Gaining Competitive Advantage with Blockchain
Published on : Sunday 05-04-2020
Pravin Bambal dwells upon the many features of blockchain to have a highly efficient distribution chain.
Currently, the supply chain management system suffers highly due to lack of efficiency and transparency and most networks face difficulties when trying to integrate all parties involved. Ideally, the products and materials, as well as money and data, need to move seamlessly throughout the various stages of the chain However, the current model makes it difficult to maintain a consistent and efficient supply chain system, which impacts negatively not only the profitability of the companies but also the final retail price. Some of the supply chain’s most pressing issues can be addressed through the use of blockchain technology as it provides novel ways to record, transmit, and share data. Blockchain technology offers businesses a secure platform, ledger, and database where buyers and sellers can store and exchange value without the help of traditional intermediaries.
The benefits to be gained will save you time, money, and effort on several fronts, and have the potential to redefine how you do business. It could transform how businesses are organised and managed.
While blockchain technology is still in its infancy, it could potentially transform the US$40 trillion global supply-chain industry. Ultimately, the emergence of blockchain would challenge market positioning in established businesses.
Due to the technology’s innate distributed and immutable features, the adoption of blockchain on supply chains is one of the most promising recent applications.
Let us consider a network of entities engaged in exchanging assets, or making transactions, with each other. Traditionally, such activities would require a central organisation to manage them and act as an intermediary for any payment or transaction. A blockchain provides the infrastructure for such activities to happen in a transparent, secure and reliable way, without the need of the central organisation. For a transaction to be valid, it must be registered in a block that the network has agreed upon through a consensus mechanism. After validation, the
nodes append the block to their privately maintained chains. Because the blocks have been validated by the network, all chains are identical, providing a distributed ledger ensuring data synchronisation across the network. The chain structure is a key characteristic that facilitates
the reliability and immutability of the ledger, as each block contains a hash of the contents of the previous block on the chain. Therefore, once a transaction is registered on the blockchain it cannot be tampered with, as such a malicious act will manifest itself as an inconsistency between the block hashes of the individually maintained chains. This allows to trace down the origin and progression of all registered activities. The traceability property of blockchain, as it is better known, is one of the features that attracted the attention of the business and ?nancial worlds. Organisations in these regimes are often part of large and complex networks where transactions are happening for products and services to ?nd their ways from production and creation to consumption and use.
Consider the example in a Pharma supply chain.
The Problem
When examining the entire Pharma supply chain from manufacturer and the shipment to authorised logistic supplier, distributors, hospitals, prescribed doctors, pharmacies and PoS, a widely inconsistent method of passing information and transactions is used. As a result, information is lost, error-prone and unauthorised handling of goods in chain occurs.
Advantages of blockchain.
The Solution
Blockchain provides the ability to have an auditable and trusted source that can allow the definition of all entities involved, rules, and transactions tracking on distributed basis. This shared and real-time ledger can be used by entities in the supply chain to speed up the process of exchanging goods, fulfil reporting regulations, speedup verification process, simplify process and maintain detailed tracking of the goods/process to prevent fraud.
Blockchain technology can also enable a complete record of products, temperature to be tracked from shipping to end user, which ensures the integrity of temperature controlled supply chains/cold-chains.
Consider another use case wherein counterfeiting is most common problem in supply chain.
The Problem
Counterfeit medicines and other drugs sold to deceptively represent their origin, authenticity or effectiveness can have a direct impact on consumer care and even provider liability. In existing solutions there is still the possibility of central authority compromised and documents that can be faked.
The Solution
The existing e-pedigree solution can be modified with blockchain enabled anti-tampering capabilities during manufacturing, the supply and dispensing system could make drug counterfeiting a non-issue.
Similarly, procurement and contracting is the most common activity within any manufacturing supply chain can be handled very efficiently with blockchain technology.
The Problem
In large manufacturing setups due to varied amounts of volumes and variety of suppliers the process of contract becomes complex. Negotiations of contract and its execution is a time consuming and tedious process resulting in supply chain issues.
The Solution
Supply chains can be streamlined through Smart Contracts wherein a smart contract is an agreement between two people in the form of computer code. They run on the blockchain, so they are stored on a public database and cannot be changed. The transactions that happen in a smart contract processed by the blockchain, which means they can be sent automatically without a third party. This means there is no one to rely on! The transactions only happen when the conditions in the agreement are met – there is no third party, so there are no issues with trust.
Blockchain technology adoption challenges
The adoption challenges can be divided in two categories:
- Those that are technical and native to the limitations caused by the current state of the blockchain technology, and
- Those that are related to the industry perspective and policy making.
With regards to the technical challenges and requirements, a key issue is data security and user privacy. This, along with the limitations of IT infrastructure, especially for small and medium enterprises, are the main technical reasons causing reluctance among industry partners and making them hesitant in applying blockchain technology to their use cases.
Another main issue is the known scalability problem of blockchain, which limits the amount of transactions and information that can be stored and processed in a short amount of time, with the current available infrastructure. Given that most industries form part of large and complex networks, the current state of the blockchain technology creates uncertainty with regards to the size and complexity of use cases that can be currently implemented.
Moving to barriers and requirements from the perspective of the industry partners and policy making, one of the key issues is the reluctance from the industry and ?nance parties to adopt the technology, partly due to the technical limitations and partly due to the declining reputation of the technology which is linked to crypto currencies.
Because of the distributed nature of the technology, its success heavily depends on compliance and general agreement between the different parties involved with the supply chain. More than often, this implies a heavy dependence on blockchain operators, as well, and a strong requirement of trust between the different parties and between the industry and the technology itself.
Lack of regulations, unclear bene?ts as well as the communication barriers between technical experts and policymakers are key issues that do not facilitate the adoption of the technology. Signi?cant barriers exist because of the lack of suf?cient training platforms for non-technical experts to familiarize themselves with the operations and bene?ts of blockchain.
Bene?ts stemming from blockchain functionalities
- Consumer awareness
- Decrease of paperwork processing cost and time
- Facilitate IoT
- Facilitation of transactions in developing countries
- Fairer pricing
- Identify fraud and counterfeit cases
- Platform for emission reduction
- Support and insurance to SMEs, and
- Tracing product origins.
Bene?ts from blockchain functionalities
- Consumer awareness and transparency
- Decrease of paperwork processing cost and time
- Facilitate IoT to increase efficiency in operations
- Identify fraud and counterfeit cases – Manufacturers spend lot of money on anti- counterfeiting workarounds and regulatory compliance, this will be reduced or eliminated if product authenticity can be assured at manufacture, delivery and eventual consumption, and
- Intermediaries are reduced through use of smart contracts to streamline supply chain.
Conclusion
So why do we say that manufacturers can gain competitive advantage by using blockchain in the supply chain?
As all of us know, in the 4 Ps of marketing (Product, Price, Promotion and Place) largely followed by almost all manufacturing companies, the 4th P, i.e., Place, which deals with distribution can be differentiating factor for companies if handled efficiently as it deals with putting the right product, at the right price, at the right place, at the right time.
Distribution is not a revenue factor but it is an access factor dealing all above mentioned aspects (i.e., right product at right price, right place, right condition, and right time, i.e., availability, convenience). Revenue can be realised only when distribution chain is functioning efficiently. This is crucial for success of any manufacturer irrespective of High Quality, Brand Equity they have; otherwise competition will outpace them.
Blockchain with its features of Transparency, Ability to reduce intermediaries, Increasing speed of operations, Cost savings can make it possible to have highly efficient distribution chain and hence any manufacturer using it can gain competitive advantage in marketplace.
Pravin Bambal is a Business Technology Leader with 18 years of successful career in Leadership, Strategies, and Consulting with tech giants like Siemens, IBM, etc., in industry verticals like FMCG, Chemicals, Pharma, Metal and Automotive. He has multi-faceted client relationship experience with customers across USA, EU, Middle East and the Asia Pacific geography.
