WHAT IS BLOCKCHAIN?

For the past year, there has been a considerable amount of discussion about blockchain and its applicability to the supply chain. New supply chain management concepts pop up all the time, but it has been a while since we have seen a subject so often discussed, yet so poorly understood. The most common questions seem to be, “What is it?” followed by “What does it do?” According to MIT associate professor Christian Catalini, “at a high level, it allows a network of computers to agree at regular intervals on the true state of a distributed ledger.” This so-called distributed ledger is one in which every transaction on a particular network is recorded and is available to the participants to view and verify.  According to Catalini, “such ledgers can contain different types of shared data, such as transaction records, attributes of transactions, credentials, or other pieces of information.” The technology is based on the same complicated mathematical functions that brought us Bitcoin, Ethereum, and other digital currencies- subjects that can be even more confusing than blockchain.

According to its proponents, blockchain can increase visibility in the supply chain (as well as other functions) by breaking each movement down into a block and documenting the transactions every time a shipment changes hands. Linking the blocks together creates a record of the details of each movement, and every party to the transaction has access to the information.  An independent third-party records and validates the information, and no party can amend anything without validation by the other members of the chain. Blockchain supporters claim that this visibility will save time, reduce costs and risk, and promote trust among the parties.  Some go so far as to say it is as significant as the invention of double entry bookkeeping. Skeptics suggest that it seems to be touted most often by vendors who stand to profit from its implementation.

The 2018 Third Party Logistics Study, released at last fall’s CSCMP conference devoted several interesting pages to the subject, and suggested that “the goal is to create one version of the truth, link information, and create transparency.” Their survey however, indicated that 67% of the LSP users and 62% of the providers did not know enough about it to draw any conclusions at the time of the survey. Across the industry as a whole, there seems to be a similar mood. While there has been a considerable amount of interest and discussion, there has been little use. Some companies are moving ahead, however. Maersk Line, Wal Mart, and IBM are working on systems currently, and others no doubt will follow suit as understanding of the concept grows.

It is not the first new supply chain development to require a quick education, nor will it be the last. While the technology is complex, this should not keep us from embracing the concept, determining how it can help us manage our supply chains more effectively, and implementing the concept where appropriate to do so.

For a good discussion of blockchain, see the 2018 Third Party Logistics Study and the September 1, 2017, issue of Fortune.

Written By: Clifford F. Lynch