Blockchain for Supply Chain: Decentralizing Product Life Cycles | RSK - Smart Co...

Blockchain for Supply Chain: Decentralizing Product Life Cycles

From household essentials to electronic gadgets, there is often substantial gap between a product’s place of origin and its market. In fact, the lifecycle of any given product has multiple stages. These complex processes comprise the supply chain which forms the backbone of retail and product-based industries. In turn, the degree of efficiency in supply chain management is a crucial determinant of a business’s success or failure. 

Driven by the rising popularity of E-commerce, the supply chain and logistics industry is experiencing unprecedented avenues and demands over the past decade. While supply chain management is becoming increasingly more complex and specialized, innovations in AI and FinTech have been attempting to transform the sector. However, these efforts have not yet managed to deploy their full potential, primarily because of certain fundamental shortcomings of traditional supply chains. Apart from being highly fragmented and siloed, the ecosystem lacks liquidity in cash flow as well as the desired transparency. Moreover, there is a persistent need for unified systems across multiple fronts: payments, data storage and management, identity and reputation.

In this article, we discuss some ways in which blockchain technology is already transforming the supply chain industry. In doing so, we will also highlight RSK’s role on this transition.

Index

The Elements of a Supply Chain

    Supply Chain Management

The Present State of Supply Chains

   Lack of Transparency & Traceability
   Favoritism & Limited Scope
   Globalization
   Low Liquidity in Cash Flow

The Challenge for Cross-Process Visibility

Blockchain Technology & The Possibilities for Supply Chains

   Decentralization
   Encryption & Immutability
  Transparency & Traceability

RIF, DexFreight & Nuclearis: Transforming Logistics

Introducing Extrimian: RSK for Enterprises

Conclusion

The Elements of a Supply Chain

Before diving into the problems of traditional supply chains and their plausible solutions, it’s important to discuss the major components of a supply chain. At the outset, one must also realize that supply chain is not merely logistics. Logistics covers the movement of products from one stage in the production cycle to another. Supply chain, on the other hand, entails every aspect of a product’s life cycle.

First, every production cycle require some raw materials and other natural resources, which need to be procured and managed. Thus, the beginning of the product’s lifecycle is also the beginning of its supply chain. At this stage, the supply chain may involve several processes, such as quality assessment, transportation, storage, etc.

Second, there is the production phase where the raw materials and other components are converted into either finished or intermediary goods. For example, using aluminum as the raw material, one can produce, say, a car’s engine which is an intermediary good. However, aluminum can also be used to produce some utensil, which is a final product. This also highlights the inherent complexity of supply chains, especially because each phase can have multiple nuances and sub-phases. 

Third, we have the phase when the finished goods are distributed and placed in various outlets. Traditionally, retail outlets were the most significant option, but with time, Ecommerce platforms have been playing a substantial role on this regard. Either way, this phase involves inventory and warehouse management, distribution, placement, etc.

Fourth, there is the consumption phase, where the product finally reaches the end-user. From the supply chain’s perspective, this involves delivery channels and other logistic concerns. Moreover, this phase also involves return and refund for purchased items, meaning that supply chains are not necessarily uni-directional. In other words, goods don’t only move from the manufacturer to the consumer but also in the opposite direction. 

Supply Chain Management

So much for what supply chains entail, but another important question remains: What is supply chain management? In general, to manage supply chains is to build, strategize and monitor the aforementioned aspects, in terms of material flow, finance flow and information flow. In other words, supply chain management is the sum total of the planning and execution that goes into running supply chains. 

As such, the complexity of supply chain management is proportional to the scale of the manufacturing processes involved. Accordingly, the outcomes or benefits derived from supply chain management can also vary. Nonetheless, some common purposes include efficient demand fulfillment, enhanced customer value and sales, reduced overheads, better quality, greater scope for improvisation, and responsiveness, among others. 

The Present State of Supply Chains

As we can see, supply chains have multiple phases and each phase comes with its set of complexities and challenges. Over the past decade or so, there have been significant advancements in the field of supply chain management, especially with the rise of IOT and other technological innovations. However, it’s become evident that unless some of the more fundamental issues are resolved, such innovations alone cannot transform supply chains. In fact, IOT and other AI-based solutions cannot achieve their full potential within the traditional structures of global supply chains. 

At present, global supply chains are highly fragmented, with multiple stakeholders and intermediaries. In other words, each of the several touchpoints along supply chains hold and control the data generated from their part in the overall system. From a standpoint of autonomy, this might appear desirable, but in case of an integrated domain such as supply chain, fragmentation is a serious shortcoming. Simply put, while strategists and decision-makers require a holistic picture of their supply chains, they presently have access to none many times. Especially in terms of logistics, several pivotal processes such as procuring transport facilities are still conducted manually, fully or partially. 

Lack of Transparency & Traceability

A direct corollary of the siloed ecosystem is that it lacks transparency. Since supply chain stakeholders are mostly separated by physical distances, the only mode of transparent interaction is through data. Presently, there are multiple sources of truth in the sector, meaning that each touchpoint interacts through isolated databases and is responsible for ensuring validity of such data. 

In a competitive environment, where information is valuable and profit maximization is the norm, one cannot blindly rely upon the sanctity of the information revealed by any given party. In other words, there is a trust crisis in the supply chain sector and this affects business owners and customers alike. 

First, the lack of transparency makes corruption possible, including the production and sale of counterfeits, bribery, manipulations, fraud, etc. As highlighted by several public studies and reports, the global piracy and counterfeit market runs into billions of dollars and will only expand unless curtailed. Moreover, this problem persists across sectors (food, automobiles, medicines, etc) and has severe cost and health impacts. 

Second, it becomes extremely difficult to tackle such issues, given the low traceability of traditional supply chains. Since there are multiple sources of truth, there are also multiple versions of it, which ultimately results in discrepancies in data. In this mesh of individually produced and managed databases, as well as processes, it’s an uphill road in terms of pinpointing mishaps when they occur. That is, the exact point along the supply chain where the problem emerged is mostly indeterminable. 

Combining low transparency with low traceability, we have a situation where business owners and customers don’t have meaningful assurance regarding the value and provenance of products. We have no way of knowing if organic products are actually organic for example. On top of that, cost manipulation is a major aspect of this problem. 

Favoritism & Limited Scope

Usually, businesses interact with brokers who, in turn, connect them with vendors. This applies to logistics, material and capital procurement, and almost every other aspect. Thus, brokers have immense control over the industry and they often adopt manipulative practices in several ways. Since these middlemen facilitate the buyer-supplier interactions, they are highly likely to connect only in ways that are profitable to them. For instance, while procuring raw materials for your business, you are given the option for only one vendor. Apparently, this is the only person who is able to meet your demands, while that may be far from being true. As a result, you suffer from limited scope and opportunities, especially in terms of reasonable pricing and quality variations between vendors. 

Another important consideration, is the presence of procuring officers. Given the complexity of supply chain management, big businesses often put certain individuals in charge of overseeing procurement. This opens up another avenue for lack of transparency.

Considering the above points, we can very well say that pseudo monopolies in supply chains are a direct outcome of its present structure. In order to be truly democratic and desirably competitive, the sector needs to resolve the trust crisis.

Globalization

Despite widening the scope for business in other ways, globalization has negatively affected supply chains and their management. As it is, the fragmented ecosystem is problematic. Now, since many businesses conduct operations internationally, different phases of the supply chain are situated in different nations. Thus, these processes become susceptible to problems occurring in each of these diverse geographical regions. 

From political turmoil to natural disasters, occurrences in one part of the world can impact markets in another part. Moreover, since products travel across borders, it becomes all the more difficult to trace and pinpoint problems that occur along the way. On top of these, chances of corruption increases manifold, since geographical boundaries make the system even more siloed, the fragments even more isolated and opaque. 

Low Liquidity in Cash Flow

The standard period for financial settlements in the supply chain industry is around 30-45 days, which is a significant gap. This illiquid nature of the market makes scalability extremely difficult for small and medium businesses in the space. 

That apart, the lack integrated payment protocols results in further delays in payments and settlements. Moreover, the scope for mishandling of funds and overcharging remains an issue. For example, while trucking costs are usually measured per-mile, it’s often difficult to efficiently trace additional costs incurred along the way, both legitimate and forged. Thus, the one or the other party is susceptible to losses in this regard. 

The Challenge for Cross-Process Visibility

In the previous section, we have discussed the problems that emerge from the standpoint of executing supply chain management. In this section, we look at the strategic perspective, towards which each of the aforementioned concerns points. With this understood, we shall have the foundation to discuss the solutions that blockchain technology enables.

Imagine the simplest of situations, when one needs to procure trucks for to transport raw materials to their factory. On one hand, they would have to rely upon several intermediaries, bearing the additional costs for each, but the problem is more than just that.

The best way to meet the logistic need would be to have choices with regard to which trucking company one wants to choose and so on. However, this is often not possible and strategists don’t get a holistic picture of the available resources.  Moreover, while every touchpoint along the supply chain generates high volumes of data, these aren’t incentivized. Thus, what could have been used profitably, rather becomes a source of inefficiency. Alongside this, decisions are often made with a limited view, thus hampering the overall efficiency of processes. 

Blockchain Technology & The Possibilities for Supply Chains

At this point, it’s quite evident that a majority of the problems faced by the supply chain sector emerge from the lack of a reliable decentralized database. As a distributed ledger technology, wherein network members (nodes) have access to a cryptographically-secured & shared database, blockchain presents possible solutions to these fundamental problems. 

Blockchain ecosystems are inherently “trustless”, in the sense that they eliminate the need to trust counterparties by automating processes using smart contracts. Being trustless entails several important implications. 

Decentralization

At the outset, one must have the clarity that being fragmented is not the same as being decentralized, although decentralization effectively breaks up monolithic systems into multiple autonomous entities. In a fragmented system, each fragment is a centralized system, with a hierarchical structure and database. In other words, each touchpoint in a fragmented system is a silo which interacts with yet another central entity occupying the apex. 

On the contrary, while nodes in a decentralized, blockchain ecosystem are also autonomous, they aren’t individual repositories of centralized data. The network’s database is not stored on central servers, but over the distributed network of computers. Each node has access to a copy of this database. Alterations to the network’s state happens at a holistic level and not on individual systems. 

Thus, blockchain-enabled decentralization can ensure seamless access to data all along the supply chain and mitigate the issues of data isolation. Moreover, in the absence of centralized governance, blockchains employ consensus mechanisms to ensure the validity of information. As a result, it’s possible to adequately verify the information being generated at different phases along the supply chain, which also minimizes discrepancies.

Encryption & Immutability

One might argue that since the data is accessible to every network member, it is also susceptible to being tampered. That, however, is not the case with blockchain-based systems as the technology is inherently immutable and tamper-proof. 

Simply put, data and assets on blockchains are encrypted using cryptography and stored in the form of hashes, which are long strings of numbers and digits. Each hash is unique and even the slightest change in the original data results in two completely distinct hashes. Moreover, each block of data is linked to the previous block using these hashes. Thus, once the data is recorded on the blockchain’s ledger, it cannot be altered without altering the entire blockchain, which is virtually impossible. 

Blockchain technology can help a long way in mitigating the problems of the supply chain industry. Furthermore, by implementing smart contracts to automate processes and compliance, malpractices such as manipulation, hidden costs and alikes are also mitigated.

Transparency & Traceability

Another trademark of blockchain technology is transparency, especially in the case of public blockchains such as Bitcoin. Although often misunderstood, transparency is not contradictory to privacy. Public addresses preserve the user’s anonymity in terms of personal data and identity, while every transaction or interaction on the network is transparently hosted. In other words, anyone can audit the transactions happening on a public blockchain, but they can’t precisely know who participated in the transaction. 

The greatest impact of blockchain-enabled transparency on supply chains is cross-process visibility. Decision makers and strategists can have a complete picture of the space, including every available asset and their location which enables them to make better choices. Moreover, the enhanced visibility also implies that there is greater traceability all along the system.

Blockchains are time-stamped, which makes it possible to pinpoint the exact location on the supply chain where the problem occurred. This allows for better risk management, making businesses more responsive and also enhances the overall end-user experience. 

By facilitating easier and better counterparty discovery, blockchain technology also fosters a more collaborative environment in the supply chain industry. Thus, in all, blockchains can resolve the fundamental obstacles of the supply chain industry: inefficiency, delay, opacity, visibility and corruption.

RIF, DexFreight & Nuclearis: Transforming Logistics

So far, we have discussed the generic possibilities that blockchain technology unfurls for the supply chain industry. Now, let us turn to a real-world use case. In January 2020, the decentralized logistics platform DexFreight, integrated two RIF solutions, namely RIF Storage and RIF Payments .

The idea behind this partnership has been to leverage the RIF’s decentralized storage protocol, which is built on RSK’s network in collaboration with Swarm. DexFreight has been able to build a first-of-its-kind, unified marketplace for the logistics industry. This is making resources more discoverable and optimized and procurement of logistic services easier. Moreover, in accordance with the ideals of Web 3.0, the platform has been able to achieve optimum data privacy as well as incentivization. 

In the near future, the plan is to implement payment streaming, which could go a long way in resolving the industry’s problem of low cash flow. As a whole, dexFreight is making the logistic industry more inclusive, in terms of finance and other information. 

Another RSK-based project (Nuclearis) has been transforming the nuclear energy supply chain in Argentina. The collaboration involves three major Argentine nuclear plants (Atucha I, Atucha II and Embalse). Moreover, Nucleoeléctrica Argentina, which is the country’s largest nuclear power operator has also expressed enthusiasm regarding the project. 

Nuclearis is levering the RSK platform to ensure better supplier positioning, quality and traceability in the nuclear power industry. Moreover, the company is envisioning greater efficiency in terms of provenance assurance of nuclear-grade material, thus strengthening trust within the sector.

Introducing Extrimian: RSK for Enterprises

Joining hands with Grupo Sabra, IOVlabs has recently launched the Extrimian platform, as a part of the RSK Enterprise Cloud ecosystem. The joint ventures aims at driving blockchain adoptions among governments, entrepreneurs, and enterprises primarily by enabling them to build and deploy dApps. 

Although not solely related to supply chain management, this Blockchain-as-a-Service (BaaS) platform can be leveraged to easily deploy consortium networks. Given its wide scope (from Proof of Concepts to Governance-as-a-Service solutions), the platform enables enterprises to build robust demand-supply channels to reach their markets faster and with greater value. 

Alongside the network’s unified data and payment protocols, Extrimian will, in effect, address the crises of global supply chains as discussed earlier. Furthermore, it will enable enterprises to build transparent, yet secured networks and databases, by tapping into Bitcoin’s groundbreaking security through  RSK’s merged mining.

Conclusion

Goods and services are increasingly moving around the world, from raw materials to finished goods, as well as items returned post-purchase. In its entirety, this comprises the domain of supply chains which forms the backbone of any given business. Nonetheless, the traditional supply chain industry is highly siloed, lacks transparency and is facing a severe trust crisis. Despite enhancing user-experiences in certain aspects, technological innovations have not been able to have structural impact for end users.

Presently, blockchain technology, with its distributed ledger, trustless protocols and transparency, could play a major role in transforming global supply chains. Among other things, it could ensure better cross-process and counterparty visibility, thus relieving the industry of its multiple intermediaries. This, in turn, can have substantial cost and efficiency benefits. 

Realizing the need for blockchain-based solutions in the supply chain sector, IOVlabs is innovating in fundamental solutions such as decentralized storage, payment channels, etc. Presently, several projects such as DexFreight, Nuclearis and Extrimian are implementing RSK-RIF tech stack, including RIF Payments and RIF Storage, for immutability, transparency and reliability within supply chains. 

As global supply chains become more complex and unprecedented channels emerge on the back of rapid digitization, there is a great need to transform these systems. Furthermore, as consumers become more cautious and aware, the modifications that blockchain technology brings into the supply chain sector, could well become the differentiating line between successful and unsuccessful businesses.