The Evolution of Supply Chain | James Heidrich

JA M ES HEIDRICH

THE EVOLUTION OF SUPPLY CHAIN SUPPL Y B L O C K C HAIN OF THE FUTURE

INTRODUCTION COMPLEXITY OF THE MODERN SUPPLY CHAIN

The supply chain is an integral part of what drives the modern industry.

Whether you deal in hardware or software, you’ll need a decent supply chain to scale up your business and to keep the demand of consumers in check.

That is why supply chain management is a topic that is constantly brought up and its innovation is discussed ad nauseam. To a beginner and to an expert, supply chain management may carry the same level of fascination, just because there are so many techniques and ways to go about designing a procedure to implement it.

In today’s world it’s not as simple as it once was. Not only is there much more volume to move than there was even ten years ago, and not only has the supply chain management of any and every product truly gone global, but there are a lot of concerns to take care of the bigger the supply chain gets.

There are tracking issues, customs and duties and taxes to take care of, and then there is the environmental aspect of the supply chain to consider.

In today’s world of conscious, politically and socially aware consumers, it is imperative to optimize and customize the supply chain to not only fit the needs of the current generation, but to also make sure that it efficiently produces next to no waste so that the operations conducted are carbon neutral.

DEFINITION By and large the meaning of supply chain management has stayed the same. It is the practice of “incorporating a company’s social, environmental and economic goals into the coordination of interbusiness processes to improve the long-term economic performance of the individual company and its supply chains.”

Hence, not only does the supply chain differ from company to company, but it differs from country to country depending on the local culture, political sensitivities and evolution of the society.

Today’s world has become more holistically concerned rather than concerned with milking the most profit out of the supply chain as possible. Although profit is still king, due to social pressures, the prevalence of the media and the proliferation of social media, the idea of the supply chain existing simply as a tool of the company rather than a living and breathing part of the society has been flipped on its head.

HISTORY

While the supply chain may seem like it always existed, at least in concept, in the field of business, this is strictly not true. The first signs of the supply chain and its management emerged in the early 1980s when the world was on the cusp of being connected by digital signals and satellites.

The first recorded use of the phrase was in the British Newspaper, “The Independent” where it was used to refer to the wartime situation. However, the development of the concept for handling retail and business became known in the mid 1980s when in 1985, an analysis for supply chain was published and in the mid 1990s when in 1995, the “total cost of ownership” model was developed. What followed was the creation of the Supply Chain Council and the Council of Supply Chain Management Professionals in 1996 and 2004 respectively.

The “total cost of ownership” was defined as the monetary estimate that included all direct and indirect costs which were involved in the production of a certain good. The direct costs included raw materials and labor. On the other hand indirect costs included the costs of running the business and the supply chain which were not involved in making the good.

SUSTAINABILITY

The sustainable supply chain is a concept that has been chased after as long as supply chain management has been around. The theory of the sustainable supply chain is very popular today because it meshes together with environmental concerns as well as business concerns.

Businesses recognize that a sustainable supply chain will do more for them than one that is meant to expire or eat up resources. Not only will it guarantee continued operation, but also be better for the world surrounding the company; something that is good for business and for public relations management.

The main issues on the mind of industry professionals looking for a sustainable model for supply chain management are:

Working conditions Environmental or green issues Corporate social responsibility Low wages/minimum wages Human rights Child labor Sustainability Health and safety Forced/bonded labor Sweatshops Ethics Bribery Recycling Waste Air pollution/emissions Water pollution/emissions Working hours The person at the center of this entire management cycle is the Chief Financial Officer of the company. Here are the main concerns that plague the CFO: Maintaining philosophical and ethical consistency across all points of the supply chain Challenging and supporting the choices that the company makes in what it invests and what it becomes involved in.

Supervising the operations and enhancing performance and putting efficiency of the supply chain above all else Managing risk and continuity of business

THE DIGITAL PLUNGE

Nearly every single multinational company or conglomerate has a digital infrastructure to manage the supply chain, from industry to the customer. It analyzes the data from the beginning to the end, but the supply chain management software built from the ground up is always falling short of one critical thing: visibility. Most companies have very low visibility into where their product goes and where it is at any given moment.

Tracking parcels and deliveries is a pain because there are jurisdictions, customs and duties that are involved which are not in the control of any one entity. At times it becomes so complicated that parcels are lost and customers complain about the loss of their package.

The culprit for most of this is the gap that occurs where digital service isn’t available. This is what is known as an analog gap and it endangers the process of delivery and creates a huge vacuum in the supply chain that is hard to fill.

However, there is a certain system in operation today that may make it a thing of the past. That is the system used as a foundation on which cryptocurrencies were created, called the Blockchain.

BLOCKCHAIN Blockchain is an internet based system used to transfer bitcoin and various other cryptocurrencies between digital accounts. It affords complete transparency and anonymity along with the option to be completely tax-free of any entity, private or public. It’s an enticing technology to experiment with, but until last year, it was just that, an opportunity to experiment with a new technology. However, with the boom and bust of bitcoin that occurred at the end of 2017, Blockchain registered on the radar of every single company and individual with an internet connection.

The allure of Blockchain for supply chain management is simple, it’s an independent system that can work across continents and won’t be hindered by any international tariffs. It’s also a model that is more secure than any banking or financial model on Earth today. The automation of the Blockchain system has also produced some remarkable innovation in the field of contracts that is simply incredible.

The transfer of money is also incredibly smooth via Blockchain and can be done in a matter of minutes across continents because the internet is one big information superhighway and doesn’t know any borders or boundaries.

BLOCKCHAIN (CONTINUED)

Blockchain also has the option to scale up to humongous levels and established IT companies are already experimenting with it to try making it their primary data transfer system around the globe. This includes Walmart, which tested an application that traced pork in China, produce in the US and authenticated transactions with accuracy.

Maersk and IBM also worked on cross-border and cross-party transactions using Blockchain to improve efficiency. This went on to Provenance, a startup in the UK that raised around $800,000 for the adaptation of Blockchain technology to track food. The pilot program was to trace tuna in the Southeast Asian supply chain.

The advantages of Blockchain technology are limitless, yet it’s such a young technology that no one can tell what prospective advantages it may yield in the future. It will, no doubt, replace many of the old, mundane and slow processes that would hinder supply chain and would contribute to the free flow of capital and information across the globe, but it would also be instrumental in providing digital security to supply chain all over the world.

SUPPLY BLOCKCHAIN OF THE FUTURE

TRANSPORTATION AND LOGISTICS

Transportation and logistics is one industry that has expanded hundredfold in the last century, not least due to the creation of such retail giants such as Amazon and Alibaba. With such behemoths battling it out for supremacy in the world of tech and in the world of retail, there is cutthroat competition. And the main problems that they’re trying to eliminate are latency issues and last mile deliveries.

Predominantly, it’s all a game of transportation and logistics.

Whether it’s a case of not finding the right address, or the case of shipment tracking not working at all, transportation and logistics is an area that needs a lot of work. Blockchain can seemingly provide a solution for all of that.

As demand for same-day and on-demand deliveries increases, the expectations of the consumer have skyrocketed. Due to which commercial transportation companies are faced with an ever-increasing need to innovate.

FREIGHT TRACKING ISSUES Blockchain technology would seek to eliminate the issues that the old supply chain faces, at least not to the same degree. By using the blockchain for authentication of data, the entire network would be able to contribute and validate the data it is processing. This means that less of it would be subject to corruption and tampering.

The increasing reliability of tracking data would also have an impact on the conservation of goods that are shipped. As an example, the refrigerated and temperature controlled transportation relies on on-time delivery. This efficiency can only be improved through the use of Blockchain technology.

IBM has partnered with global companies to launch an initiative to bring the “requisite efficiency, transparency and authenticity to food supply chains around the world.�

IOT AND AI TO INCREASE EFFICIENCY Blockchain can be particularly useful for capacity monitoring if combined with the innovations of the IoT. The Internet of Things is a concept that is perfect to track volumes of data and materials all across the globe. Retail and shipping is mostly a game of calculating costs and margins to turn a profit on shipping.

Hence, the IoT sensors on trucks and other shipping vehicles can detect the amount of space that is taken up by a shipment and determine that cost accordingly. This information can then be transmitted to the blockchain and saved for future references. This way, more and more efficient packing techniques can be realized, and better calculations for shipping freight can be carried out.

Not only will this help with more volumes being shipped, but it will cut down on the number of parcels and objects that are damaged during shipping. According to a study by Freight Waves, 8.5% of sensitive pharmaceutical shipments are damaged during shipping due to temperature deviations.

IOT AND AI TO INCREASE EFFICIENCY (CONTINUED)

The Swiss firm SkyCell was able to create air freight containers with the use of IoT sensors that were specially built for refrigerated biopharmaceuticals. They monitor humidity, temperature, and changes in location. Due to this innovation, SkyCell was able to bring their temperature deviation rate down to less than 0.1%. This saved many more of the pharmaceuticals that were hitherto being damaged beyond salvaging.

EFFECTIVE TRACKING OF PERFORMANCE .The importance of tracking isn’t limited to just delivery. There’s also the performance of the vehicles in the fleet. It so often happens, that certain deliveries are stalled or just not made because the delivery truck in question has broken down or because it’s not being replaced.

And sometimes when a second-hand vehicle is being purchased by a small business or even a large company, there’s no guarantee that it will run right. The blockchain can help solve this problem by keeping track of the vehicles in question. It can maintain a record of its performance, its maintenance history, its top speed, and efficiency, etc.

While many companies exist that do this, they are simply intermediaries, and the blockchain will cut out the middleman.

EASIER CARRIER ONBOARDING

Just as the blockchain can help track the performance history of a vehicle, it can help track the performance history of the carrier as well.

The situation can be debilitating in a time crunch when there’s a new carrier to be authenticated. Blockchain technology can cut that time down by creating decentralized networks to hold the necessary records of the carriers across the freight industry.Â

SMART CONTRACTS

Smart contracts are an incredible and serendipitous consequence of the blockchain, and they can be used as a huge advantage for the logistics industry. These are basically self-executing tasks that can be coded through the blockchain. They can be executed automatically when certain conditions are met and can hence, make the entire process much, much faster.

A basic example of this is when a company wants to release a payment to a certain supplier. When the item reaches the destination, the Blockchain tech in place can log in that entry and automatically execute the command to transfer funds to the shipper. This way, the middlemen are cut out, and the process becomes much smoother and more efficient.

This would essentially cut out the problems with late payments and the squabbles over delayed or outstanding dues.

PROCUREMENT

Despite the advancement in digital technologies, the procurement process is plagued with a lot of challenges that need to be handled like transparency data inconsistency, and speed. There are also problems with trust and time sensitivity.

Paper-based processes are still very common, and this results in reduced transparency across many networks. The companies that are facing these challenging using data analytics, IT and big data may very well improve supply chain visibility, but the blockchain can offer the best of all possible worlds here.

EMBEDDING TRUST

One of the main pain points of professionals in the procurement business is the lack of trust they have with a lot of parties involved in deals. This is the reason that a lot of intermediaries and middlemen have been put in place to establish that trust. However, they take up a lot of money and time that could be brushed to the side if the trust wasn’t needed.

Blockchain technology provides you with complete transparency; hence the trust isn’t required anymore, since the process is already so clear. The Blockchain enables businesses to store their information in a secure database that is traceable and can’t be altered without the consent of the primary users.

All the applications that work within it are layered on to a cloud-based and tamper-proof network which ensures digital trust. This feature of the blockchain ensures that the agreements signed and the deals made are all verifiable. This provides encouragement to all the partners involved to move forward without hesitation. Since it’s a digital network and not a human being that is making these deals, it makes it their interest to move forward.

DIGITIZATION AND STANDARDIZATION The multi-party supply chain is a sequence of distinct methods that are undertaken for manufacturing, product development and marketing.

They reach the end consumer at the very end. The digitization and standardization of this process is a clear break from these conventions. It allows the chain to become a more organized system which offers greater clarity to everyone involved.

This goes for the raw materials, the manufacturing process, the finished goods and the end consumers involved.

MITIGATING RISK

As of now, the Blockchain records every single transaction that is carried out on its network. Due to this, the payments are transparent and public and no one can add to the blockchain without all the stakeholders knowing. This way any malicious or suspicious activity can be tracked before it damages the business.

This gives a greater incentive to invest and to procure. Since the risk is mitigated, the business decisions automatically become safer and more financially viable to take.

MEDICAL TECHNOLOGY In the life science industries, the business increasingly is faced with challenges to monitor a host of different datasets. This includes maintaining a supply chain that can prevent falsified products, identifying defective products and also comply with regulations, old and new. Blockchain can allow real-time recording of each stage of manufacture, supply, and distribution so that every part of the process is carried out by the book.

Information like the place of production and the shipping dates as well as the batch numbers and expiry dates can all be recorded. Even the smallest details like the storage temperature and the unique identification numbers can be stored and monitored due to the placement of IoT sensors.

CONCLUSION

The advantages of using Blockchain as the Supply Chain of the future are clear, yet there are a lot of bugs to work out. These include caveats such as the speed of the transactions, the lack of taxation and wide implementation of the blockchain in various countries and opposition to the trade of various crypto-currencies in large countries like China and India.

Not to mention the vast overhaul it would require shifting to the blockchain for large retailers around the world such as Amazon and Alibaba.

However, like all things, the implementation of this new technology needs time and acceptance. And only time will tell how successful it will be at those.

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