June 21, 2018

Blockchain Can Drive Efficiency and Enable New Business Models in Global Logistics Industry

An online search for 'blockchain' will yield hundreds of articles. While the breadth and depth of these articles are wide-ranging, it is generally agreed that blockchain will become ubiquitous in many sectors including but not limited to financial services, insurance, healthcare, retail, and logistics and supply chain management. My colleagues and I are making significant efforts to better understand how blockchain works and ways it will improve business efficiency.

While many people are hearing the word 'blockchain' more often, very few understand how it works. Arjun Kharpal, a technology correspondent for CNBC, wrote an article on June 18, 2018 entitled "Everything you need to know about the blockchain," Mr. Kharpal begins explaining blockchain by how it "works with bitcoin" and then "see how the technology can be transferred to many other real-world use cases." With respect to supply chain management, Mr. Kharpal says, "Blockchain technology can also be used to track products across a supply chain or route. For example, diamond producer De Beers recently announced that it had trialed the technology to trace the stones from the time they were mined to delivering them to a jeweler. The blockchain can also be used to track ownership of assets such as fine art of even property."

DHL, a global logistics company, through its Customer Solutions & Innovation division, published a report entitled Blockchain in Logistics, which provides perspectives on the upcoming impact of blockchain technology and use cases for the logistics industry. Produced in cooperation with Accenture, a management consulting company, the report aims to answer:
  1. What is blockchain and what are the key challenges?
  2. How is this technology already being applied across industries?
  3. What opportunities could blockchain deliver to your logistics operations?

In addition to the aforementioned article by Mr. Kharpal, the DHL report provides a concise definition of blockchain as "a distributed ledger technology that can record transactions between parties in a secure and permanent way. By 'sharing' databases between multiple parties, blockchain essentially removes the need for intermediaries who were previously required to act as trusted third parties to verify, record and coordinate transactions. By facilitating the move from a centralized to a decentralized and distributed system (see figure 1), blockchain effectively liberates data that was previously kept in safeguarded silos."

Key challenges facing blockchain technology include:

"Gaining industry adoption is the most critical challenge and this will determine the success of blockchain technology in logistics. Being able to accurately and safely exchange information within a community is a key advantage of blockchain and stakeholders benefit the most when their community contains many relevant members. Therefore, similar to Facebook, the value of the community increases when it is adopted by a growing number of relevant stakeholders."

"It is necessary to make progress with blockchain technology itself in order to overcome current technical limitations. This is especially required for companies moving from a pilot implementation to full-scale deployment. For example, some blockchain implementations have been known to scale poorly and suffer from high latency although new innovations are being developed to address these scalability and performance issues."

"Organization and culture play a significant role in the success of digital transformation in any industry. Particularly with blockchain technology, this cannot be overlooked as its adoption will require a collaborative mindset to engage with a large number of stakeholders. Therefore, within
organizations, a culture of embracing new opportunities from blockchain technology should be fostered. Managers, particularly those in IT functions, must gain blockchain expertise to proactively push organizational exploration and, if applicable, adoption of blockchain-based solutions."

The report importantly notes, "While there are many hurdles to overcome, these challenges with blockchain are not insurmountable. Already this technology, despite its relative infancy, is showing promise across a wide range of industries including citizen services, retail, life sciences and healthcare, automotive, manufacturing, energy, and logistics."

Specifically to logistics, the report says "global supply chains are highly complex, with diverse stakeholders, varying interests, and many third-party intermediaries – challenges that blockchain is well suited to address. In the logistics industry, blockchain can be harnessed in two key ways, namely, to drive efficiency and enable new business models:

"Drive efficiency: Blockchain can potentially improve efficiency in global trade by greatly reducing bureaucracy and paperwork. For example, a multi-stakeholder process with a lengthy paper trail could be replaced with an automated process storing information in a tamper-evident digital format.

"Another example is the automation of services that currently require an intermediary such as insurance, legal, brokerage, and settlement services. Blockchain could be used to track a product's lifecycle and ownership transfer from origin to store shelf, even as it changes hands between the manufacturer, logistics service provider, wholesaler, retailer and consumer. It would facilitate and automate each business transaction, enabling a more direct relationship between each participant (e.g., automating payments and transferring legal ownership between parties).

"Enable new business models: Micro payments, digital identities, certificates, tamper-proof documents and much more can be introduced and radically improved using blockchain-based services. For example, driver training organizations could replace easy-to-fake paper-based certificates with tamper-proof digital versions that can then lead to new identity-related services. Just as the Internet began a revolution of communication, blockchain technology could disrupt current business practices and models."

Lastly, the report encouragingly explains, "Blockchain technology is emerging from its first deployments in cryptocurrency and is now likely to have significant impact across almost all industries. Like a pebble dropped into a lake, the ripples from this technology are beginning to expand outwards in all directions including the logistics industry, where blockchain promises to make business processes more efficient and facilitate innovative new services and business models."

How will your organization utilize blockchain technology?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

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