5 Ways Blockchain Will Revolutionize Supplier Management

There was a time when we used old-school ledgers to track our business relationships, and they were written with absolute clarity to deliver absolute trust.

Parties entered into an agreement with an understanding that the detailed transaction records of a ledger were unaltered and binding. But still there was room for human error.

As with almost everything, technology is transforming what we know and how we function within our own knowledge base. The same can be applied to the old-school ledger. Now, thanks to blockchain technology, the business of trust can be cryptographically secured and distributed among all parties involved in a transaction, and human error can be eradicated.

What Exactly Is It?

Blockchain is a digital ledger that records transactions between parties and requires consensus among all parties.

Blockchain is immutable, or unchangeable. The cryptographically secure document, or virtual agreement, is a binding, accountability-laden accord that can only be modified with total consensus among all parties involved.

This decentralized chain of certification authenticates and maintains data indefinitely. The result is a secure and traceable workflow record. Ultimately, it can simplify processes, increase transparency and deconstruct silos that too often stand in the way of moving businesses forward.

Five Ways Blockchain Affects Supplier Management

There are several clear advantages to businesses that adopt the technology. Among them:

Tracks in real time. Blockchain can provide up-to-the-minute stat checks. One big issue for major manufacturers and food retailers, for example, is food provenance. In the most recent case in the United States, tainted romaine lettuce triggered a nationwide listeria outbreak. Blockchain can uncover the journey of the food or perishable item and trace it back to the produce farm where it originated and do so almost immediately.

Brian Alster

Enables automation. As digitally secure transaction data becomes part of blockchain agreements, smart contracts (fully or partially executed or enforced contracts devoid of human oversight) can begin automation of the commercial process once agreed-upon terms and conditions are met. With smart contracts, companies can be sure that what was promised is delivered and what is delivered is paid for.

Standardizes processes. Blockchain enables multiparty transaction capability. The resulting transparency and gained access standardizes processes, unifies data silos, and develops technology adoption that makes supply chain interaction and tracking more efficient, compliant, and synchronized.

Creates trust. Blockchain data can be easily distributed to multiple parties and additional party opt-ins, without the fear of corruption or manipulation. It essentially provides a new level of global trust and credibility, and it opens the transaction stream. It also offers immutability — little is more reassuring than being able to verify that no part of a transaction agreement can be tampered with.

Provides opportunities for growth. Blockchain technology is on track to potentially provide robust growth for companies that leverage its power. The standardization and automation of processes will bring clear efficiencies. We’re also seeing early examples where blockchain is being tested and applied effectively in some companies and organizations.

JPMorgan Chase has instituted blockchain for payment transfer in some locations, such as between London and New York.

The government of Estonia is an unlikely leader in the blockchain space; the country has an e-government initiative where all citizens have a digital identity on the blockchain.

The Canadian government is a big leader as well. The CIO who reports directly to Prime Minister Trudeau is working on digital identities for citizens on the blockchain. Japan is also experimenting with cryptocurrency as part of the government’s reserve currency.

Maersk and IBM announced their intention in January to establish a blockchain technology joint venture aimed at identifying efficient and secure methods for conducting global trade.

A platform is currently being tested by a number of their partners, including DuPont, Dow Chemical, and U.S. Customs and Border Protection. All have interest in developing smarter trade processes and streamlining supplier complexity. Their ultimate goal is an open platform in which all players in the global supply chain can participate and extract value.

Challenges on the Journey to Blockchain Adoption

Blockchain is in the early stages of adoption across various industries, so challenges do exist with respect to this exciting and transformative technology.

There are some usability issues as companies seek blockchain’s most effective applications. Resourcing is also an issue, as there simply aren’t yet enough available engineers who are truly skillful with blockchain technology.

So, while the benefits for enterprises, partners, and resource providers along the supply chain promise to be numerous and undeniable, the initial expense to put it in place and operate it could be a near-term hurdle.

Current system integration poses its own set of limitations when transitioning to a blockchain system.

There are only two practical ways of proceeding when adding a blockchain-based system: complete modernization of the current technology, which points to upfront costs; and integrating current technology with a blockchain system, which comes with its own requirements: skilled expertise, finances, and time investment.  

Then there’s the age-old issue of regulation and governance. Whether you believe regulation is a hindrance or an advantage, the fact is that blockchain is a relatively new tool that will undoubtedly trigger the development of guidelines and guardrails from federal regulators.

One regulatory challenge of blockchain technology derives from the nature of the technology itself. A core part of the design is to provide a layer of anonymity in transactions.

Within a blockchain network, an entity is defined by a 64-digit alphanumeric key called a public key or wallet. In order to increase transparency and address the regulatory need for verified identities, validated business or individual identity data needs to be linked with each blockchain public key, a process similar to assigning a domain name to an IP address. Doing so can help mitigate systemic risks around, for instance, AML/KYC in this emerging ecosystem.

Real-world implications could be found in industries ranging from micro-banking in developing countries to the food-and-beverage supply chain. For example, produce shipments can pass through dozens of organizations before reaching a grocer’s aisle. Using blockchain to track all interactions associated with shipments could potentially help identify sources of contaminated foodstuffs and prevent wide distribution to the public.

Looking further ahead, closed industry blockchains will create records that are irrefutable and unbreakable, building trustworthiness among transacting parties and potential new members. Associated improvements to entity identification could seamlessly integrate into compliance-screening abilities and improve reputation management, all through the next generation of supply chain management on a distributed ledger.

Brian Alster is the global head of supply and compliance products at Dun & Bradstreet. With nearly two decades of experience in the financial services industry, he previously served as a director at JPMorgan Chase and a senior vice president at Bank of America.