After it emerged in 2008, the technology behind the world’s most notorious cryptocurrency, Bitcoin, has kept the court on the edge, attracting the attention of mostly startups and the financial services sector. However, it has recently started to receive a lot of attention as companies are gradually realizing that it could be useful for many other things as well, other than tracking payments.
Simply put, a blockchain is a distributed book that sorts transactions into blocks. Each block is tied to the one before it, using sophisticated math, all the way to the first transaction. Entries are permanent, transparent, and searchable, allowing community members to fully review transaction histories. Each update forms a new “block”, added to the end of the “chain” – a structure that makes it difficult for anyone to change records at a later stage. The general ledger enables the recording and exchange of information between large groups of unrelated companies, and all members must collectively confirm all updates – which is in everyone’s interest.
To date, a lot of attention and money has been spent on financial applications for this technology. However, an equally promising case test is the relationship with the global supply chain, whose complexity and diversity of interests represent precisely the types of challenges that this technology seeks to address.
A simple application of the blockchain paradigm to the supply chain could be to register the transfer of goods to the general ledger, as transactions would identify the parties involved as well as price, date, location, product quality and condition and any other information relevant to supply chain management. The cryptographic and immutable nature of transactions would make it almost impossible to compromise the general ledger.
Many startups and corporations use blockchain to invent their global supply chain and run their business more efficiently:
1. For Maersk, the world’s largest shipping company, the challenge is not to keep track of the famous rectangular shipping containers that sail the world on cargo ships. Instead, it tours the mountains of paperwork associated with each container. One container may require stamps and approvals from as many as 30 parties, including customs, tax officials and health authorities, deployed in 200 or more interactions. Although the containers can be loaded onto the ship in a few minutes, the container can be kept in port for days because a piece of paper disappears while the goods in it spoil. The cost of moving and tracking all of these papers is often equal to the cost of physically moving containers around the world. The system is also fraught with fraud because valuable bills of lading can be planted or copied, allowing criminals to siphon goods or circulate counterfeit products, leading to billions of dollars in maritime fraud each year.
Last summer, Maersk asked for cooperation from customs authorities, freight forwarders and manufacturers filling containers. With these partners, she began her first trials of a new digital shipping book for shipping routes between Rotterdam and Newark. After signing the document, the customs authorities could immediately send a copy of it, with a digital signature, so that everyone else involved – including Maersk himself and other state authorities – could see that it was complete. If disputes arose later, everyone could go back to the records and be sure that no one had changed it in the meantime. Included cryptography also makes it difficult to forge virtual signatures.
The second test followed all the papers related to the container with flowers that moved from the port of Mombasa in Kenya to Rotterdam in the Netherlands. As both tests went well, Maersk monitored containers with pineapples from Colombia and mandarin oranges from California.
2. Like most retailers, Wal-Mart struggles to identify and remove food that needs to be recalled. When a customer becomes ill, it can take weeks to identify the product, shipment, and supplier. To correct this, she announced last year that she would start using a blockchain to record and record the origin of products – crucial data from a single account, including suppliers, details of how and where food is grown and who inspected it. The database extends information from a palette to an individual package.
This gives him the ability to immediately find out where the dirty product came from within a few minutes versus the day, as well as to capture other important attributes in order 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 finished version can be prepared within a few years.
3. BHP relies on suppliers at almost every stage of the mining process, contracting with geologists and shipping companies to collect samples and conduct analyzes that lead to business decisions involving multiple parties deployed on continents. These suppliers typically track stone and fluid samples and analysis via email and spreadsheets. A lost file can cause big and expensive headaches, as the samples help the company decide where to drill new wells.
The BHP solution, which began this year, uses a blockchain to record the movement of rock and fluid samples from wells and better provide real-time data generated during delivery. Decentralized file storage, multi-party data collection and immutability, as well as immediate availability, are all aspects that will improve its supply chain.
BHP has now required its suppliers to use a live data collection application – with a dashboard and options on what to do, which are greatly simplified for their business. The technician taking the sample can attach data such as the time of collection, the laboratory researcher can add reports and all will be immediately visible to anyone who has access. No more lost patterns or crazy messages. Although certain elements of the process are the same, the new system is expected to drive internal efficiency, while enabling BHP to work more efficiently with its partners.
For now, in most of the first implementations, the blockchain runs in parallel with current company systems – often older databases or spreadsheets like Microsoft’s Excel. The hardest part will be creating new business models. Introducing a company-wide blockchain means that companies will often have to discontinue existing business processes and start from scratch. The venture is not for the faint of heart.