BLOCKCHAIN IN SUPPLY CHAIN MANAGEMENT A COMPREHENSIVE ANALYSIS
SALONI GUPTA RAGHAV GUPTA SANYA SINGAL TEJAL MAHINDRU SAI RAUNAQ GOSAIN
INTRODUCTION
Blockchain technology for supply chains is no more a maybe, it's a must. Bitcoin, the earliest blockchain implementation, triggered widespread experimentation of blockchain particularly in financial services. In 2015, Nasdaq and OMX Group Inc. worked with a blockchain startup, Chain, to pilot and test blockchain technology for trading of shares in Nasdaq Private Market.1 Visa Europe, the Commonwealth Bank of Australia, RBS, and many of the UK's high street banks have all announced that they are working on their own proof-of-concepts using blockchain. Blockchain technology was created to support bitcoin transactions primarily but has the potential to turbocharge the effectiveness and profitability of most (if not all) businesses, including supply chain management.
The industries who choose to ignore the adoption of the technology, do so at their own peril.
Does blockchain technology seem feasible to the supply-chain domain? Can it solve supply-chain problems and increase your profitability, as well as assist in the current pandemic situation? In this research report we cover these topics, challenges, advantages, solutions, application of blockchain in the Indian and global scenario and finally, the impact of COVID - 19.
HISTORY AND BACKGROUND What is Blockchain Technology?
Types of Blockchains
Blockchain is an internet technology that
Essentially,
has the ability to publicly validate, record,
important types.
and distribute transactions in immutable,
"Permissionless" distributed ledgers, such
encrypted ledgers. The technology was
as bitcoin, reside in the public domain, while
invented
"Permissioned" ledgers are centralized and
to
support
transactions
in
technology
provides
the
platform for creating and distributing the ledger, or record, of every transaction or movement to millions of computers linked to networks throughout the world.
Because the transactions and ledgers are encrypted, the technology offers more security than the banking model if we talk of the bitcoin scenario, and its instantaneous
transmission
via
the
internet eliminates banks' two- to threeday clearing process and accompanying costs for transferring money from one to
another.
The
term
"blockchain" is derived from the "blocks" of validated and immutable transactions and
how
in
two
they
and are held outside the public domain. Successful projects undertaken in public domain using Blockchain
Established IT players and start-ups initiated promising pilot projects, including: Walmart
Why Blockchain?
account
come
governed by "actors," "nodes," or "miners,"
bitcoin. Blockchain
blockchains
link
together
chronological order to form a chain.
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in
tested
an
application
that
traces pork in China and produces it in the US, to authenticate transactions and the accuracy and efficiency of record keeping. Maersk and IBM are working on crossborder, cross-party transactions that use blockchain technology to help improve process efficiency. BHP is introducing a blockchain solution that replaces spreadsheets for tracking samples internally and externally from a range of providers.
1
Provenance, a UK start-up, just raised
This
$800,000
blockchain
engaged in thousands of transactions
technology to trace food. It previously
each day across a large network of supply
piloted tracing tuna in the Southeast
chain partners and products.
Asian supply chain.
Making
to
adapt
is
aggravated
matters
activities
complicated—far
A supply chain is a network between a
exhibit depicts.
company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. SCM can boost customer service, reduce operating costs, and improve a company's
financial
position.
Other
benefits include reduced inventory costs, better
information
sharing
between
partners, improved process integration, and improved quality. SCM deals with the management of a network of business processes
and
activities
material
procurement,
such
as
logistics,
raw and
manufacturing and distribution of finished
worse,
are
The need for a transparent Supply Chain
for
companies
supply
often more
chain
extremely
so
than
the
One common approach to improving supply
chain
execution
is
to
verify
transactions through audits, but it’s of limited
help
making
to
in
improving address
decision-
operational
deficiencies. Industry Analysis:
A blockchain is valuable in the SCM domain partly because it comprises a chronological string of blocks integrating all three types of flows in the transaction and captures details that aren’t recorded in a financial-ledger system. Moreover, each block is encrypted and distributed to all participants, who maintain their
goods. Ensuring that the right product is
own copies of the blockchain. Thanks to
supplied to a customer at the right time
these features, the blockchain provides a
and place, as well as with the right cost is
complete, trustworthy, and tamperproof
the mission of a good SCM provider.
audit trail of the three categories of activities in the supply chain.
Execution
errors—such
as
mistakes
in
inventory data, missing shipments, and duplicate payments—are very difficult to detect in real time. It is impossible to go back and fix by tracing the sequence of activities
recorded
in
available
ledger
entries and documents.
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BENEFITS OF BLOCKCHAIN IN SCM 1. Conventional processes are resource-
For example - With the availability of
intensive, prone to human error and
information in advance, a vehicle can
have humongous operational costs.
be reserved and space can be allocated
Businesses
within the warehouse to accept delivery
around
the
world
are
starting to realize the importance of
of the goods.
emerging technologies and are gearing up to ascertain the benefits arising from
4. A smart contract is a computer
this digital transformation. According to
program
the
which
World
or
is
a
transaction
intended
to
protocol
automatically
Economic
Forum,
information
through
execute, control or document legally
blockchain has the potential to increase
relevant events and actions according
trade by 15%.
to the terms of a contract or an
streamlining
agreement.
Blockchains
enable
the
2. Blockchain assists information to be
creation of these smart contracts. The
updated on a real-time basis, allowing
code and the agreements exist across a
live tracking. For example, the current
distributed,
location of a particular shipment can be
network. Moreover, smart contracts can
tracked
be created to manage the multi-step
real-time
along
with
its
decentralized
process
blockchain
condition, size and other necessary
procure-to-pay
information, making the supply chain a
vendors,
lot more efficient. Thus, by making use
significantly methodical. For example,
of blockchain enabled technologies,
smart
inefficiencies and instability can be
automatically pay out vendors once the
eliminated to a large extent.
three-way matching of goods receipt,
making
contracts
can
with the be
global process
used
to
invoice and purchase order has been 3. These advanced technologies not
completed.
only help in securing information and data, but also optimize the time taken
5. Lastly, blockchain enables
trust.
by every stage in the supply chain.
Unlike traditional networks that depend on trusted intermediaries for security,
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3
blockchains
create
trust
organically
through the underlying technology of distributed networks.
“ The World Economic Forum (WEF) lists blockchain as one of 7 technologies that are highly anticipated to revolutionize various aspects of our lives. ”
The Indian perspective Blockchain application in the Indian scenario - Agricultural Industry
As
evident
from
the
previous
section, blockchain becomes a good
scope
to
increase
employment
opportunities across the country.
fit when there is a lot of data that is shared across multiple parties with
Blockchain can radically transform
no trust mechanism among the
the agricultural sector in India by
participants. This makes the Indian
revamping
trade an ideal model for blockchain
(National
application.
online
the
utility
Agriculture trading
agricultural
of
eNAM
Market),
an
platform
for
commodities,
by
Agriculture, along with its allied
creating an audit trail of all farmer
sectors, is the largest source of
produce and removing the mistrust
livelihood
between
in
India
with
farmers
and
arhatiyas
approximately 70 per cent of rural
(mandi intermediaries). Blockchain
households financially dependent
can be used to explore certification
on it. India is also one of the top 15
of the origin of organic produce,
major
thus notably increasing trade and
exporters
of
agricultural
products and clearly has a huge
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marketability to foreign markets.
4
A study suggests that younger adult farmers can be targeted for initial incorporation
of
this
technology
because they are likely to have already had higher exposure throughout their lives to rapidly changing technology, and thus a lower learning curve and predicted anxiety. Government can also facilitate change by partnering with top technology firms to develop an
app
that
technology
utilizes
and
blockchain
simplifies
the
necessary functions that agricultural workers will benefit from. Benefits of blockchain used in Indian enterprise
would
contract
include
management
better and
procurement, greater accountability, quality control across supply chains and decentralization of authority in decision making.
The global perspective Blockchain application in the global scenario - Letter of Credit
Letters of credit are one of the most
A
commonly used trade
instruments
capture the details contained in
today and rely on highly manual, paper-
documents such as the purchase
based
extended
order, bill of lading, invoice, and
processing time in a trade transaction,
tracking of shipment in a smart
purchasers and suppliers are not able
contract on the blockchain. This can
to make the most efficient use of their
reduce
capital. Also, the authenticity of trade
Letter of Credit (LC) processing by a
documents is required throughout the
huge margin; thereby reducing the
process
processing cost and efforts.
processes.
to
Due
prevent
to
fraudulent
Blockchain-based
the
solution
can
turn-around-time
of
transactions.
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The solution proposed by the World
Letter of Credit (LC) TRANSACTIONS
Economic Forum suggests a world
USING BLOCKCHAIN
where the shipper and customs
The steps to a blockchain based LC
officer will have a transparent and
transaction would look something
real-time view of the processing of
like
a Letter of Credit. This will provide the
government
regulators
a
bodies
real
time
view
and of
essential documents to assist in enforcement and AML (Anti Money Laundering) activities.
1. The
importer
creates
an
LC
application for the importer bank to review and stores it on the blockchain. 2. The
importer
bank
receives
notification to review the LC and
CURRENT LC TRANSACTION
can approve/reject it based on the data provided. Once checked and approved, access is then provided to the exporter bank automatically for approval. 3. If approved, the exporter is able to view the LC requirements. 4. The
exporter
completes
the
shipment, and adds the required documents. Once validated, these documents
are
stored
on
the
blockchain. 5. The documents are viewed by the exporter bank, which approves or This model has certain limitations like
bank
fees,
messaging
fees,
payment disputes due to contractual errors, possibility of misuse, currency risk, etc. Using blockchain, an LC can be modeled as a smart contract between the importer and exporter
rejects the application. 6. The importer bank reviews the data against the LC requirements, marking
any
discrepancies
for
review. When approved, the LC is sent
to
the
importer
for
settlement.
to guarantee payment to the latter, if the trade merchandise is delivered to the importer in accordance with all specified conditions.
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Challenges Implementation
of
a
Blockchain
Non-technical challenges :
Technology based solution is not easy
Availability of technology does not
as it poses a lot of challenges – the key
ensure adoption; many warehouses still
ones being:
utilise paper at critical locations, despite the fact that RFID chips and scanners
Inadequate awareness and
are now readily available, in reach,
comprehension :
accessible.
To
most
non-technical
blockchain
remains
a
people,
mysterious
black box, and its affiliation with Bitcoin does not help matters. The innovative approach of blockchain technology,
which
uses
permissioned-distributed challenges
the
heart
a
ledger, of
business
processes for millennia, in which each company entity has kept its own ledger. This is by far the biggest challenge for non-IT professionals. Technology costs and positioning are at odds with internal ERP systems :
Most
existing
systems,
there are also a shortage of enterprise resource
planning
(ERP)
tools
and
support. Blockchain is not supported by most ERP systems used by businesses. As
a
result,
either
outsourcing
application development for its specific supply chain or establishing in-house development is required. Apart from other dangers, privacy leakage might be a big problem in the former instance, as a business must contract the services of a third party who may be trusted with the data of the company. This could be tough because the creation demands a wide range of software abilities, as well as an awareness of the underlying supply chain setup and economic and
businesses
numerous
Within
ERP
already
systems
in
have
business difficulties.
place,
which they have invested heavily in
Technical challenges :
over the last 5-10 years. In its most
In comparison to a traditional database,
ideal form, a Blockchain technology
obtaining
solution competes with and replaces
takes much longer using Blockchain. It
a substantial function provided by
also necessitates a large increase in
ERP systems. This will not be an easy
computational
fight, both inside and beyond the
scalability is a major challenge. In
organisation.
addition, any systems that interface
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and
committing
resources,
records
whose
7
with the Blockchain must be interoperable. The payment period should be brief and flexible. We focused on these two difficulties in the preceding subsections, and we will continue to do so in the future subsections.
Because everything must be evaluated and determined early, the complexity of both blockchain and the supply chain is a significant challenge. The biggest issue in terms of performance and efficiency is how blockchain uses a lot
of
resources
but
has
poor
The issue of correctness of entered data is
performance
at the intersection of technological and
centralized
non-technical challenges. Data entered
resource consumption is also a major
into
source of sustainability and scalability
a
Blockchain
because
must
Blockchain
be
correct;
technology
is
concerns;
when solutions.
it's
compared This
unrealistic
to high
because
immutable and transparent, the user
supply chains can be quite long and
cannot readily alter or modify the record.
diverse.
If a supply chain partner's information is recorded in an unreliable system, the adoption of Blockchain technology may be more harmful
to
the
user
than
beneficial. The Blockchain's immutability does not ensure the data's quality.
Development
and
implementation,
performance and efficiency, sustainability and scalability, acceptance, legislation and
standards,
privacy,
requirements,
data integrity, security, interoperability, operational, and management are the 12 areas
in
which
categorised.
problems
can
Development
be and
implementation,
performance
and
efficiency,
sustainability
and
and
scalability were the top three most discussed areas. The most talked-about problem in blockchain development and deployment is that it is still in its infancy, with
a
scarcity
of
professionals,
information, and tools.
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Aside
from
blockchain's
Although data integrity is a strength of
adaptability and extensibility are also
blockchain, data may be incorrect before
concerns.
and
it enters the blockchain, and there is
stakeholders may be overly hopeful as a
currently little that can be done about it
result of the hype, or overly pessimistic
except to use automation to eliminate
as a result of blockchain's inefficiency,
human
transparency, or disruption. If they are
regarded
considering blockchain, they must first
although it is not without flaws. Some
gain
the
attacks are feasible, and some design
technology. The fundamental challenge
faults, such as the fork issue, exist.
in terms of legislation and norms is that
Quantum computing also poses a threat
blockchain is now unregulated, which is
to the cryptography that underpins the
both good and terrible. Despite the lack
blockchain. Interoperability is an issue,
of a clear law, legal challenges with
particularly in supply chains, where it is
blockchain
required,
a
that,
Top
better
the
management
knowledge
data,
such
of
as
privacy
errors. as
Blockchain
a
Yet
very
supply
secure
chains
is
also
system,
are
so
concerns, continue to surface. Data in
different that standards for blockchain
blockchain was originally intended to
and supply chain interoperability are
be
lacking.
visible,
which
was
acceptable
There's
also
the
issue
of
because they were just balances of an
operational challenges, such as when
anonymous
more
people don't want to fully participate or
complex implementations, sensitive or
are unable to do so owing to a lack of
confidential data may need to be
competence. Finally, management is a
maintained
blockchain.
challenge due to the complexity and
Furthermore, anonymity does not imply
changes that blockchain necessitates or
confidentiality.
causes, and senior management must
requirements
account,
on
but
the Next,
of
in
the
blockchain
high are
a
challenge in and of themselves, which
maintain
their
commitment
or
the
project will fail.
may demotivate and limit blockchain adoption.
According to leading analysts, Blockchain technology adoption will take place in the following order
Early Adoption (2016-17)
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Late Adoption (2018-24)
Maturity (2018-24)
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COVID - 19 IMPACT Implementation
of
this
technology
can
resolve many challenges of standard supply chain management such as issues in stock management, accountability of participants, tracking units accurately and mitigating supply of counterfeits. The
immutability
of
the
storage
conditions data proves to be blockchain’s
greatest
lead.
regulations
are
Storage vital
temperature
hence
vaccine
distributors would be required to ensure that all logistical conditions are met but also prove that they were met. Any
doubt
regarding
the
safety
and
effectiveness shall be eliminated as it is ensured that the storage temperature data is recorded on an immutable database serving as proof.
2020
THE CHALLENGE An issue is assigning digital identification to physical commodities like drugs or vaccines. This could be resolved through placing identifiers like Barcodes. Additionally, these need to be tamper-proof to prevent insertion of counterfeit medicine into tagged packaging. These prevention measures can be applied through scanning barcodes at each touch point and making all data available to the manufacturer or the regulator. The data can also be accessed by hospitals and pharmacies as they could simply use a barcode scanned to verify authenticity of the units. A system already in use is the ‘bokode’ — a visual data tag only 3mm wide but capable of holding thousands of times more information than a standard barcode. They can be read up to a few meters away, by any standard digital camera including mobile phone cameras. 10
ADVANTAGES As each vaccine unit is monitored over the blockchain, each link along the chain can track the entire process. Health departments monitor the chain as a whole and intervene in case of any discrepancies giving them the following benefits Delivery time and destination of the shipments can be tracked by manufacturers. Distributors would be the first to notify in case of any fallacies as they would provide a more efficient delivery tracking platform, including storage requirements and verifications. Stock management in hospitals and clinics would be more efficient mitigating supply and demand constraints. Furthermore, they would get guarantees concerning vaccine authenticity and proper storage conditions. Individuals would have an identical guarantee for the specific vaccine they receive.
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THE FUTURE Blockchain could add undeniable value in tracking, monitoring and reducing issues in pharmaceutical supply chains. Although it will not completely eliminate all risks, blockchain (and distributed ledger technology more generally) can help to tackle issues associated with the manual systems.
For the COVID-19 vaccine which the entire world needs desperately, proof of proper storage recorded on the blockchain is indeed priceless. Due to its immutability, transparency and traceability, it can offer efficient and accurate end-to-end tracking and monitoring of the vaccine supply chain and can provide a verifiable and auditable account of information. There is already an appetite among the pharmaceutical sector and in the NHS in the UK for using this technology in supply chains to improve record-keeping and data-sharing.
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12
SOLUTIONS
How can blockchain in supply chain management improve?
Scalability is the ability of a system to
The off-chain concept is referred to as
continue to respond and function after
a second layer scalability solution since
increasing the size of the input to fulfill
it uses secondary protocols built on top
user demand.
of the main Blockchain. Transactions
We
can
provide
four-category
classification of scalability solutions;
and carried out privately amongst the interacting partners in this method. It
On-Chain Scalability
provides
and
demand
a
structural or fundamental change to Blockchain, as well as changes to the underlying
principles.
In
situations when there is a division in the community, this is referred to as a hard fork or controversial hard fork, as there are factions that support or reject the
proposed
modification.
as
congestion,
reduced increased
space
savings.
RAIDEN,
Trinity
Network, Plasma Cash, and Lightning
Distributed Acrylic Graphs-Based
protocol's
such
throughput, reduced transaction fees,
Consensus Mechanism-Based
solutions
benefits
MainNet
Off-Chain Scalability
On-chain
are offloaded from the main Blockchain
Major
solutions include sharding and SEGWIT. Litecoin, DASH, and Bitcoin Cash, to name a few, are examples of hard fork
Network
are
examples
of
off-chain
alternatives. In
Consensus
Scalability,
Mechanism
the
working
based
of
the
consensus algorithm is optimized to aid in
addressing
VeChain ARK.io,
using LISK,
issues
of
scalability.
Proof
of
Authority,
bitshares,
E.O.S,
and
steemit using Delegated Proof of Stake, Ripple, and Stellar using Federated Byzantine
Agreement,
NEO
using
Delegated Byzantine Fault Tolerance, Libra, zilliqa, and Hyperledger are major solutions in this category.
solutions.
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13 12
Distributed
Acyclic
Graph-Based
Scalability is distinct from Blockchain. It's
a
popular
type
of
distributed
technology.
Transactions
independently
and
without
conforming
process.
For
ledger run
asynchronously to
a
transaction
particular
records,
the
system employs a topological ordering data structure. DAG distributed ledger system
does
not
have
the
scalability
problems that Blockchain does. IOTA, Byteball, NANO, and Hashgraph are some of the solutions in this category.
Despite the fact that Blockchain adoption is growing, the isolation of Blockchains in their individual "silos" due to a lack of interoperability
standards
is
preventing
wider acceptance. The proposed solutions for Blockchain interoperability
can
be
grouped
three categories:
"Blockchain improves operational efficiency by mapping and visualizing enterprise supply chains
into
It builds trust by capturing key data points, such as certifications and claims, and then provides open access to this data publicly." To allow operations, a notary acts as an intermediary trusted entity that witnesses and certifies the status of the interacting Blockchains. In this category, Liquid's Federated Pegged Sidechain is a key solution. Relays
scheme
interoperability
is
used
solutions.
many A
few
examples include Cosmos, Polkadot,
m he Sc
Lo in g
No
ck
ry
it
is
limited
in
functionality, Hash Locking is the
sh
ta
Although
Ha
es
and ChainLink.
SideChain Relays
most
practical
Blockchain significant
method
to
interoperability.
Its
solutions
are
the
Interledger Protocol (ILP) [64] and the ARK Core Series.
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14 13
CONCLUSION The Way Forward
We seem to be at a tipping point when it
Blockchain technology has a place in
comes to blockchain in the supply chain
complicated
and trade finance fields. As we've seen,
ecosystem maturity is required before
numerous projects are already in the
investing in the technology, and the
works,
solution's success will be determined by
and
many
of
them
are
expect these to mature. However, many
ecosystem rather than just one actor.
of
heightened
There is considerable room to improve
expectations have collided with the
supply chains in terms of end-to-end
realities
whether
traceability, speed of product delivery,
technological or organisational. This is
coordination, and financing. Blockchain
typical should
of of
noted
implementation, new
technology,
anticipate
obstacles
by
the
but
the
previously
faced
chains,
operational to some extent. We can the
challenge
supply
entire
and
we
can be a powerful tool for addressing
to
be
the
overcome and progress to be made here
deficiencies,
as
our
study
has
proved.
as well.
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APPENDIX 1. https://inc42.com/resources/how-blockchain-is-revolutionisingprocurement-and-supply-chain-in-india/ 2. https://www.niti.gov.in/sites/default/files/202001/Blockchain_The_India_Strategy_Part_I.pdf 3. https://www2.deloitte.com/content/dam/Deloitte/in/Documents/st rategy/in-strategy-innovation-blockchain-technology-indiaopportunities-challenges-noexp.pdf 4. https://www.finextra.com/blogposting/18972/blockchain-andinteroperability-key-to-mass-adoption 5. https://www.researchgate.net/publication/346535157_Blockchainenabled_supply_chain_analysis_challenges_and_future_directions 6. https://www.pharmexec.com/view/blockchain-covid-19-and-thepharmaceutical-supply-chain 7. https://www.weforum.org/agenda/2020/11/using-blockchain-tomonitor-covid-19-vaccine-supply-chain/
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