No! The title isn’t just for effect. Today’s business world is unfortunately abound with catch-words that, while they sound cutting-edge, are very misleading and many times do not make business sense. “Blockchain” is one of these trending hashtags (pun intended).
Let me clarify upfront, I have nothing against this technology. I think it is one of those reality changing innovations that turn the way we do things on its head. But, let’s not forget the most important criteria when selecting any business solution: APPROPRIATENESS.
If you’re wondering if blockchain is a suitable solution for your supply chain, read on.
Myth 1: Blockchain improves visibility in the supply chain
You will find multiple publications from the biggest consulting firms preaching about how blockchain can improve visibility in your supply chain. But before you pull out the big bucks, read the fine print. What you will find hidden within the Bold typeface is a very innocuous word “traceability”. THAT is the crux of the matter.
What these reports fail to tell you is that blockchain DOES NOT by itself provide ‘traceability’. The reports refer to a combination of blockchain technology and some version of detailed inventory tracking, recording and management (with words like IOT, RFID, sensors, etc thrown in). Put very simply, take away the blockchain, and you will still have the same level of supply chain visibility.
Most of the traceability solutions, at the heart of it, consist of simply assigning a unique identifier (for example: unique QR codes or RFID) to every unit of inventory and tracking this identifier as it moves through the chain. Blockchain can only provide a level of protection that prevents changes to the data once it is entered into the database.
If you’ve spent enough time in supply chain management, you will know that the biggest concern especially in product movement, is the accuracy of the recording of the physical identifier applied to the product units, or rather, the accuracy with which the goods can be tracked. A blockchain cannot solve this. The information of what product, is where, at what instant of time, is only as good as the ‘Traceability’ solution API integrated with the blockchain.
Myth 2: Blockchain makes your supply chain more efficient
Again, blockchain is not a magic bullet that can take away the hard work that goes into the creation of an efficient supply chain. It cannot replace demand analysis and prediction, best inventory management practices, etc. It does not give you the accurate real time data required for precise predictions and management. It cannot even ensure the authenticity of the data being recorded into the block. All the technology does is protect that data once it has been recorded.
One of the crucial aspects of SCM is the conversion of a physical transaction (i.e. handling and movement of physical goods) into digital information. This happens in an “off-chain” environment. If this recording of physical information (be it location, storage and transport conditions, etc) is not accurate in your supply chain, then your money is better spent in fixing that problem. Consider protecting the information with blockchain, only once you have resolved it.
Which brings us back to our ‘Traceability’ solution. It is after all what is used to record the above information. You don’t need to have the bells and whistles of a full-fledged IOT implementation. There are a variety of cost efficient ‘Track-and-trace’ solutions available in the market that can seamlessly feed into ERP systems to provide you real-time information that can be utilised to improve efficiency.
Myth 3: Blockchain reduces supply chain costs
Would you take a bazooka to a knife-fight? Of course not. That would be a sheer waste of resources and consequently- money. Similarly, if you use blockchain technology to provide information security to your supply chain when it isn’t warranted, you just end up adding costs without any of the additional benefits. And these aren’t miniscule costs we’re talking about.
Here’s a very rudimentary estimate of basic storage costs associated with maintaining a blockchain (these were provided by a senior blockchain professional and have been replicated verbatim):
Considering a t3 medium size database which will have low to moderate network performance (4GB RAM) and storage size of 300 GB:
- If the data needs to be maintained on a single private node (i.e. single private server) — this is not blockchain.
- Going a step ahead, if nodes are maintained across different teams within the same organization:
- single AWS ec2 instance (with the minimum required configurations for a blockchain node) ~ $110 / month
- Each instance will have storage volume SSD ~ $90 / month
- Even if using 3 nodes min., total comes around ~ ($200 * 3 *12) ~ $7200 per year
- On the other hand, if we have a regular database storage (let’s consider RDS by AWS itself):
- Single RDS instance (with min. reqd. config)~ $100 /month
- Have one more for backup, so for a year ~ $2400 per year
This was for 300GB storage, which would have to be scaled up to what you would require for your supply chain. You can read up a little bit more on potential costs here:
And let’s not forget the added costs of hiring blockchain engineers to maintain it for you (these do not come cheap by any yardstick). Also, as discussed earlier, the underlying ‘Traceability’ solution is independent of this. The cost of ownership of blockchain is over and above the core traceability solution.
Does this mean blockchain is all hype and no substance?
No! That’s not what this article implies.
I said at the start, I am a believer (read not blind follower) of this technology. I do want to highlight the most important use of blockchain in supply chain management: Data Immutability/ Security/ Trustworthiness. This is what the technology solves. The issue is that our supply chains are not ready for this technology.
Which brings us to the question: Is Blockchain truly appropriate in Supply Chain Management?
The suitability of blockchain technology depends on a few characteristics of the supply chain. Is it internal to your organisation? How many entities control it? How many different people have the task of recording data? Can you trust these entities?
Here’s a look at a flowchart that elucidates this. (Modified from https://hackernoon.com/to-blockchain-or-not-to-blockchain-45004a23e8a7)
If your supply chain is internal to only your organisation (like it is for most manufacturing businesses), then implementing it only increases your cost without the real benefits of this technology. In most business use-cases, simple access-controlled data manipulation privileges are adequate to ensure your data security.
In conclusion, building better traceability solutions is the need of the hour in Supply Chain Management, not Blockchain!
I have referred to multiple Blockchain in SCM publications across business and technology consulting firms. Since this article has taken quite a contrarian view, I am not listing them here to avoid possible conflicts.
All other references are included in the article itself.
This is a guest article by Xelene Aguiar (https://www.linkedin.com/in/xelene-aguiar/)