Supply Chain Traceability - Manufacturing and the Blockchain

This blog post attempts to give perspective to some of the ideas I have heard being thrown about in the manufacturing industry for Supply Chain traceability. Too many times I've seen folks lobby for a blockchain solution when it clearly doesn't meet the criteria for a blockchain solution to add value. A simplest of definitions: A Blockchain is a private, secure, immutable (cannot be changed), distributed ledger of transactions. It is most commonly used to store transactions between "untrusted" parties in such a way that everyone reading the blockchain agrees that these are the transactions that took place and that every transaction is valid. A key point to note here is that the transaction parties need not know each other yet the transaction is still deemed accurate by all participants in the blockchain.

So now let's take a look at the manufacturing industry... According to the World Bank, manufacturing accounts for nearly 17% of the global GDP. i.e. it is an essential driver for the global economy. This industry has traditionally faced several challenges and here are but a few:

- Supply Chain inefficiencies - disconnected Supply Chains

- Quality Control - Fake and counterfeit products introduced in to the Supply Chain

- Increasing customer demand without compromising satisfaction - right product, with the right quality, at the right place, at the right cost, with the right paperwork A traditional Supply Chain is made up of activities covering Planning, Sourcing, Making, Delivering and Returning. These activities are executed by multiple parties involved in the extended Supply Chain and can be seen as a series of transactions between 2 parties that involves the movement of goods / product in exchange for legal tender. Can the blockchain help with some of these challenges with traceability, where it makes sense? Remember, if we don't need a secure, immutable ledger of transactions then we don't need the blockchain... SUPPLY CHAIN TRACEABILITY Can we use the blockchain to track and trace our product? What does this even mean?

Let's take an example: As a manufacturer of bicycles I need to procure rubber from a manufacturer of rubber. I sign a contract with this manufacturer that sets the terms of our agreement (price, quality, quantity, …) We form a "trusted" relationship between us that is legally binding and we perform our transactions electronically via secure FTP. Why would we need a blockchain to store any transactions between these 2 entities if they are bound together legally? It, in itself, does not make for a good Blockchain use case. What about if we sell our finished product (bicycle) to a retailer for resale? Well, we would also set up a legal agreement with the retailer to sell goods to them, so, once again, we have a "trusted" relationship.

BUT - what if the government wants the retailer to show that all the components of the bicycle are made from countries not on the "not allowed to do business with" list? How would they do this? Well, this is where the blockchain can help. A consortium blockchain, set up independently of any of the Supply Chain partners, provides access to each partner in the Supply Chain to enter their transactions (movement of goods / product) in a secure, immutable, distributed transaction. Each partner, having legal agreements with each of its direct partners, is responsible for loading those transactions to the blockchain. This would create a trusted "chain" genealogy of all transactions that make up the composition of the bicycle.

NOTE: In today's world the information for each transaction, together with previous transactions, is passed on to the next partner in the Supply Chain. It is then their responsibility to continue to pass this information downstream. With a blockchain solution, this is no longer needed. You merely need to pass the transaction details (together with needed documentation) to the permissioned blockchain. By reading the blockchain transactions, the authorities can ensure that the product details, entered at the time of the transaction, have not been tampered with and depict a clear and accurate view of what the bicycle is comprised of, and who the partners were that made up the components of the bicycle.


NOTE: Leveraging IOT devices to capture movements of the final product can help ensure that there are no gaps in the tracking process

NOTE: Only the final goods movement between 2 trusted parties are sent to the blockchain and not any intermediate movements. E.g. movements between the production line and warehousing.

NOTE: An asset (bicycle) needs to be universally, uniquely identified (serialized) in order for it to be tracked properly (a digital twin)

CLAIM: Blockchain IS a good use-case for end-to-end Supply Chain traceability - It can serve as a trusted source for the genealogy of all goods movements / monetary transactions between all participant for a manufactured product. CHALLENGES (barriers to implementation):

- Performance: Volume of transactions that need to be included could be substantial. Blockchain technology has many thoughts on improving the throughput of blochchain transactions but it still remains a concern today.

- Breaking the traceability: If a Supply Chain partner does not record their transaction then the "chain" is broken and the provenance of the product is ultimately undermined. All partners need to be vested in this process.

- Proprietary information: Transactions and locations can be sensitive data to partners and therefore should not be shared with others. Securing this data in the blockchain is of paramount importance as well as access to this data - i.e. not a public blockchain but rather a consortium (permissioned) blockchain is needed

- Mandate: If each partner is not "forced" to enter their transactions there will be some that don't... Regulations may be needed (already in place for some industries) that would enforce the capturing of these transactions to the blockchain

- Central Authority: Who is going to set up and provide permissions to the blockchain? It can't be any of the Supply Chain partners. It makes sense that it be a regulatory authority but which one? Is it the US government? What about India, China, Brazil, ... Each country, where the finished goods are sold, and that require a traceable genealogy would need access to the blockchain. The forming of global industry "gate-keepers" is maybe in line but then we have a "central authority", which is against blockchain purist's beliefs, controlling the blockchain. Maybe an option for these authorities is to operate them as DAOs (Decentralized Autonomous Organization) - wiki for details.


The discussions and Proof of Concepts are under-way - let the debate continue!!! Please share your thoughts below.

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