Research Report - Blockchain in Supply Chain Management

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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6 3

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)

9

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

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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15 14

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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15