How blockchain can reinvent the global supply chain

Since its emergence in 2008, the technology behind the world’s most infamous cryptocurrency, Bitcoin, has been courting the border, drawing attention from most startups and the financial services sector. However, it has recently started to get a lot of attention as companies are slowly realizing that it can be valuable for many other things besides payment tracking.

Simply put, a blockchain is a distributed ledger that sorts transactions into blocks. Each block is chained to the first one using sophisticated math until it returns to the first transaction. Entries are permanent, transparent, and searchable, making it possible for community members to view their entire transaction history. Each update creates a new “block”, added at the end of the “chain” – a structure that makes it difficult to correct records at a later stage. Ledger allows information to be recorded and shared among large groups of unrelated companies, and all members must collectively verify any updates – which are in everyone’s interest.

To date, a lot of attention and money has been spent on financial applications for technology. However, there is a global supply chain relationship in the case of an equally promising test, the complexity of which and the diversity of interests create exactly the kind of challenges that this technology seeks to address.

A simple application of the blockchain instance in the supply chain is to register the product transfer in the ledger, as the transaction will identify the parties involved, as well as the price, date, location, quality and condition of the product and any other information relevant to the supply chain operation. The cryptography-based and unchanging nature of the transaction will make it almost impossible to compromise with the laser.

Now, a number of startups and corporations are setting up blockchains to redesign 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 the known rectangular shipping containers that sail the world by cargo ship. Instead, it is circling the pile of papers attached to each container. Stamps and approvals from 30 parties, including customs, tax officials and health authorities, may be required to spread across 200 or more interactions in a single container. Although containers can be loaded onto a ship within minutes, a container can be held at port for several days because a piece of paper is lost, and the cargo inside is lost. The cost of moving and keeping track of all these papers is often equal to the cost of physically moving the container around the world. The system is also prone to fraud because valuable bills of lading can be manipulated, or copied, allowing criminals to snatch goods or promote counterfeit goods, resulting in billions of dollars in maritime fraud each year.

Last summer, Maersk sought the cooperation of customs authorities, freight forwarders and manufacturers filling containers. It has begun the first trial of a new digital shipping laser with these partners for shipping routes between Rotterdam and Newark. After signing a document, the customs authority can immediately upload a copy of it with a digital signature, so that everyone else involved – including Maersk himself and other government authorities – can see that it has been completed. If there is a dispute later, everyone can go back to the record and be confident that none of them changed it. The cryptography involved makes it difficult to forge virtual signatures.

The second test tracked all the paperwork related to going from the port of Mombasa in Kenya to Rotterdam in the Netherlands in a flower pot. If both trials go well, Mersk tracks in containers with pineapple from Colombia and mandarin oranges from California.

2. Wal-Mart, like most merchants, struggles to identify and remove foods that need to be withdrawn. When a customer becomes ill, it can take weeks to identify the product, invoice, and seller. To remedy this, it announced last year that it would begin recording and logging product sources using blockchain – including suppliers, important data from a single receipt, details of how and where food was grown and who visited it. Extends information from the database palette to individual packages.

This enables it to instantly find out where a tainted product came from in a matter of minutes, as well as capture other important features for making informed decisions about food flow.

Wal-Mart has already completed two pilot programs – shifting pork from Chinese farms to Chinese stores and producing from Latin America to the United States – and is now convinced that a finished version can be assembled in a few years.

3. BHP relies on vendors at almost every stage of the mining process, collects samples by conducting contracts with geological and shipping companies, and conducts analysis that manages business decisions involving multiple parties distributed across the continent. These vendors usually keep track of rock and liquid samples and analyze with emails and spreadsheets. A lost file can cause big and expensive headaches because the samples help the company decide where to drill new wells.

BHP’s solution, launched this year, is to use blockchain to record the movements of wellbore rock and liquid samples, and to better secure real-time data generated during delivery. Decentralized file storage, multi-party data acquisition, and instability as well as instant accessibility are all aspects that will enhance its supply chain.

BHP is now forcing its vendors to use an app to collect live data – with a dashboard and the options for what to do are very streamlined for their respective tasks. A technician taking a sample can attach data such as during collection, a lab researcher can add a report, and it will be immediately visible to those who have access. No more lost samples or crazy messages. Although some components of the process are similar, the new system is expected to drive internal capabilities and allow BHP to work more efficiently with its partners.

For the time being, for the most part, the blockchain runs parallel to the company’s current system – often an old database or spreadsheet like Microsoft’s Excel. The hardest part will be creating new business models. Blockchain enterprise-wide deployments mean companies often have to scrap their existing business processes and start from scratch. An effort not for the faint of heart.