an optimal and automated flow of physical goods and digital records.

Digital Collaboration through a shared ledger

Typical Supply Chain processes involve several documents and manual processes, especially if it comes to customs involvement. Original delivery documents are requested to handle the import of goods at harbors and airports. Digital documents, where available, are currently not state-of-the-art. A shared ledger is well suited for integrating digital documents, thereby fulfilling more security requirements than paper-based original documents. The fact that delivery documents are available anywhere, anytime reduces the lead time dramatically. Apart from that, the data history which could contain already performed customs controls as well as weight data or radiography images of the goods allows for optimization in further ways. This is all possible while document privacy is ensured, with identification via the digital fingerprint. In all, these benefits enable the direct collaboration between carrier and customs, and allow the development of new Digital Services.

Outlook on Digital Services

As outlined, a shared ledger improves the overall efficiency based on the created visibility, security, automation and collaboration features. Given this foundation, individually tailored insurance contracts are conceivable, with economic predictions of consumer behavior embedded. The openness of the shared ledger allows for the integration of private individuals. Also, within the manufacturing context, it will become possible to further automate manufacturing processes through visual recognition by detecting objectsperforming quality checks or initiating collaboration with machines. For this purpose, Capgemini and a leading camera producer, created an automated quality check of several goods in the Watson IoT Center. In doing so and combined with Artificial Intelligence and Machine Learning, we can start to recognize patterns and predict quality. These technologies can drive intelligence and efficiency, and will be instrumental in shaping the supply chain of tomorrow.