Blockchain technology and your supply chain: a risk analysis
1st August 2018
The rapid growth of bitcoin and the technology which underpins it (blockchain) is widely recognised for its benefits to the financial services sector, but bitcoin and blockchain are set to have a great impact on all aspects of commerce, including the consumer sector.
In this series of articles we will consider how blockchain technology is being increasingly used in the context of supply chain management, its benefits and the associated risks.
A reminder: what is blockchain?
Blockchain is a form of distributed ledger technology.
A distributed ledger is a form of database which is held, controlled, and updated by each of the users that have access to it (these users form a “network” of users). Rather than one central participant being able to authorise transactions recorded within the database ledger, this power is held by all of the network users. This means that it is only once there is consensus from all users in the network that transactions will then be reflected in the database ledger automatically. Each transaction, or entry in the database ledger (which cannot be altered or removed without the consensus of a general majority of network users) is linked to the one before, creating a chain of events and transactions secured by cryptography (essentially coding), resulting in a secure and self-verifying database ledger of transactions.
What are the benefits of blockchain to supply chain management?
Blockchain has a number of attractive properties, which are potentially valuable in the context of supply chain management. This is particularly the case when blockchain is paired with other disruptive technologies, such as devices connected via the Internet of Things and machine learning. Fundamentally, however, blockchain can offer the supply chain:
- transmission of data and information to all users of the supply chain network on a real-time basis. When a new change is made to the supply chain blockchain, for instance: goods have been despatched from a tier one supplier, all network users can be made aware of this in real-time, rather than waiting for the relevant shipping note to arrive by whatever means (or combination of means) is traditionally used by the network;
- secure transmission of correct information between the users of the supply chain network. Unlike traditional data exchange systems – which rely on extraneous security systems to protect data transfers, blockchain’s inherent and automatic use of cryptographic hashing to facilitate each alteration in the chain, automatically assures the security – and authenticity - of each alteration; and
- greater transparency to businesses in the supply chain, as well as customers, end-users, and third parties (such as regulators) concerned with the products and services produced by the supply chain. In this way, those with relevant access to the chain can theoretically track and trace the movement and treatment of goods, (for example) from component manufacture, through to assembly, storage, packaging, shipment, and sale. This allows manufacturers to quickly localise the source of faulty components; retailers (and potentially consumers) to verify the composition and origin of the products they sell (or buy); and regulators to easily ascertain whether products and services are being supplied in accordance with requisite standards.
These benefits are now being harnessed, and we are seeing multiple proof of concepts being trialled within the supply chain across a variety of sectors, ranging from food and beverage, to industrial engineering. One of the more recent proof of concepts to arise is the “Trade Community System”, brought about by PwC Australia, the Australian Chamber of Commerce and Industry and the Port of Brisbane, to increase logistics efficiencies for those using the Port.
The Trade Community System represents a potential solution to a serious (but by no means isolated) problem, given that current inefficiencies across Australian supply chains has added to the cost of doing business, creating up to $450 in excess costs per shipping container.
Blockchain has a number of attractive properties, which are potentially valuable in the context of supply chain management. This is particularly the case when blockchain is paired with other disruptive technologies,
Eversheds Sutherland’s Blockchain Series
In the articles that follow, we will critically analyse from a legal-risk-based perspective, the use of blockchain in supply chain management, with a particular focus on:
- the extent to which the transparency within a supply chain blockchain can be relied upon;
- the security assurance offered by blockchain as against traditional information exchange systems; and
- the efficiency of the exchange of information between users of the blockchain supply chain, for users of the network, including the significant resources required to upkeep and expand a mature blockchain.
For more information and to discuss blockchain within the supply chain please contact Adam Fisher, Ridah Iqbal, Harry Rasmussen or Erica Crosland.