Can blockchain and the Internet of Things mitigate supply chain reputation risk?

Supply chains are complex, unwieldy beasts, which are notoriously hard to tame, but a solution could be in the offing, using Blockchain, and Internet of Things technologies.

“Mommy, I want to be a supply chain manager when I grow up”, said no-one. Ever.

Supply chain management has to be one of the most difficult, thankless jobs in business. In this globalised age, it becomes increasingly complex, all the more so, the bigger an organisation becomes.

Getting a company’s supply chain right, can transform a company’s fortunes. Witness Apple Computers, a large part of Apple’s resurrection was due to having the best supply chain in the world (as ranked by Gartner for the last 5 years in a row).

Getting you supply chain wrong on the other hand can have serious consequences. Tesco saw €360m knocked off its value overnight when it was discovered that it’s beef burgers were found to be 29% horse meat. Investigations subsequently showed that the horse meat entered the supply chain without Tesco’s knowledge, but the issue still had significant implications for people’s trust in the brand.

In another famous example, taken from the Economist Intelligence Unit’s  Managing supply-chain risk for reward [pdf] report it noted

Nearly a decade ago, lightning struck a Philips microchip plant in New Mexico, causing a fire that contaminated millions of mobile phone chips. Among Philips’ biggest customers were Nokia and Ericsson, the mobile phone manufacturers, but each reacted differently to the disaster. Nokia’s supplychain management strategy allowed it to switch suppliers quickly; it even re-engineered some of its phones to accept both American and Japanese chips, which meant its production line was relatively unaffected. Ericsson, however, accepted Philips’ word that production at the plant would be back on track in a week and took no action. That decision cost Ericsson more than US$400m in annual earnings and, perhaps more significantly, the company lost market share. By contrast, Nokia’s profits rose by 42% that year.

And then there is the issue of conflict minerals. These are natural resources (such as cassiterite (for tin), wolframite (for tungsten), coltan (for tantalum), and gold ore) mined in a conflict zone and sold to help finance the fighting. These minerals are required for the manufacture of electronics such as tablets, laptops, and mobile phones. Coincidentally, Apple announced yesterday that it is now auditing 100 percent of its suppliers for the use of conflict minerals.

How best to gain and enforce transparency into supply chains? Traditionally this has been done with audits, a resource intensive process if carried out correctly.

However two more recent technologies may help significantly improve this procedure – blockchain, and the Internet of Things.

Blockchain, the technology which underpins cryptocurriencies like bitcoin, is basically a cryptographically secure, immutable record of transactions. And recently it has been used to set up and enforce smart contracts for things such as managing community energy exchange transactions in New York, to issue equity to drivers in a cooperatively owned ride sharing platform, and to authenticate users, and manage the billing process when charging electric vehicles in Germany.

If every item in your supply chain is part of a blockchain, then it has a proven provenance. Add to this always-on traceability using Internet of Things technologies, and you suddenly have a robust, transparent, virtually bullet-proof supply chain.

Has anyone rolled this out for their supply chain yet? Not that I know of, but it can only be a matter of time (did I mention supply chains are complex?).

 

Photo credit Neville Hobson