Since its inception in 2008, the technology behind the world’s most famous cryptocurrency, Bitcoin, has kept the court on edge, attracting attention mostly from start-ups and the financial services sector. Recently, however, it has begun to receive 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 into blocks. Each block is nailed to the one before it, using complex mathematics, right up to the first transaction. The records are permanent, transparent and searchable, which allows community members to view the history of transactions in their entirety. Each update is a new “block” added at the end of the “chain” – a structure that makes it difficult for anyone to modify the records at a later stage. The book allows the recording and sharing of information between large groups of unrelated companies and all members must collectively check for any updates – which is in everyone’s interest.
To date, a lot of attention and money has been paid to financial applications for the technology. However, an equally promising test case is the global supply chain relationship, whose complexity and diversity of interests pose exactly the types of challenges that this technology seeks to meet.
A simple application of the blockchain paradigm to the supply chain could be to register the transfer of goods in the register, as transactions would identify the parties involved, as well as the price, date, location, quality and condition of the product and any other information that would be relevant to supply chain management. The cryptography-based and unchanging nature of the transactions would make it almost impossible to compromise the ledger.
Many startups and corporations are now deploying blockchain to rediscover their global supply chain and manage their business more efficiently:
1. For Maersk, the world’s largest shipping company, the challenge is not to keep track of the familiar rectangular shipping containers that sail around the world on board cargo ships. Instead, he goes around the mountains of documents attached to each container. One container may require stamps and approvals from up to 30 countries, including customs, tax officials and health authorities, distributed in 200 or more interactions. While the containers can be loaded on a ship in minutes, the container can be detained at the port for days because a piece of paper disappears while the goods inside spoil. The cost of moving and tracking all these documents is often equal to the cost of physically moving the container around the world. The system is also fraught with fraud, as the valuable bill of lading can be tampered with or copied, allowing criminals to siphon goods or distribute counterfeit products, leading to billions of dollars in maritime fraud each year.
Last summer, Maersk sought cooperation from customs authorities, freight forwarders and manufacturers who fill containers. He began his first trials of a new digital book on shipping with these partners, on transport routes between Rotterdam and Newark. Once a document has been signed, the customs authorities can immediately upload a digitally signed copy so that all other participants – including Maersk himself and other public authorities – can see that it is complete. If there were disputes later, anyone could go back to the recording and be sure that no one had changed it in the meantime. Included cryptography also makes it difficult to falsify virtual signatures.
The second test tracked all documents related to a flower container moving from the port of Mombasa, Kenya, to Rotterdam, the Netherlands. As both attempts went well, Maersk followed up on containers of Colombian pineapples and mandarin oranges from California.
2. Like most retailers, Wal-Mart struggles to identify and eliminate the food that needs to be called. When a customer becomes ill, it can take weeks to identify the product, shipment and seller. To correct this, he announced last year that he would start using a blockchain to record and record the origin of produce – crucial data from a receipt, including suppliers, details of how and where the food was grown and who inspected it. The database extends the information from the pallet to the individual package.
This allows him to immediately find out where the contaminated product comes from in a matter of minutes versus days, as well as 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 production from Latin America to the United States – and is now confident that a completed version can be drawn up within a few years.
3. BHP relies on suppliers at almost every stage of the extraction process, concluding contracts with geologists and shipping companies for sampling and analysis, which manage business solutions involving multiple countries spread across continents. These providers typically track rock and fluid samples and analyzes with emails and spreadsheets. The lost file can cause big and expensive headaches, as the samples help the company decide where to drill new wells.
The BHP solution, which launched this year, uses a blockchain to record the movements of rock and fluid samples in the borehole and better protect the real-time data generated during delivery. Decentralized file storage, versatile data collection and consistency, as well as immediate accessibility are all aspects that will improve its supply chain.
BHP now requires its providers to use a live data collection application – with a dashboard and what-to-do options that are highly streamlined to their respective jobs. A technician who takes a sample can attach data such as collection time, a laboratory researcher can add reports and all will be immediately visible to anyone who has access. No more lost samples or frantic messages. Although some elements of the process are the same, the new system is expected to stimulate internal efficiency while allowing BHP to work more effectively with its partners.
So far, in most first implementations, the blockchain works in parallel with the company’s current systems – often older databases or spreadsheets such as Microsoft’s Excel. The hardest part will be creating new business models. Implementing an enterprise-wide blockchain means that companies will often have to eliminate their existing business processes and start from scratch. An endeavor not for the faint of heart.