Why Blockchain Matters to Supply Chain Executives

Although chief supply chain officers (CSCOs) might have heard the term blockchain, few have a deep understanding of what blockchain is and is not and how it may impact supply chains in the years ahead. Blockchain challenges supply chain leaders who need to know how to respond to its potential without wasting time, money and resources on initiatives that will not progress.

“CSCOs must resist the urge to implement a trial run of blockchain without clearly establishing the core business drivers as to where blockchain will add value. More often than not, blockchain will not be the best solution,” says Alex Pradhan, principal research analyst at Gartner.

What is blockchain?

Blockchains create decentralized, distributed and digital records of transactions that are anonymous, tamperproof and unchangeable. This technology establishes trust among unfamiliar or unknown partners by ensuring that every successful transaction is recorded and stored in multiple locations across the entire distributed network. Complex mechanisms are put in place to validate the accuracy and integrity of transactional information. Finally, in theory, there is no intermediary, although this is not always the case. This greatly eliminates the opportunity for criminal interventions or invalidated transactions.

Do I need blockchain?

Seeing the potential, many tech companies have started to offer blockchain services to support company needs — but CSCOs should be cautious. Many mature technologies that already exist can accomplish some of the tasks that vendors may advertise. Be sure you’re only exploring blockchain technology for problems that actually need a blockchain solution. For example, many companies have begun to explore the idea of a permissioned blockchain, as opposed to a completely decentralized blockchain. The permissioned blockchain is utilized by a group of known users who all agree what information will be shared ahead of time. However, in this example — and others — companies run the risk of using blockchain when another solution would be equally or even more useful.

Blockchain in supply chain

The increasing complexity of supply chain makes blockchain a good potential solution for three supply chain issues: Counterfeit, visibility/traceability and efficiency play. Raw materials and products in supply chains increasingly travel through multiple suppliers, manufacturers, geographical locations and stakeholders. This means that organizations handling the product or materials and other enterprises in the supply chain might not even be aware of possible issues. Theoretically, enterprises should know every partner in the supply chain, but that may not be realistic in today’s world.

Though adoption at scale is likely at least 10 years away or more, CSCOs should start to consider the potential application of blockchain within the enterprise, albeit with a heavy amount of skepticism. Today, it’s not possible to simply go and purchase a blockchain tool, and many of the technology’s current vendors  will probably be replaced by new and different providers. However, now is a good time to explore the technology alongside peers and begin formalized discussions about the applications of blockchain.