How blockchain can transform the global supply chain industry

The challenges faced by the global supply chain industry

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In 2014, blockchain, the technological innovation behind the cryptocurrency bitcoin, was beginning to gain traction as companies began integrating blockchain-based technology into their existing business models. Blockchain had the potential to transform the US$40 trillion2 global supply chain industry, which faced challenges from an increasing number of participants, toughening international regulations, and expanding geographical coverage.

Supply chain integrity troubled people, companies, and regulators worldwide. With the increasing level of complexity of supply chains due to global trade liberalization, the challenges faced by the industry far surpassed physical protection from theft. Information security was expected to be the next high concern area as cyberattacks to supply chain databases were increasing in sophistication and the potential value loss was amounting in the hundreds of millions. In one of the largest known security breaches,3 Target's network was accessed through a small, third-party supplier vendor, which resulted in 110 million records lost and hundreds of millions in damages. The inability to protect information transfer in a supply chain was not only a security risk, but could potentially tarnish confidence and trust from producers, suppliers, and customers. Managing databases, communication, and information sharing were concerns that needed to be addressed as enterprises adopted record and transaction digitization. Supply chain integrity affected not only physical goods, but also information, and was becoming a prominent issue that companies faced in the ever-growing complexity of the global supply chain industry.

While blockchain technology was still in its infancy, it was clear that it could have endless applications in the global marketplace: it could shorten the transaction process between intermediaries and allow trades to take place with security, validity, and integrity, and it could expand the definition of supply chain to include new applications in emerging industries.

The term "supply chain" described the process of extracting raw resources and delivering finished goods to customers. It was a dynamic system involving a complex network of companies, organizations, activities, technologies, information, and resources.

The continuing shift towards global trade liberalization was increasing the demand for resiliency within companies' supply chains. Multinationals were vertically integrating as cost reduction and information management within the supply chain became a source of competitive advantage As an industry, the global supply chain was worth over $40 trillion every year.4 The complex international regulations that governed each step in the supply chain was costing companies millions in tied-up inventory and in overhead costs associated with seeking approvals and audits. The growth in participants and the increasing geographic coverage of the supply chain required companies to develop sophisticated supply-chain management systems. For example, the design for an iPhone originated in California; its sourcing came from suppliers in Europe, Asia, and the United States; and then the manufacturing and assembling took place in China before the product was finally delivered to customers worldwide through a network of warehouse and distribution centres.5 In some cases, the chain was physically integrated; however, information wasn't always available due to the lag between intermediaries. The existing supply chain faced three main issues: integrity of goods, trust, and tracking. The emergence of blockchain-based solutions had the potential to address these issues.