From Pork to Diamonds, Blockchain is Revolutionizing the Most Challenging Supply Chains
Early adopters are putting blockchain technology to the test in a wide variety of the most challenging supply chain scenarios. Time after time the distributed ledger technology is not only succeeding but thriving in these tests by bringing about accuracy and efficiency, but also unearthing unforeseen value for enterprises.
Perishables like food are often seen as the pinnacle of supply chain complexity. Variables may include temperature, quality of goods, shipment and delivery dates, as well as safety certifications of facilities, among other things. Unperturbed, IBM has been working with a variety of food producers and retailers, such as Walmart, Nestlé, Unilever and Dole, to put blockchain through its paces in this most demanding of supply chain environments.
The coalition of food related companies wanted to assess if the technology would be able to handle their data management processes across a complex network that includes farmers, brokers, distributors, processors, retailers, regulators, and consumers. Whatever the food sector threw at it, blockchain was able to surpass all expectations, using speed and accuracy to bring about benefits to delivery times, transactions, record keeping, even health and safety.
Food borne illnesses can take weeks to investigate, such as this summer’s Salmonella outbreak that the U.S. Food and Drug Administration FDA, along with the Centers for Disease Control and Prevention (CDC) eventually linked to one papaya producer in Baja California, Mexico. That outbreak caused one death, 109 infections, including 35 hospitalizations in 16 states. The IBM trials have shown that a blockchain-based system has the ability to reduce investigation times of such outbreaks to seconds, potentially reducing illness and even saving lives.
Quick investigations could also save the industry millions of dollars in lost sales as consumers commonly stop eating food groups associated with outbreaks regardless of source. A decade ago, a deadly strain of E. coli in tainted spinach ripped through 26 states, killing three people and sickening more than 200. “Consumers, in general, stopped eating spinach. Restaurants pulled it off the menu,” says Frank Yiannas, vice president of food safety at Walmart. “If you could track and pinpoint where that came from faster, you could alleviate all that and ensure consumer confidence continues.”
In their pilot projects with IBM, Walmart partnered with Tsinghua University in Beijing to digitally track the movement of pork in China on a blockchain. The Chinese government revised its food safety regulations in 2008 after a scandal in which milk and infant formula laced with melamine, a toxic chemical, killed six children, hospitalized tens of thousands, and made hundreds of thousands more, ill. The law called for better record-keeping, more supervision, and stricter health guidelines, now blockchain is addressing these issues with great success.
“The missing piece was a shared forum where companies could begin to see each others’ transactions and develop trust. That missing piece is something like the blockchain,” said Paul Chang, a global supply chain lead at IBM after the trial which builds upon earlier, less successful, projects that solely used barcodes and RFID tags. Fraud and inaccuracies are much harder to get away with on the blockchain, which can include details related to farm origins, factory data, expiration dates, storage temperatures, and shipping.
So pleased with the results, Frank Yiannas sought to expand the trails. “We were so encouraged that we really quickly started reaching out to other suppliers and retailers as well,” he said. “We’re asking companies to join to help evolve the solution and guide and steer its direction,” added Brigid McDermott, vice president of blockchain at IBM, who has overseen the largest study to date among C-Suite executives, exploring their perspectives on blockchain. The study showed that one third, of almost 3,000 executives surveyed from a wide variety of sectors, are using or considering blockchain in their business.
According to the new IBM study, eight in ten of those exploring blockchain are investing either in response to financial shifts in their industry or for the opportunity to develop entirely new business models. These CxOs are counting on blockchain technology to foster a new generation of transactional applications that are designed to establish trust, accountability, and transparency among an ecosystem of partners, to provide them with a competitive advantage.
“With blockchain, everyone is looking at the same thing at the same time. These new trusted transactions will spawn new business models, processes and platforms where all ecosystem participants can be connected to create new value,” said Brigid McDermott, IBM Vice President for Blockchain Business Development. “Consortia, regulators, and innovators will help create new standards across industries and geographies. Early adopters need to move fast to help shape how these platforms evolve.”
The biggest strategic advantage of blockchain is enabling business model innovation, which, as one retail CMO from the United Kingdom said, “could replace the centralized business model that most companies follow today.” Those CxOs already piloting or implementing blockchain expect to use the technology to support a new enterprise strategy. As blockchain increases trust and transparency across value chains, organizations and individuals will collaborate and compete in ways that can’t yet be foreseen. Needless to say, those pioneering blockchain technology will be best positioned to take advantage of new applications as they emerge.
Since blockchain creates new ways of working, they are also springboards capable of launching organizations in new directions. While 80%, of the study’s respondents that are currently piloting or implementing blockchain, admit they aren’t accustomed to collaborating with their competitors, 66% of them are now experimenting with, or already implementing, a new platform-based business model that do just that. By linking people, resources, and organizations in an interactive ecosystem, blockchain is inspiring businesses to create entirely new forms of value.
Take, for example, organizations that could support micro-payments and skip the fees imposed by intermediaries or put different types of media into the direct control of their creators. Such a system could solve the challenges associated with global licensing and royalty payments. This has implications for even the most complex sectors, and IBM has also been testing it in the highly controversial and challenging world of diamond trading.
IBM has been working with the global digital diamond registry, Everledger, on a new service built on blockchain technology. Everledger can now trace an individual diamond across the supply chain, from rough stones certified conflict-free to the same diamond as it is cut, polished and sold. Partners on Everledger’s ecosystem blockchain include insurers, financial institutions and diamond certification houses. Through Everledger’s application programming interfaces (APIs), each partner can access and supply data that helps track a diamond over its lifetime. Police reports, insurance policy information and other sensitive information can be kept private and permissioned.
The business model that CEO and founder of Everledger Leanne Kemp envisions would allow all participants to reduce risk, in addition to establishing new revenue models and financial services. Banks could better finance the diamond supply chain; insurers could choose to cover the lifetime of a diamond, rather than its current owner. “We are not a disruptor,” says Kemp. “We are co-evolving the industry.” Everledger, she points out, demonstrates the “power of what happens when consortia come together.” To date, more than a million diamonds are being traced on Everledger, another project is in beta stages for provenance tracking in the fine wine industry.
Be it diamonds, wine, pork or all manner of other examples, trials are proving that blockchain is thriving in the most challenging supply chain environments. Early adopters are achieving results beyond their boldest expectations and find themselves perfectly positioned to gain significant competitive advantages. All signs suggest that we are on the brink of a new era of supply chain management, one brought about by blockchain distributed ledger systems.