Freeing the Blockchain from the Supply Chain

Anyone who comes close to the knowledge and implementation of Blockchain technology in business, beyond cryptocurrencies and financial applications, will be overwhelmed by the countless initiatives focused on proposing solutions to the problems of supply chain management.

This has always caught our attention to those who lead the use of Blockchain technology to solve business problems with the aim of generating immediate value for manufacturers and consumers. This note tries both to deepen the analysis of that trend, and to guide companies in how to address the implementation of this technological innovation.

It is very likely that attention to the supply chain processes as potential beneficiaries of the use of Blockchain technology arose from the alleged similarity with the problems in financial transactions that gave rise to cryptocurrencies. Indeed, in the supply chain, both upstream and downstream from the manufacturer, we find numerous participants who transfer ownership of assets with insecure and inefficient systems. But here the similarities end because the difficulties accumulate thereupon.

To begin with, the implementation of this technology requires the digital transformation of a business operation in itself extremely difficult due to several factors:

• First, due to the structural complexity of the supply chain itself. Its components and participants are very diverse, including people, processes and management systems.
• Then, the difficulty of implementing technical, organizational and cultural changes.
• Finally, the human factor, the utmost determinant of the success of any digital transformation of the company and against which it cannot be carried out.
• And the role of the major dominant operators in the international traffic of products, that condition the operation of the distribution chain of most companies, cannot be ignored.

All this has not prevented, as we said before, the proliferation of solutions aimed at solving the problem of tracking products on their pilgrimage through the supply chain. It is true that most of the proposals do not go beyond proof of concept, but, in our opinion, they do a disservice to both companies and the credibility of Blockchain technology. The reasons are diverse, as we have begun to point out before mentioning the strain of the digital transformation required for its implementation, and increased by others such as the following:

• The need to have the commitment of all the participating members.
• The mandatory design of a customized solution for each supply chain.
• Having to support its functionality on the so-called “smart contracts” that require coding by technicians not very abundant.

The potential benefits for companies are attractive: greater access to information, improved decision-making, facilitating collaboration between departments and gaining security and trust. However, in practice, our experience in regard to real opportunities is very different:

• The efficiency goals, in time and cost, if reached, have limited economic impact.
• The implementation of the most publicized solutions go with significant investments and consulting costs.
• The companies providing these solutions are inevitably interested in capturing a sound part of the potential value that the company wants to achieve.
• The benefits are sought more from the side of the company than from the consumer.
• The impact of the human factor in the operation of the supply chain announces that the initiatives will fail or do not even materialize.

In short, it is necessary to recognize that the dominant discourse regarding the implementation of Blockchain technology in business in general and in the supply chain in particular, has been constrained by large supplier companies, with an understandable interest in ensuring its implementation, establish access barriers to third parties and obtain economic benefits. But the structural complexity of the supply chain, plus the particular interests of each participant, the costs of the applications, and the entry barriers established by the main players in the industry make almost impossible a practical advance of this technology beyond the proof of concept.

Hence the success, by comparison, of the applications developed by BlockTac which, in the case of the supply chain are characterized by:

• Be focused on consumers and seek personal bonds with each one of them.
• Ensure control of the information that accompanies the product at all times.
• Do not require investments and have a minimal cost without impact on the price of the product.
• Be functional even without the contribution of some members of the supply chain.
• Identify immediately and easily the problems of counterfeiting and illegal distribution.
• Simplify the solution of health alert problems and the recall of defective or contaminated products.

And that also extends many other business functions, further than the supply chain, and other industries, beyond the food and consumer products, such as administrative-legal, professional accreditation, artworks, medicines or clinical records.