Since the advent in 2008 of the technology behind the world’s most famous cryptocurrency, bitcoin, it has held trial on the edge, attracting the attention of mostly startups and the financial services sector. However, it has recently started to get a lot of attention as companies are gradually realizing that it can be useful for many other things besides tracking payments.
Simply put, a blockchain is a distributed book that sorts transactions by blocks. Each block is chained to the previous one, using complex mathematics, right up to the first transaction. Records are permanent, transparent, and searchable, allowing community members to view transaction history completely. Each update is a new “block” added to the end of the “chain” – a structure that makes it difficult to change records at a later stage. The book allows you to record and share information between large groups of unrelated companies, and all members should check all updates – which is in everyone’s interest.
To date, a lot of attention and money has been spent on financial applications for this technology. However, no less promising test is the global relationship in the supply chain, the complexity and diversity of interests which create such problems that this technology seeks to solve.
A simple application of the blockchain paradigm to the supply chain can be to record the transfer of goods to the book, as transactions identify participants as well as price, date, location, product quality and condition and any other information that will be relevant to supply chain management. The cryptographic and immutable nature of the transactions will make it virtually impossible to compromise the book.
Many startups and corporations are now deploying the blockchain to rethink their global supply chain and run their businesses more efficiently:
1. For Maersk, the world’s largest shipping company, the challenge is not to track familiar rectangular shipping containers floating around the world aboard cargo ships. Instead, it bypasses the mountains of paperwork associated with each container. One container may require stamps and permits from approximately 30 parties, including customs, tax, and health authorities, that cover 200 or more interactions. While the containers can be loaded onto the ship in minutes, the container can be kept in port for days as the sheet of paper disappears and the goods inside spoil. The cost of moving and accounting for all of these documents is often equal to the cost of physically moving the container around the world. The system is also fraught with fraud, as a valuable consignment note can be forged or copied, allowing criminals to divert goods or distribute counterfeit products, leading to billions of dollars in maritime fraud each year.
Last summer, Maersk sought cooperation with customs authorities, freight forwarders and manufacturers who fill containers. He began conducting the first trials of a new digital ledger with these partners for shipping routes between Rotterdam and Newark. After signing the document, the customs authorities could immediately upload a digitally signed copy so that everyone else, including Maersk himself and other government agencies, could see that it was complete. If there were disputes later, everyone could go back to the record and be sure that in the meantime no one had changed it. Participation in cryptography also makes it difficult to forge virtual signatures.
The second test traced all documents related to a container of flowers that was moving from the port of Mombasa in Kenya to Rotterdam in the Netherlands. As both tests went well, Maersk traced containers with pineapples from Colombia and tangerine oranges from California.
2. Like most retailers, Wal-Mart struggles to identify and remove food that needs to be recalled. If the customer falls ill, product identification, shipment and seller may take several weeks. To remedy this, last year he announced that he would start using a blockchain to record and register the origin of products – critical data from a single receipt, including suppliers, details of how and where food was grown and who inspected it. The database distributes information from the pallet to a single package.
This allows him to immediately find out where the spoiled product came from, a few minutes before the day, and capture other important attributes to make an informed decision about the flow of food.
Wal-Mart has already completed two pilot programs – moving pork from Chinese farms to Chinese stores and producing products from Latin America to the U.S. – and is now confident that the finished version can be assembled within a few years.
3. BHP relies on suppliers at virtually every stage of the mining process, contracting with geologists and shipping companies to collect samples and conduct analyzes that drive business decisions involving multiple parties distributed across continents. These vendors typically track rock and fluid samples and analyzes using emails and spreadsheets. A lost file can cause big and expensive headaches as the samples help the company decide where to drill new wells.
BHP’s solution, which began this year, is to use a blockchain to record the movement of rock and liquid samples and better real-time data security generated during delivery. Decentralized file storage, multi-faceted data collection and immutability, as well as immediate availability are all aspects that will increase the supply chain.
Now BHP has required vendors to use a real-time data collection app – with a dashboard and what-to-do options that are highly optimized for their respective jobs. The technician taking the sample can attach data such as collection time, the lab researcher can add reports, and everything will be immediately visible to anyone who has access. No more lost samples and crazy messages. Although some elements of the process are the same, it is expected that the new system will contribute to internal efficiency by allowing BHP to work more effectively with its partners.
Currently, most of the first blockchain deployments run in parallel with existing company systems – often old databases or spreadsheets, such as Microsoft Excel. The most difficult will be to create new business models. Placing a blockchain throughout an enterprise means that companies will often have to abandon existing business processes and start from scratch. Aspiration is not for the faint of heart.