The Integration of Blockchain Technology in Supply Chain Management:
An Exploration of the Effects on Global Operations
Madeline Batista
Department of Business, Purdue University Fort Wayne
BUS 30102-03I: Operations Management
Dr. Gurgur
December 12, 2020
The Integration of Blockchain Technology in Supply Chain Management:
An Exploration of the Effect on Global Operations
Blockchain is an emerging technology that began to show its potential impact on business processes throughout many industries in 2016. As it pertains to this research paper, blockchain is a decentralized database system that is able to record data and transactions as they occur throughout the supply chain (SC), and operations (OPS) processes. It is reliable because once data is added to the blockchain, it cannot be deleted or edited. The information on the blockchain is also made available to all parties involved in the OPS and SC processes. Because of this, blockchain technology has the ability to enhance the confidentiality, integrity, and availability of transactions and data collection related to OPS and SC management for industries that choose to utilize it. Through this paper, I would like to research the specific industries that blockchain technology has impacted most, relating to their OPS and SC processes. I want to define how this technology has changed these processes since its implementation, as well as how it varies in usage across different industry settings. I also want to understand the impact that blockchain has had on industries that are involved in global OPS and SC affairs. I want to research how its use in global processes relates to its domestic utilization within industries. These research objectives will allow me to acquire more in-depth knowledge of the benefits and uses of blockchain technology as it relates to OPS and SC, adding to my already generalized understanding of this technology. Researching how the current uses of blockchain differ across industries is beneficial since it is a growing technology that I will likely be working with in the industry that I will be working in.
Beginning Applications of Blockchain to Supply Chain Management
An article written by Shuchih Chang and Yichian Chen (2020), for IEEE Access, gives early insight on the use of blockchain with Supply Chain Management (SCM) processes. They explain that during its beginning stages of implementation, in 2008, blockchain was known for its application to digital currencies such as Bitcoin. An article by Curtis Miles (2020), a writer for IBM, explains that blockchain was a successful addition to Bitcoin because the records on a blockchain are secured through cryptography. This means that data stored on a blockchain cannot be altered or changed once it has been recorded. Bitcoin uses blockchain in this way to secure transaction data among its users. In 2016, further application of this technology was researched and implemented into SCM processes. Chang and Chen (2020) found that the first industries who came out with information on this application were the physical distribution and logistics, agricultural and food, manufacturing, and drug and pharmaceutical industries. The topic that was widely discussed throughout these industries was the impact that blockchain technology had on supply chain traceability and transparency, regarding transaction records. The areas of the SC that were most affected by this application included managing and tracking transaction data that pertained to critical intermediaries, process hand-offs, centralized business operations, etc. Blockchain redefined the way that this data was collected by seamlessly recording transactions made throughout these processes, from beginning to end of the SC. Since blockchain is a shared ledger technology, everyone who was involved in the SC including, suppliers, manufacturers, shippers, distributors, and customers, had access to these records as well, giving each person the ability to monitor SC progress in real time via transaction data. Blockchain took away the need for “trusted centralized authorities” (Chang, Chen, 2020, p. 62487) to manage this information, ensuring accurate transaction data recordings, further increasing efficiency at each stage of the SC. This was the main application of blockchain to the SC processes during 2016; however, industries found additional areas of the SC that blockchain technology could be implemented into as the years progressed.
In 2017, research among these industries began on the benefits of integrating blockchain technology with other emerging technologies such as IoT and advanced sensing technologies. “This ultimately enabled improved real-time monitoring of logistics activities” (Chang, Chen, 2020, p. 62488), as well as increased the security of this information. Due to the integration of blockchain with these technology platforms, traceability and transparency applications also evolved, with the writers explaining that, “blockchain is now further utilized to record the ownership of assets, permissions, and activity logs. This improves the traceability of information, cash, and process flows, and thus provides timely tracking of products and services” (Chang, Chen, 2020, p. 62480). Walmart, for example, has already begun utilizing this application, and has “illustrated the capability to improve the visibility of physical movement, asset transfer, and quality assurance” (Chang, Chen, 2020, p. 62488) throughout their food supply chain.
Blockchain Application to Walmart’s Food Supply Chain – Hyperledger Fabric
An article from hyperledger.org (Walmart Case Study, 2019) explains that Walmart was introduced to blockchain technology in 2016 following multiple failed attempts to create a traceability system for their entire food supply ecosystem. After extensive research by their technology department, Walmart realized that blockchain was the answer that they had been looking for. Hyperledger.org (2019) interviewed Frank Yiannas, former Vice President of Foods Safety at Walmart, and he explained the following:
I had been hesitant about creating yet another traceability system – the ones that we had tried in the past never scaled. Now I understand that was because they were centralized databases. Blockchain, with its decentralized, shared ledger felt like it was made for the food system (p. 1).
Walmart partnered with IBM and implemented the blockchain technology, Hyperledger Fabric, an enterprise-grade, open source blockchain technology that fulfills Walmart’s need to trace assets across many different supply chain participants. Walmart launched two projects at the end of 2016 to test their blockchain system. Since Walmart imports a lot of its food from outside of the U.S., their projects were conducted on a global level. Project, one involved tracing the origin of mangos sold in Walmart’s U.S. stores. The second project aimed to trace pork sold in its China stores. Both projects were a success. Hyperledger.org (2019) explains the results in the following:
For pork in China, it allowed uploading certificates of authenticity to the blockchain, bringing more trust to a system that used to be a serious issue. For mangoes in the US, the time needed to trace their provenance went from 7 days to… 2.2 seconds (p. 1).
Today, Walmart is able to trace “over 25 products from 5 different suppliers using their original IBM Blockchain built a top open source software, Hyperledger Fabric” (hyperledger.org, 2019, p. 1). This solution allows Walmart to see the entire chain of these products in seconds. For example, Yiannas explains that “Walmart can take a jar of baby food, see where it was manufactured, and then trace back all the ingredients to the farms” (hyperledger.org, 2019, p. 1). This technology has greatly impacted Walmart’s ability to find the source of food-borne disease during outbreaks. Quick identification of where the source of the problem is coming from has greatly spared many of their food assets during these instances. Beyond tracking the journey of their food through the SC, Walmart has plans to trace other data in the near future, such as sustainability. Since Walmart’s implementation of Hyperledger Fabric into its business model, similar blockchain systems have been adopted at Unilever, Nestle, Tyson, and Dole.
Implementation of Blockchain at Sonoco Thermosafe – PharmaPortal
In the pharmaceutical industry, IBM is currently working with Sonoco Thermosafe, the largest global provider of temperature assurance packaging for pharmaceutical distribution. An article provided by Sonoco Products Company (2020) explains that the two organizations are building PharmaPortal, “a vendor-neutral blockchain platform for use by pharmaceutical manufacturers and carriers” (p. 1). PharmaPortal intends to focus on end-to-end traceability of temperature-controlled drugs by providing a single version of truth on all events that are generated on a package's journey. This project is relevant to the industry because environmental condition monitoring is vital to help protect the efficacy of the medications that are traveling across many different supply chains. Sonoco (2020) is working with industry leaders on this initiative explaining that:
An effort of this magnitude requires a high level of industry engagement to make a meaningful difference in the lives of people around the world. IBM has had success working across a number of sectors where implementing blockchain networks transformed the efficiency and effectiveness of the supply chain, and we see the same opportunities in the pharmaceutical space (p. 1).
Problems within this industry that PharmaPortal plans to eliminate include, lost product inventory, root cause investigation costs, clinical trial opportunity losses, product replacement costs, and redundant logistics. Elimination of these costs have the potential to save the cold chain pharmaceutical distribution market upwards of “$35 billion” (Sonoco, 2020, p.1).
As highlighted, the global pharmaceutical industry brings with it an intricate supply chain that includes multiple handoffs across continents. This factor also stimulated the need for a system that provides end-to-end visibility of pharmaceutical shipments, conditions, and documents. Sonoco (2020) concludes their article by reinforcing that, “this neutral ecosystem will be especially helpful in fostering trust in the pharmaceutical air cargo market by enabling all parties in the supply chain to give and get relevant data in a highly secured, permissioned way” (p. 1).
Effects of Blockchain on the Mining Industry – Sustainability
Another industry that has begun implementing blockchain technology into their SC processes is the mining industry. Bernard Marr (2018), a writer for Forbes.com, explains that Diamond-giant, De Beers, for example, started using blockchain technology to track their stones from the point that they are mined to the point that they are sold to consumers. This traceability assures the company and the consumer that they are buying genuine products. A case presented by David Uzsoki (2019), a writer for iisd.org, explains that blockchain in mining is one of the best ways to improve sustainability as well. He uses the cobalt sector as an example explaining that “the increased demand for cobalt among importing countries has put pressure on the Democratic Republic of Congo (DRC), which produces 63 percent of the world’s supply” (Uzsoki, 2019, p. 1). This has led to conflict among human rights abuse in this country, greatly damaging the ethical reputation of manufacturers who continue to import cobalt to the U.S. for production. Ford, a global automotive industry leader hopes that blockchain will be the answer to this problem. Uzsoki (2019) explains that “Ford will pilot the first blockchain project in partnership with Huayou Cobalt, IBM, LG Chem and RCS Global to trace Cobalt supplies from the DRC” (p. 1). This application of blockchain is meant to provide miners the ability to partner with “due diligence data providers” (Uzsoki, 2019, p. 1) who are working to eliminate the use of cobalt sourced from operations that are linked to human rights abuse. Since blockchain has the ability to track the financial, environmental, social and regulatory criteria of a project from beginning to end of an operation, it is a pivotal tool in this case and throughout the mining industry.
Conclusion and Implications
As seen throughout this paper, data and information are growing at exponential rates due to advances in information and communication technologies. For organizations to successfully manage this growth in order to compete in their marketplace, it is vital that they implement new business systems to foster efficiency. Blockchain has proven to be a breakthrough technology that is capable of managing the increasingly vast data that is associated with an organizations’ SC. It is an application that is useful throughout many industries and is already being adopted by many to improve SCM processes. From its first use in 2008, in the cryptocurrency market, blockchain has evolved and proven to be a much more versatile technology in recent years. It has enabled the decentralized and immutable storage of data, cutting out the need for centralized intermediaries in an organization's SC. Because of this, Blockchain has been widely recognized to enhance reliability, efficiency, security, and transparency of SC information at organizations that have integrated it into their SCM Processes. This in turn has also decreased overall operations and logistics costs through increased efficiency at each stage of the SC. Its distributed ledger platform provides all members of the SC with accurate up-to-date information regarding transaction and production details of a product throughout each stage of the SC. This enables better communication with stakeholders and efficient asset utilization.
Sources
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Company, S. (2020, July 30). Sonoco ThermoSafe Creating Industrywide PharmaPortal™ Platform Using IBM Blockchain Technology To Help Deliver Improved Transparency and Traceability Across the Temperature Controlled Pharmaceutical Supply Chain. Retrieved December 11, 2020, from https://www.globenewswire.com/news-release/2020/07/30/2070160/0/en/Sonoco-ThermoSafe-Creating-Industrywide-PharmaPortal-Platform-Using-IBM-Blockchain-Technology-To-Help-Deliver-Improved-Transparency-and-Traceability-Across-the-Temperature-Controll.html
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