Blockchain: An Unprecedented Solution
Communication, which I define as the multidirectional controlled flow of information between all contributing organizations in a supply chain, is the single greatest challenge that logistics managers face today. This is because the key factor that determines success or failure in supply chain management is effective distribution of information. Logistics, which I would define as the organization of resources involved in transporting people and goods, lives and dies based on accurate and timely transmission of information between all the parties involved in a given supply chain. Although people can communicate more quickly than ever before, timely and accurate communication between disparate organizations is seriously lacking. The advent of blockchain technology has the potential to solve systemic communication issues in supply chain management and enable unprecedented improvements for modern logistics.
To bring this idea into the real world, please consider the following fictional anecdote: It’s 6 a.m. on Monday morning. Sam’s alarm goes off. Coffee, bagel, traffic, more coffee, power up computer, password, email – oh no. It’s a familiarly painful pattern for Sam, the logistics manager at Widget Company. Sam is watching three shipments: one should have left the factory last night, one should have sailed last night, and one should be arriving at his dock in the next hour. The first email, from his supplier, explains that the goods are not ready; they had to send a container away empty, which means they will not make the vessel cutoff for their scheduled sailing. The second set of emails, from his forwarder, are increasingly frantic in their requests for the material data sheets needed for a container to load on a vessel, until the last message explains that the cargo will roll one week and requests the documents overnight. The third email, from his trucking vendor, explains the driver is sitting at the port waiting for the container to come available, and there is no guarantee the container will arrive at his facility until the afternoon—if at all. On top of all that, one final email sits at the bottom of the list reminding Sam that the important inventory reports he is responsible for are due at noon. Communication issues, the biggest challenge that logistics and supply chain managers face today, has ruined Sam’s Monday before his boss even arrived at the office.
Communication between different segments of the supply chain is challenged by so many factors in today’s world. Logistics managers, and the supply chains they oversee, are physically dispersed around the globe, operate using disparate systems, and have segments with specialized functions that are distinct but interdependent. In any given international transaction, as many as fifteen organizations will be involved in the manufacture, transportation, payment transfer, customs clearance, and delivery of the goods to an end user. Every one of those organizations controls access to information about the shipment while the product is in their segment of the supply chain. As a result, information frequently remains siloed throughout the supply chain as the shipment moves along, leaving logistics managers with a fragmented understanding of the current status for shipments they are responsible to oversee.
Information abounds throughout today’s supply chains as a result of digitization around the world. But currently that information cascades like a long waterfall through supply chains, collecting in separate pools of every operator contributing to movement of a shipment until finally arriving at the destination. Supply chain management lacks a standardized framework for the organization and transmission of information between parties in a supply chain. The advent of blockchain technology has opened opportunities for new solution designs that can address the issues of communication in supply chains from beginning to end in unprecedented ways. This is possible because blockchain enables a secure digital framework for transmission of information on a permissioned basis distributed to all contributing members of a supply chain.
There are a multitude of capabilities arising from blockchain frameworks that have the power to revolutionize supply chain management as it is known today, and many capabilities will only be realized through continued honing of the technology’s applications. For example, take three capabilities that can be achieved through even simple blockchain solutions, which would still revolutionize modern logistics. First, secure digital communication which will enable instantaneous trusted document transfers. Second, permissioned access distributed to all relevant members of a supply chain enabling organizations to view appropriate information and make authorized changes within the scope of their functions in the supply chain. Third, when implemented from end to end in a supply chain, blockchain solutions have the inherent ability to provide perfect visibility and tracking of goods and information in that supply chain.
The immense impact that blockchain can potentially have on supply chain management is comparable to the effects of containerization on the shipping industry. Containerization revolutionized supply chain management as it existed just fifty years ago through the application of containers as a standard in the industry to transport goods. Containers as method for transporting goods made it easy for disparate parties to utilize a common system, and allowed goods to efficiently navigate multiple modes of transportation. Efficiency improvements in supply chain management that have arisen from containerization in the last fifty years in terms of asset utilization, labor requirements, and shipping cost reductions are absolutely astounding. Ultimately, containerization enabled the clean flow of products through complicated international supply chains we see today, as opposed to the chaotic shipping processes goods traversed in international supply chains before containers.
The application of blockchain technology as a standard in the industry to communicate about the transport of goods is poised to revolutionize supply chain management as it exists today, just as containerization has revolutionized the industry in the past fifty years. To solve the communication problems of supply chain management today, a standard digital framework to store and share information from one end of the supply chain to the other needs to be established. The solution needs to be easy for disparate parties to utilize, and must allow for information in a variety of formats to be distributed across all the contributing members of a supply chain. Initial solutions implemented should focus on the purposes of enabling secure document transmission, giving permissioned access to view and take actions on shipment files, and providing end-to-end traceability for logistics managers with oversight responsibilities on shipments. Solutions can grow from there to solve much more complicated supply chain management problems, like supporting all aspects of payment for shipments.
My idea for a blockchain solution is to create a digital chain that will begin with the first act taken in the supply chain –ordering—and finish when the final act—acceptance of the goods, or in some cases payment for the goods—is completed. To start, the aim would be to create the simplest application of blockchain technology possible, like the basic shipping container. The blockchain solution would need to be accessible as a webpage into which all the basic documentation for a shipment, starting with the purchase order and ending with the proof of payment or proof of delivery, can be accessed and added to by authorized members of the supply chain involved in the shipment of the goods. Once this basic framework is in place, the value to all members of the supply chain is inherent in the system as a method for shared communication, tracking, and forecasting activity. The solution’s value will increase across the supply chain in proportion to the amount of information that is linked to the blockchain by all the participants in the chain.
Using a blockchain solution, logistics managers will finally have oversight into their entire supply chain. Communication will be facilitated by the blockchain solution between all members of the supply chain in a streamlined manner. The blockchain will keep track of a shipment’s movement through the supply chain. If the shipment stops, the blockchain will clarify what information is lacking, who needs to supply it, and make apparent what needs to be done next to keep the shipment moving. Information availability issues, like cargo readiness timelines, commercial information, and shipment tracking, are the causes of major inefficiency and additional costs throughout modern supply chains. But the application of blockchain technology to these issues makes them become transparent and easily knowable. Blockchain solves systemic communication problems throughout the supply chain, while also enabling massive improvements to be able to grow out of blockchain solutions.
To close, try to imagine Sam’s day with a simple form of a blockchain solution helping him: It’s 6 a.m. on Monday morning. Sam’s alarm goes off. Coffee, bagels, traffic, more coffee, power up computer, email – oh no. The important inventory reports Sam is responsible for are due at noon. Sam glances at his blockchain logistics management solution to check on his three hot shipments. The first shipment file shows that his supplier changed the cargo ready date which was acknowledged by the forwarder. Sam approves a suggestion by his forwarder for a new booking on a different lane which will still meet the must arrive by date for the cargo. The second shipment file shows a notification that the shipment has sailed out last night after all the documents required for the shipment loaded into the blockchain had been verified and used by the carrier when loading his container. Finally, the status for his third shipment shows that the vessel is working at the port, and he has a notification from his trucker requesting an afternoon delivery appointment time that Sam confirms. Successful communication, facilitated by the blockchain solution Sam uses, gave Sam a chance to be successful in his day.
In conclusion, a blockchain solution has the potential to solve some of supply chain management and logistics’ most systemic challenges surrounding communication. Not only that, but blockchain solutions also have the potential to release a wave of logistics efficiency improvements on a scale comparable only to the effects that containerization has had on supply chain management.
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