Supply Chain Commentary: How Blockchain Brings New Efficiencies
The logistics sector faces immense pressure—to be better, faster, and less expensive. A significant amount of pressure has been applied to nearly all industries by disruptive conglomerate Amazon, which has single-handedly changed expectations of consumers everywhere.
While competing with Amazon represents a major pain point, it’s not the only challenge.
The U.S. Department of Transportation projects that by 2040, U.S. annual freight volume will increase by 45 percent to 29 billion tons. The sharp rise in volume creates severe capacity problems: to keep up with demand, the industry needs to hire approximately 100,000 new truckers each year.
As competition for drivers increases, so will the cost to ship goods. Any cost increase within the supply chain has a direct impact on a company’s bottom line and shipping/freight costs are a significant percentage of supply chain spend.
An increased demand for new efficiencies has emerged in order to compete with Amazon, meet other market challenges, and survive during this period of rapid industry growth and demand. One solution to create new efficiency is blockchain.
Blockchain allows shippers, carriers, freight brokers, and other supply chain participants to collaborate in a new way, empowering all parties to manage value exchanges more efficiently and less expensively. The technology promises to take significant costs—both hard and soft—out of the supply chain, freeing up time and money for the innovation required to compete in today’s marketplace.
Accountability: know who’s responsible, when they’re responsible
During the lifespan of a product from point A to B, there are many parties involved that are trusted to handle it accordingly. For products with temperature regulations, like food and pharmaceuticals, control and monitoring are imperative.
With blockchain, temperature, along with other key quality metrics, can be recorded from IoT devices from each point of the product’s journey. Instead of keeping that data proprietary in disparate systems, the blockchain empowers companies to collaborate and securely share that data among stakeholders.
It’s not uncommon for a product to fall below the regulated temperature, creating a painful “blame game” for assigning responsibility. Manually auditing a wide array of disparate systems—an industry norm today—can take months to complete, and grow an already costly dispute into potentially a multi-million-dollar legal battle.
Enter blockchain. Providing a collaborative system of record among partners, blockchain can significantly reduce or eliminate many disputes, saving all stakeholders significant amounts of time and money.
Transparency and automation: maximize billings and avoid overpayments
One of the biggest benefits of blockchain is the auditability of contractual performance. How much capacity did the shipper promise the carrier this year? Did the shipper maintain its commitment, and did the carrier keep to contracted costs?
Under- and overbilling plagues the entire supply chain sector. And oftentimes, getting to the bottom of what happened—and who owes whom what—costs more than the shipment itself.
By automatically logging everything onto a decentralized ledger, blockchain will uncover any irregularities between contracted terms, actual performance, and billing. This feature can reduce a company’s annual shipping costs by 2 to 5 percent.
Compliance: a record of “handshakes”
Every time there’s a handshake, blockchain tracks it on its ledger. Through the application of smart contracts and intelligent workflows, blockchain enables automated structured decisions within the supply chain—from signatures and quality control to payments.
The benefit of compliance complements the benefit of accountability. Blockchain enables shippers and carriers to not only know who was accountable for the product and when, but whether an authorized person signed for the delivery, and if they followed the documented procedures.
Through a collaborative, immutable system of record, blockchain reduces audit costs around quality and compliance issues by preserving the data and making it visible. The entire process is digital—and automated—which drives efficiency and lowers total shipping costs.
Blockchain Is Gaining Traction
Blockchain paves the way for a new approach to business among supply chain partners. This new approach is highly collaborative and eliminates meaningful and measurable costs from the system through transparency, unlocking new insights to all companies involved.
Many industry leaders are already onboard. Maersk is teaming with IBM to use blockchain to streamline and secure international shipping. Walmart is leveraging the technology to better track and trace product origins. And numerous innovators—from UPS and Penske to Schneider, SAP, and P&G—are all actively participating in BiTA, a new industry consortium working to standardize blockchain in the freight industry.
The bottom line: The time is now to innovate and think differently. Blockchain provides a rare opportunity for participants across the supply chain to dump legacy systems and business practices in favor of collaborative success. The only questions remain: Which companies will be early adopters? Who will thrive, who will manage to survive, and how bad will the outcome be for the laggards?