Blockchain in Logistics and Supply Chain

A veteran of the logistics industry, Jason Ickert has more than 20 years’ experience providing creative and innovative supply chain solutions to North America’s largest shippers. At his role at FLS Transportation Services, Jason focused on building highly effective teams that deliver profitable revenue growth while providing an exceptional customer experience throughout their buyer’s journey. View the original article.

The Only Constant is Change.
Recently, the logistics and supply chain industry has been rife with disruption. Even though these events have significant supply chain cost ramifications I am not referring to the perfect storm (see note below) we are experiencing in the North American transport market. I am referring instead to innovative disruption, specifically the conceptual rise of the digital freight forwarder/broker, and segments of the traditional supply chain that can be digitized. 

*The perfect storm of 2017 was the terrific combination of natural disasters, implementation of Electronic Logging Devices (ELD’s), and the improvement in the economic health of North America that caused a significant capacity constraint in the market.

The Awakening.
If the Amazon effect and the Uberization of trucking caught you by surprise, it may be because you’ve been focused on the tactical execution of your business; especially those activities that create shareholder value, and pay the bills. When we lifted our nose from the grindstone, we realized that the awards, accolades, and more importantly the venture capital and private equity money was going to disruptors; digital innovators who were creating new markets, rendering irrelevant the traditional value we assigned to our services, and using contemporary marketing methods to convert even the most loyal of our clients.  

The Jury May Still Be Out...but. The profitability model of the digital forwarder/broker is still to be proven, but nonetheless, has forced many of the traditional logistics companies to up their game and rethink how digitalization will impact their business. In the digital economy, early adopters of innovative technology will separate them from their competitors by offering a value proposition that will be unsurpassed. Those who do not adopt early will fall behind, and risk losing their business altogether. 

The Next Disruption. 
The end goal of disruptors in the logistics and supply chain space isn’t necessarily to build a better mousetrap that competes in the traditional market, but rather to displace and render to the past the market altogether. In freight brokerage, the rise of the digital broker is attempting to do just that; displace the voice broker through the adoption of new technology which eliminates manual processes and effectively reduces costly human capital. In so doing, cost drivers are cut out of the transaction, and the savings is passed along to other participants in the supply chain.

The IoT is an Accelerator.
The speed at which technology is advancing increases exponentially by the day. As the Internet of Things (IoT) continues to grow at a rapid rate, sensors and devices are becoming more commonplace to communicate information. The fiscal success of each firm is dependent on how they aggregate data from the IoT, report experiential results, add predictive analytics, formulate insights and make business decisions. 

Is Blockchain the Answer...or Does it Merely Beg Additional Questions? 
Visibility, traceability, transparency and security are the hallmarks of a successful supply chain strategy. Sourcing, manufacturing, and delivery in the global marketplace is a complex chain of events that can be rife with risk, including outright fraud.

Blockchain is a digital ledger technology capable of recording transactions and storing their data in immutable blocks across a distributed network. Blockchain enables a digital supply chain and creates a peer-to-peer system of commerce that can communicate with existing technologies and systems in the economy, but is distributed so it cannot be owned or imbalanced by a single participant. 

The markets and companies participating in the logistics and supply chain industry are ideal candidates for the introduction of blockchain technology for a number of reasons:

  • Multiple Participants in Supply Chain Transactions each with Disparate Information Systems
  • High Risk for Fraud/Lack of Trust 
  • Participants Desiring Mutual Goals
  • Movement Toward Contemporary Enabling Technologies 

The difficulty in defining the value of blockchain in logistics lies in how physical goods flows can be synced with digital flows. In the process of selling, buying, transportation, storage and distribution of goods, there is an interdependency between financial transactions and the good’s movement. Each slows the other, and thus allows for an increase in cycle times. Practically speaking, blockchain based approaches allow for digital transactions to occur securely and without the inherent need for a middleman. The transactions are recorded in a manner that cannot be falsified or destroyed without each of the participants being aware.

While blockchain could change the face of logistics and supply chain as we know it, the concept is easier to imagine than the practice is to apply. However, once realized and applied, there is a value that can be derived. Specifically, blockchain can: 

  • Provide Currencies and Funding
    Mechanisms that Offer More Liquidity and Faster Payment Options 
  • Reduce or Eliminate Fraud 
  • Reduce Errors through Improved Compliance, 
  • Accuracy and Transparency
  • Increase Participant Trust
  • Automate Transactions 
  • Automate the Internet of Things (IoT)
  • Improve Inventory Management
  • Reduce Delays in Transferring Paperwork  
  • Identify Issues and Errors in Real Time

Blockchain’s Shiny Objects.
Perhaps the most exciting concept blockchain technology promises is transparency and traceability, as well as the exchange of information across a trustless ecosystem of participants, and the ability to streamline manual processes through smart contracts.

Here is an example of how blockchain might function following a transaction that starts at a factory and delivers to a store using IoT integrated technology, and a distributed permissioned blockchain platform designed to exchange event data and handle documented workflows. 

Released from the factory, an IoT enabled package (containing sensors that might measure geospatial position, barometric pressure, humidity and temperature) transmits immediate and contemporaneous status information as it passes through multiple service providers from factory to store. Using IoT, any asset can be tracked, including the chronological and geospatial history, and all changes of ownership. No one can tamper with the information or cheat the system because everyone has a copy of the safe data as it evolves in an append only database.

The business contract specifies the conditions that must be met during the shipment, and all parties must adhere to the terms of the smart contract. A sensor embedded in each of the packages sends the data to the cloud where it is shared among all participants and stored publicly or pseudo-anonymously in a database. The package is delivered to the store, entered into inventory, and upon purchase, delivered to a satisfied customer.  

Using blockchain allows all supply chain participants to access product and shipment data in real time without requiring central control, execute business specific smart contracts, and store transaction data in a secure way for multi-party interaction.

In the above example, when the contractual obligations are met by an intermediary, the smart contract is satisfied, payment is automatically approved, and parties are paid according to negotiated terms. 

Blockchain Integration and Visibility.
The data remains nothing more than 0’s and 1’s without integration and aggregation. In order to participate in blockchain technology, each party needs to be able to become a member of the permissioned network, participate in appending real-time blockchain data, and then be able to amend and approve blockchain amendments. Because of the speed at which updates to blockchain are required, and the disparate networks from which the information originates, the best answer for blockchain implementation is Application Programming Interface (API). APIs are the technology that enable visibility and automation, and are at the core of digitalization.  

Contemporary technology, such as Electronic Data Interchange (EDI) really doesn’t allow for real-time speed in the transfer of information. Neither does it interface as simply or allow the efficiency API technology delivers to the marketplace. APIs are being utilized extensively today as we connect with our digital environment, search the internet, perform online banking, and interact with social blockchain visibility, integration and interactivity will be mainstreamed going forward.

How Seriously are Businesses Taking this Disruption?
In November of 2016, Deloitte commissioned a survey of 308 United States based senior executive on the topic of blockchain technology, with each executive representing a company generating $500 million or more in annual revenues. Some of the more interesting findings included:

  • Nearly 40% of respondents indicated they had little to no knowledge of blockchain technology
  • 55% stated they would be at a competitive disadvantage if they failed to adopt the technology
  • More than 25% viewed blockchain as a critical, top-five priority
  • Roughly 33% viewed the technology as over-hyped
  • 28% reported their companies had already invested $5 million or more in the technology
  • An additional 25% expected to spend $5 million or more in the 2017 calendar year

Digitization is a Big Challenge. Lead Logistics Providers (LLP’s) have traditionally been integrators and aggregators of supply chain processes and information, as well as intermediaries that control and deliver goods and transmit data across the globe. Even in today’s global economy, there are many supply chain participants saddled with large and seemingly unwieldy legacy systems who have a desire to partner with a LLP who is a demonstrated leader in the adoption of new technologies. Having already established connections between logistics and supply chain participants, including their client’s trading partners and intermediaries, the LLP is well positioned to bring these parties into a permissioned ecosystem and work with their clients to identify and prioritize use cases for blockchain.

Perhaps one of the most valuable conversations LLP’s are having with their clients is how they can utilize innovative technology to support them through their own journey to digitization while at the same time improving service, reducing cost, and sharing information in a way that will increase their supply chain efficiency. As we consider the future of our industry, and the impacted markets, one thing remains clear, the only constant is change.

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