Why Blockchain Falls Short In Supply Chain Management

Blockchain has been a mixed bag from the start. A technology that gave birth to revolutionary ideas was quickly exposed to the harsh reality. People were not welcoming, and many could not understand how and why we needed it. But now and then, developers come up with efficient ways to implement the technology and shake up conventional approaches.

This is what happened to supply chain management when blockchain solutions were introduced.

The Walmart Way

Walmart is a household name. A huge supermarket chain dealing with everything from pillows to oranges. It’s not entirely surprising that the company is always looking to polish and modernize its practices.

In 2016, Walmart began the development of a solution for tracing grocery products using blockchain. Along with IBM, the company launched the Walmart Food Traceability Initiative. For that to function, suppliers had to include information about each purchase from farmers or manufacturers in the blockchain. But thanks to technology, what used to take hours or even days is now possible in seconds. Retailers could check the origins of products quickly.

Walmart Canada introduced blockchain when the time came to solve long-standing issues with invoices and payments for freight carriers. The company oversees supply for Walmart stores all over Canada. Each carrier has plenty of information that needs to be reflected in an invoice, including fuel, stops, temperature updates for perishable goods, etc., over 200 data points in general. In such cases, a small discrepancy can cause premature expiration and subsequent financial loss. And to anyone familiar with blockchain it truly seems like a perfect solution.

Walmart Canada partnered with DLT Labs to develop a solution based on distributed ledger technology. The company has deemed it a success, stating that about 1% of invoices have to be disputed (compared to 70% before the implementation).

Plenty Of Oil And Fish

Walmart might be the biggest adopter of blockchain, but it’s not the only one. Various companies, from diamond sellers to fish manufacturers, distribute blockchain-enabled goods. And, most of them follow the largest retailer’s experience.

Abu Dhabi National Oil Company has even implemented a similar IBM-designed tracing system to monitor and manage oil and gas supplies. Once again, transparency is listed as an advantage as the information is available to “everyone who needs to see it.”

Needless to say, blockchain could be a fan favorite for businesses big and small. A bunch of buzzwords that increase trust can make for good publicity, and innovation is always a must.

The Good And The Bad

Not only can blockchain allow for lightning-fast access to any information about products, but it also inspires developers and retailers alike to develop new solutions.

Blockchain can remove the need for third parties such as auditors, which lowers the cost of products.

A case study of Walmart’s blockchain experience lists several additional advantages of using distributed ledger technology.

• A single block can contain information about manufacturers, including labor practices.

• Blockchain allows traceability.

• Blockchain helps eliminate unnecessary steps in supply chains.

• An automated supply chain helps lower the cost of products.

But like every other idea that serves humanity, this sounds too good to be true. If anything, we know very well how little the digital world truly correlates with the physical one.

First of all, the question of public vs. private blockchain is raised. Most of the aforementioned solutions work on a private ledger (i.e., it’s accessible and changeable by its users only). So the retailer can check the origins of products and make sure everything is in order. But a customer can’t necessarily do the same. Sometimes due to lack of knowledge, others—due to lack of access.

If an instance occurs in which the retailer and the supplier find it necessary to withhold information from a customer, the latter is left completely unprotected.

Aside from access, we are facing another issue: A public blockchain has thousands of validators, while a private chain has only a few. Transparency for everyone is one of the fundamental principles of blockchain, and the authenticity of any information on a private chain remains questionable.

At the end of the day, what tells a customer that the product they are buying is authentic? The level of trust for multimillion conglomerates has probably never been lower. And it’s not like every diamond or fish has a special tracking number. None of that protects customers from purchasing an illegally obtained product or forces sellers to avoid unethical manufacturers. On the contrary, the veil of transparency that isn’t quite clear to everyone could be covering more than it shows.

Even if some issues like blockchain-powered tracing of products in real-time are not quite achievable just yet, we should be looking for new possibilities. Speed and accuracy within the process may be a priority for a supplier, but the ultimate goal should be to enable access to every participant, from a farmer in Iowa to a customer in D.C.

It’s A Virtual World After All

At this time, we likely could benefit way more from involving this technology in the management of digital or virtual goods: software, digital items and even working hours. The latter opens up curious possibilities in the current environment. For instance, a company that is under sanctions closes its HQ in one country and opens a proxy HQ in another. While management may have relocated, casual workers remain in their original location, working under a VPN. If we employ a blockchain solution and distribute working hours through a public blockchain, circumvention of sanctions would be harder, if not impossible.

Blockchain delivers the most necessary element for any supply chain—unalterable data storage. Still, we could benefit way more from involving this technology in the management of digital or virtual goods. And that’s something to work on.

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