Disruptive technologies are a big challenge for all organisations. These technologies can turn industries, marketplaces and dominant business models upside down. The focus of this article is on digital transformation and how this will influence future business transactions, data management and how decisions are taken. The last few years has seen some exciting research around innovative technological tools and how they will potentially cause significant disruption, examples include Artificial Intelligence, Industry 4.0, Internet of Things and blockchain. These tools have the potential to provide several opportunities (for example, traceability, transparency, performance measurement) within the supply chain environment. However, the development and implementation of these tools is still evolving.
Blockchain is one such tool that has garnered much attention and has the potential to disrupt the ecosystem of supply chain transactions. Recently, there has been an exponential rise in the number of articles, both professional and academic, on blockchain technology and its implementation. The consensus is that this technology is moving away from its original area of cryptocurrency and Bitcoin to utility within other business domains. One such domain is the supply chain where the initial foray of this technology has been focused on supply chain provenance. However, most of the work outside the cryptocurrency and fintech domain is still in the pilot stage and hence of a conceptual nature. In this article we present some ideas from our research into blockchain and wider material available in the industrial as well as academic world.
What is a blockchain?
The blockchain in technology circles is viewed as a permanent, immutable distributed ledger to record all transactions of value. What makes the blockchain unique from other data storage technologies is the lack of centralisation, no one individual or entity has overall control over the blockchain, rather it is governed by nodes. Each node involved in a transaction, whether as a direct participant or verifier will have access to the ledger across multiple machines. This allows for decentralisation and for control to be shared across the network, instilling trust into the transaction ecosystem. All transactions which are appended to the blockchain are first verified by members also known as miners. This approach is quite unique and removes intermediaries from the transaction, theoretically creating an efficient and effective transfer of goods and services while minimising cost. In simplistic terms, when a transaction is created (which is also known as a block), the miners will solve a mathematical puzzle to find the unique number (hash) that is attached to the block to create a verifiable, immutable record. This record is attached to the previous block (as part of the chain) and in the future cannot be amended or tampered with. The hashing process conducted by miners requires a large amount of computing power and is one of the disadvantages of the system. The more complex the transaction the longer it can take for the transaction to verify and append to the blockchain.
Blockchain platforms differ in their approach to how the entities can join the network and how the entities are incentivised. The most popular blockchain platforms are Ethereum and IBM’s Hyperledger. The key difference between how entities can join the network is permissions and how they are advocated. A public blockchain is by its very nature a decentralised platform which encourages an open, participative environment where anyone can join to read and write transactions, this is known as permissionless. In contrast to this, a private blockchain is designed for specific users who have privileges to read and write to an enclosed network this is a permissioned system. The key difference between a private and a public blockchain is the role of users and incentivisation to engage with the system. Both have their advantages and disadvantages and choosing the right solution is the basis for future enterprise implementation. Incentivisation is based on two perspectives: proof of work or proof of stake. The proof of work setup means that miners must provide evidence - for example solving the puzzle to receive the incentive. Whereas, proof of stake requires the users involved in the transaction to provide a stake to participate in the network.
Blockchain in the Supply Chain
The supply chain is a complex system that involves several entities working together to fulfil consumer demand by adding value from the raw material stage to the final fulfilment process. This is the primary chain, and is supported by the secondary and tertiary chains that work together to form the supply chain network or also referred to as the ecosystem. Complexity in the chain is also created through transactions (both physical and informational) and there is need for informational transactions to match the physical. Trust, that this alignment will provide transparency and traceability within the supply chain is essential. The foray of blockchain within the supply chain environment follows this intention in the first instance. The blockchain environment if implemented appropriately, should be able to create verifiable, immutable transactions within the supply chain, thus enhancing trust. For many supply chain businesses this is an enticing prospect. Over the past few year’s companies such as IBM, Walmart, Zurich Insurance, Maersk, Nestle, Unilever and Amazon, have invested in pilot blockchain based supply chain projects to develop and test the technology. However, a number of researchers in this area urge caution arguing that while there is a significant amount of potential, the risks are still great with many operational challenges that still need to be resolved.
Blockchain considerations for implementation
The implementation of blockchain solutions within the supply chain environment have been slow due to current technical limitations, lack of digital skills, and a lack of general awareness by organisations in the potential of blockchain. These implementation challenges influence adoption, popularity, and future organisational growth strategies. The blockchain environment is rapidly evolving with several startup companies being setup to grow the solutions ecosystem. Hence, the level of understanding about using this technology within a supply chain environment is also evolving. Some considerations for implementing blockchain within supply chains:
Smart contracts - One of the key components which allow the blockchain to deploy transactions is the use of smart contracts. Nick Szabo in 1994, defined smart contracts as a set of promises specified and controlled in a digital form. Within blockchain implementations, smart contracts are quickly becoming a mainstay in the mass adoption of blockchain, creating a mechanism to provide a usable technical interface to communicate with blockchain transactions. The breakthrough in smart contracts allows for the codification of rules and regulations potentially allowing for the creation of ecosystems built on trust. There are however implementation issues, the skills gap in this area is very high and testing contracts on a live network can be expensive and cause network performance issues.
Computational cost - Professional articles state that blockchain technology incurs capital/infrastructure costs, however, no transactional costs. The research fails to mention the importance of computational cost in the completion of contracts within the blockchain, also known as gas. For contracts to complete a cost must be paid, this is calculated on three criteria, how quickly the contract needs to complete, how much the original party is willing to pay and the complexity of the transaction. This cost is designed to lubricate the network and hence in many circles is known as gas. The computational cost factor has the potential to alter perceptions on current business models, opening new methods of working and revenue models.
Private vs public blockchains - One of the major implementation decisions is about the nature of the transaction space - whether it will be private or public. This is a key fundamental decision which can influence future strategy, cost and infrastructure. The time required for processing transactions within a permissioned system will be less than that of a permissionless system although the permissionless system offers more decentralisation, anonymity, and transparency. Permissioned systems offer better scalability than permissionless systems and may influence adoption for supply chains.
Security and privacy challenges - The basic premise for the blockchain network is immutability and verifiability of information (transactions) within a distributed ledger environment. However, as the technology evolves and research progresses in applying the technology outside the crypto domain, developers will need to consider data security and privacy challenges. The literature provides some initial challenges in terms of security, but this is a developing area and requires close monitoring. The current blockchain system also provides challenges in terms of integration with legacy systems. This will potentially cause integration issues within extended supply chains.
Blockchain technology presents a potential for disrupting supply chain information systems in the future with an initial foray into sectors such as food, pharma and aerospace that require mandatory traceability and transparency. The technology ecosystem is developing rapidly with innovative applications. It is also essential to note that a blockchain implementation will be useful in an extended, complex supply chain rather than a single factory scenario. Adoption of the blockchain will rely on many variables being put in place. There is a sector wide requirement for more developers, interoperability, better skills development and implementation success stories.
About the authors
Dr Abdul Jabbar is the Director of Learning Development and the Head of the Digital Transformation research cluster at Huddersfield Business School. Dr Jabbar spends a great deal of his time developing and working on blockchain projects and engaging with industry to identify unique use cases for blockchain implementation. Currently Dr Jabbar continues to further develop his virtual blockchain which is the basis of much of his research. He has a key interest in smart contracts and his background in software development informs his research led teaching and enterprise. https://pure.hud.ac.uk/en/persons/abdul-jabbar
Professor Samir Dani is Professor of Operations Management and Head of Marketing, Management, and Organisation at Keele Business School, Keele University. Professor Dani engages widely with industry and has research interests in supply chain risks, sustainability in supply chains, and the use of technology and business models. He is currently conducting research in the use of AI techniques and autonomous systems within supply chain decision making and logistics. He works closely with the food sector and has published widely and presented his research to both academic and practitioner audiences. https://www.keele.ac.uk/kbs/staff/samirdani/
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