Blockchain Improves Supply Chain Performance
July 14, 2017
The political shocks of the past eighteen months have had some unexpected consequences. In Europe, Brexit has pushed debate about free trade agreements on to the front pages of the national newspapers. Never before have non-tariff barriers, customs unions, and country-of-origin checks been so widely discussed.
Meanwhile, Trump’s attitude towards TPP, and his administration’s apparent commitment to trade deals more beneficial to the US, have had similar effect. The suddenly-scrutinized supply chains for sugar, or car parts, or raw steel, look as if they are in for something of a bumpy ride as old alliances and relationships crack under the strain of the new, and quixotic, political order.
Trust and technology
Associates in global supply chains may need to find new partners, buyers, and sellers as familiar faces depart for more politically amenable – or indeed regulatory mandated – waters. All of which means that the already complex business of managing an international supply chain in a highly-globalized market is getting even more complicated – and much-needed trust and security will be in shorter supply than before.
Fortunately, technology is being developed that could make it much easier – or at least more efficient and more reliable – to develop a trusted supply chain and ensure that new routes to market are established quickly.
Blockchain creates a distributed ledger in which all users can monitor activity, record all transactions, and publish all activity to an entire community. Once a transaction is entered and time-stamped in the ledger, it cannot be altered. Anyone who joins the blockchain network can contribute to this process of continuous monitoring and arbitration.
The result is an immutable, unassailable, and mutually agreed record. And it is this record, or ledger, that is getting commodities business excited, as similar ledgers could be deployed to record and validate any type of transaction series.
Private blockchains for commodity trading
Much of today’s blockchain development is focused on private blockchains which are attracting huge amounts of attention among the FinTech and financial services communities, as well as technology thought leaders like IBM – who, by the end of 2016, had invested $1.4 billion in blockchain start-ups around the world.
This how it would work. A supply chain community would form a private blockchain. Participants would create rules for the ledger, and enforce contracts or transactions based on predefined conditions that all parties agree to upfront. Members can then register the transfer of goods on the community’s distributed ledger, which could include information on the parties involved, the price, date, location, quality, current condition of the goods or products, and any other information relevant to managing the value chain.
Because this information is visible to every participant in the chain at all times, every change, disruption, delay, and movement is completely open to everyone involved. Any updates can be logged and made immediately visible to all participants – so there are no nasty surprises or hidden costs to undermine profit margins.
With supply chains in a state of flux, that visibility is almost as valuable as the commodities being traded and transported. What’s more, transparency and automatic compliance can reduce conflict, confusion, and manipulation of data, minimize fraud, hasten dispute resolution, and avoid litigation – with all the efficiency improvements that implies.
Such is the potential of blockchain for global supply chains, that IBM’s latest estimates suggests potential annual savings of more than $100 billion – with a substantial proportion coming from more efficient commodity movements.
Veracity, visibility and validation
Blockchain’s ability to provide instant validation and visibility to all participants, to provide trusted automation of transactions, and to enforce contracts without third-party oversight provides a major step forward for commodity traders. It can also help users derive even greater value from their CTRM platforms – not least by guaranteeing the veracity of the data being fed into commodity analytics models.
Blockchain enables better control, reduced paperwork, and increased efficiency, and when coupled with Eka Analytics enables commodity market participants to make better, faster decisions and get a jump on competitors.