HomeWikiWhat is the Supply Chain and how is it related to Blockchain?

What is the Supply Chain and how is it related to Blockchain?

We often hear about the supply chain, but what is it? The supply chain is a corporate network that organizes the flow of people, activities, information and resources to move a product or service from a manufacturer to a customer, preferably as efficiently as possible (Zhang et al., 2017).

Humans have always tried to communicate with their peers and, after satisfying this need, we also wanted to share goods, services and ideas.

We have therefore succeeded in exchanging them in every point of the Earth, but now we want to do so also directly in the immaterial world.

Exchanging goods in the modern economy means moving the ownership of goods between many different and distant subjects, for a fee in money and this is where the blockchain comes into play.

Business needs and emergencies

Today, a company has an increasingly large list of suppliers, distributors and external manufacturing processes.

We have a great incentive to start changing logistics: the current situation sees criminals thrive on forgery and contamination with deaths and huge health costs.

Controlling and preventing changes in the supply chain has become an extremely difficult task, in fact, as we have seen from the latest incidents, source: Il Fatto alimentare:

  • “Italy constantly complains of fraud on products made in Italy, but no official report has reached the EU. (08-11-2018);
  • “Ragù Barilla with pork is exported to Saudi Arabia. Italy is being beaten up by local authorities”. (19-07-2018);
  • “Scam surrounding prosciutto San Daniele: 103 suspects and 270 thousand pieces seized” (17-08-2018);
  • “Salmonella in poultry from Poland” (20-06-2018).

And these are just some of the frauds, for a complete analysis we can refer to the publication of the Ministry of Health, where it is highlighted that 176,217 recognized facilities and 172,399 registered production activities have been inspected.

The number of approved facilities for which at least one non-compliance was found was 39,598, out of a number of inspections equal to 490,904.

Moreover, we don’t have to consider the many billions spent on contractual costs and insurance coverage since we know the process can be digitized and therefore optimized by eliminating the duplication of agreements, the further duplication of reconciliation and regulatory reports and the double administrative control of invoices.

To explain the “non-linear” complexity of the supply chain, i.e. to simplify: a warehouse must never be too full or so empty as not to be able to meet customer requirements; all the consequences should be evaluated. In this regard, we can cite a demonstration called “The beer game“, developed by MIT.

IoT and supply chain

To help supply chain workers, and to mitigate fraud, we have to manage the Internet of Things (IoT), a world of objects held together by bits, which are a sort of digital glue. From now on, every object will be immersed in this immaterial glue.

A new existence, a new immaterial dimension that surrounds matter, is thus initiated. Thanks to this glue, each object can connect with the others, both near and far, and thanks to the sensors, it can give information about its spatial and temporal status.

In particular, the sensors:

– They must cost very little (e.g. RFID costs more than barcodes)

– Performance must be guaranteed under all conditions

– Standards are still being developed

– Finally, there is a case by case choice of the right granularity (every apple? every package? every container?); it is a trade off between trust, risk and added value.

Now, after quickly mentioning the supply chain and the IoT, we see what can happen when we merge them together with the blockchain. But noting that it is not an incremental technology, but rather, it is a completely new paradigm with untapped potential.

Simply introducing the blockchain, without careful analysis of the context in which to operate, is useless; most likely it is also a more expensive solution than the systems established over the decades.

In this eternal struggle between cops and robbers, in order to use the blockchain as a weapon in favor of the cops, we must be careful because there often is confusion between:

– The product and the process,

– Human trust in those involved (as long as necessary) and the use of technology (as soon as possible).

For the product and the process, it is essential to recognize that -at present- in this process of displacement, the quality of the product is not evaluated. In every single box or in a container there can be forgeries, even if the documentation that accompanies the goods certifies the quality and origin.

So we can have movements certified as real, but potentially false objects. The question at this point is: how can the recipient detect any counterfeiting, start the dispute with the manufacturer and get a refund?

This is the answer we have to get to in order to understand if and how to introduce the blockchain in the supply chain, because there has always been some form of tracking.

Massimo Chiriatti
Massimo Chiriatti
Technologist, he collaborates with universities and research centres by organising training events on the digital economy. He actively participates in congresses and forums on topics mainly related to ICT innovation. He is also a member of Assob.it, a non-profit association focused on studying cryptocurrencies and promoting Blockchain technology.