Supply chain risk management is the coordination of activities to direct and control enterprises and supply chains regarding supply chain risks, as defined by the supply chain risk Leadership Council. Perhaps, a more straightforward definition is the effort to prevent or limit the negative impact supply chain issues have on the customers. When mentioning customers, we talk about both internal and external customers.
We use Blockchain in supply chainmanagement to make supply chains more secure, transparent, and efficient.
For instance, when buying a luxury brand item like a pair of glasses or a watch? How could one know that the thing purchased is genuine or a counterfeit? Or, how about the last time that someone had a salad? How could they tell where the spinach or the lettuce came from? Here is an important one, for instance, the last time someone prescribed the medicine? How can it be said that the pills taken or bought are natural and not counterfeit drugs? Cases like these occur every day in different countries worldwide, giving rise to concerns regarding the quality of a product and the manufacturing process. These are all vital problems that supply chains have to challenge. There are plenty of vulnerabilities in supply chains today.Blockchain in the supply chainis used to make supply chains more secure, transparent, and efficient.
Supply chain management
Let’s talk about Ginni Rometty, the CEO of IBM. She is one of the veteran players in the blockchain space with several clients and multiple implementations of Blockchain. She also has various applications within the supply chain management space. According to her estimates, Blockchain’s application in global supply chains alone could provide upwards of a billion dollars in improvements and efficiency in provenance and traceability of pharmaceuticals, food, and other products well.
At a high level, the supply chain is all the steps that are involved in getting products from raw material to the customer. To keep it simple, it consists of the making or manufacturing process of development. In essence, it is how you take raw materials and make products out of them. Then you get those products into customers’ hands.
Blockchain in supply chain
Assume a consumer purchases a product. In this case, let us also assume they are worried about the manufacturing factory’s working conditions, or have a concern about the quality of a specific part, for that matter. Currently, there is no way to check where the product was made. The complicated web of dependencies that provides the materials and manufactures the components, assembles the parts, and delivers the computer to market forms the supply chain. They are processes that are complicated, fragmented, and are cumbersome to fathom. Suppliers around the globe contribute towards making and shipping the product just purchased by a customer. Most of the time, various companies do not know each other. A consumer is not bothered about how, where, and under what conditions the product got manufactured. Supply chains today are so complex that even significant companies have difficulty tracking how their products get made. Smart contracts help to make supply chain management more straightforward and transparent.
The main idea is to create a single source of information about developments in a supply chain bar. A global ledger where each component would have its entry on the Blockchain that gets tracked over time. Both enterprises could then update the status of an element in real-time. The result is once the product is received, one could follow every component back to its manufacturer. Theoretically, one could trace the supply chain back to the mines from where the raw materials came. Companies can also utilize the blockchain supply chain as a singular source of transparency for their products. They can monitor and manage and risks within the supply chain, ensure the quality of delivered parts, and track all this delivery status.
Moreover, these companies can use smart contracts to manage and pay for supply chains autonomously; for example, a chip manufacturer immediately tests each chip at the assembly facility and gets paid. It would reduce the need for large contract invoices and the back-and-forth of refund requests for faulty components. Those same contracts can assist with shipping and logistics, tracking valuable products as they travel worldwide. Using Blockchain, companies can have a complete picture of their products at every junction in their supply chain, thereby bringing transparency to the production procedure while reducing manufactured goods’ costs.
Goals of supply chain management
- Fulfill demand efficiently
There’s a ubiquitous statement in the supply chain management space; you can’t sell from an empty wagon. If you have a store and have a wagon with no products, you can’t sell from that. So, ensure that all retail locations and all the endpoints where customers buy the products have enough stock.
- Drive customer value
Ensure that customers are happy because happy customers are repeat customers, and satisfied customers will spread the word and keep growing your business. If a customer is unhappy, it will ultimately negatively affect the business. Part of the supply chain efforts is to make sure that the products get into the right hands of the right customers at the right time so that the customers are happy and it’s a positive experience for them to deliver and receive the product.
- Focus on improving responsiveness
The world is constantly changing, and multiple things impact the product supply chain. So, there may be a problem in someplace in the world that may affect the supply of a specific raw material. As a result, that will have a ripple effect that affects the chain, so the supply chain management aims to maintain and improve responsiveness to any change that may affect the business overall.
- Contributing to financial success
Ultimately, this is part of a business, and the supply chain is an integral part of it so contributing to financial success is a vital part of supply chain management goals.
Logistics and Supply Chain
Many people think that logistics and supply chain management are the same. Now they’re not the same and are two different divisions of the supply chain. Logistics are a component and part of the supply chain. Logistics is the coordination movement of resources across destinations. It includes purchasing storage, delivering raw materials, warehousing, shipping, and transporting goods to distributors. Efficient logistics are essential to business profits and customer satisfaction. Suppose you can’t get the product into the customer’s hands when they need it at the right time. In that case, you have unhappy customers, and having an unhappy customer will have adverse effects on the business as that customer may go to a competitor.
Supply chain management challenges
Some key challenges revolve around the fact that there are multiple separate players.
Record discrepancies and lack of transparency – critical vulnerabilities in supply chain management
A supply chain can be composed of multiple steps, and sometimes these are placed across vendors that may be in different places around the world. These multiple other players lack transparency because they contain and control specific data about what they add to the supply chain, proving the lack of transparency. As a result, there are many discrepancies in records. There may be a supplier with some information that you believe is accurate. Still, you find out that information was not correct because it didn’t match the information you have in a different database, so this lack of transparency and multiple other players can record discrepancies. It is a crucial problem because it can also be subject to tampering, and somebody may be modifying records.
- Limited visibility of cross-processing
When you’re making a strategic decision of the entire supply chain, it’s crucial to have the big picture across the whole supply chain. But because it’s composed of so many different players, and each one has additional data, there’s limited cross-process visibility. Making decisions that impact the entire supply chain is a challenge when you have all these separate players.
- Globalization
As the world becomes globalized and companies keep adding more global players, they may be sourcing raw materials and products from other places. Various globalized players, having players in different parts of the world makes you subject to what may be going on in those parts of the world and maybe a disruption in how a product is delivered. There may be different political issues. Globalization is a critical challenge in supply chain management, and all of this affects the goal of maintaining high performance. If you cannot hold a high-performing supply chain, it will ultimately result in the customer being unhappy. If a customer is dissatisfied, that will negatively affect the business results.
- Piracy and counterfeiting
The global value of counterfeited goods estimates to a trillion dollars which is a massive amount. Additionally, according to a report commissioned by the international trademark Association and the International Chamber of Commerce, the worldwide economic value of counterfeiting and piracy can reach two point three trillion dollars in the coming years. It directly impacts the bottom line because if a product is selling and you have to compete against a counterfeit product that’s far cheaper, that automatically lowers your sales volumes. After all, people may buy the fake knockoff version instead of yours.
Piracy and counterfeiting are huge problems with businesses, and the supply chain is affected by that. Another critical area that’s very much impacted is that the World Health Organization estimates 10 to 30 percent of counterfeit medicines in developing countries. A UN Office report on Drugs and Crime states that counterfeit goods and fraudulent drugs pose a severe risk to public health and safety.
With many different risks to the supply chain, counterfeiting is a crucial problem. Customers demand quality, safety, transparency, ethical sourcing, and speed. Blockchain in the supply chainprovides a single truth source that is verifiable, tamper-proof, and unchangeable.
Tracking & Tracing process
It is a matter of information exchange and information capture.
Tracking and tracing is the process of recording an item’s state and position or a batch of things during the production and distribution process to establish: its current condition and status, which is “tracking,” and its previous state and position, which is “tracing.”Business drivers justify implementing a tracking process by law compliance, process optimization, focus on quality and service performances, and brand protection.
A special mention goes to the brand protection issue, which is a peculiar problem. From a supply chain perspective, brand protection means protecting the brand from black markets involving the distribution of counterfeit items and grey markets selling genuine items through parallel and not-allowed distribution channels, or any combination of them. Implementing a Tracking project opens two issues.
- Connecting multiple IT systems belonging to different companies to share data
- Collecting data from physical processes effectively.
Let’s assume that complete and correct data about production and distribution processes are available in several information systems belonging to involved companies. Implementing a tracking process can be nailed down to the task of integrating all IT systems to have a coherent view of the past, present state, and position of any product. The integration, if reasonably done with all actors belonging to the same company, as common ownership will likely enforce the possibility to use the same IT system or the same data model. In other words, the same business vocabulary. Luxury companies usually have an integrated supply chain, owning or controlling the critical manufacturing and distribution stages. However, many other players are still involved in the overall process, and any time two companies do not share the same system, a complex IT integration project execution occurs. If the supply chain partners may change quickly with new suppliers and logistic operators, it shows how cumbersome the issue is. To solve IT integration, one can take two approaches, i.e., resorting to available international standards or resorting to commercial Software available on the market.
Regarding standards, the most acknowledged one is the GS1 standard for business communications. The core of the bar is enhanced to cope with tracking responsibilities. Also, understanding its structure helps understand the layers built to operationalize any tracking process. GS1 standard consists of three layers
- Layer one –establishes standard criteria to give a product identity, location, asset used in the process and ensures the naming to be the same way.
- Layer two –standardizes technologies, protocols, and devices to be used to acquire data, covering traditional barcodes and QR codes.
- Layer three –establishes data sharing services and uses a centralized-access and distributed storage architecture. It defines event description, message formats, query access rights so that data sharing about well-identified products and well-captured events is viable across the Supply Chain.
Resorting to an international standard has advantages like being complete and well documented. Conversely, every player in the Supply Chain would have to adhere to the bar intelligence. So, anybody would have to modify its Information system and business conventions in several ways, thus leading to very relevant change management issues.
The second approach is to resort to available data sharing solutions proposed by established vendors in the market and usually distributed as cloud, Software as a Service solution. Many software applications exist today covering different supply chain management tasks, from demand planning to supplier management. In this case, Tracking and Tracing systems are apart of the family of “Supply Chain Control Towers," which are online software environments allowing several companies to keep their IT system aligned and share information about products, attributes, and performed activities. Such systems require to complete a one-to-one integration, from the company IT system to the cloud application and then allow to access online processes from all players, without anybody having to switch to a common business language. Moreover, as they are application software, they usually have extra features such as dashboards, decision support, and simulations that offer additional value and pure data sharing. More recently, Blockchain’s expectations arise as a possibly relevant technology for data sharing and, therefore, as an enabler of more effective tracking processes. Even acknowledging its potential, Blockchain is a distributed ledger database technology, so it offers an exciting alternative to share data but doesn’t address the core issues of product identification and a common business vocabulary. Moreover, since the development of Blockchain, having in mind a trustless environment, can get misaligned with some values of the luxury context, where the luxury company is supposed to have a very trustful relationship with its business partners, especially with its customers.
Supply chains infused with emerging tech.
A modern Supply Chain consists of features such as
- Asset Monitoring
- Connected Worker
- Production Monitoring
- Fleet monitoring
- Service and maintenance
The modern supply chain tracks an asset in real-time and gathering essential details about it, improving service, giving a more comprehensive range for asset utilization and maintenance, putting the production process through monitoring and inspections on-site daily. It helps keep track of which phase the material has reached. Fleet monitoring refers to tracking the activity of a company’s mobile assets. It is possible through positional navigation systems where vehicles carrying company assets get tracked in real-time. Service and maintenance are vital to keep the supply chain up and running and solving any issues that may occur in the future.
Blockchain supply chain use cases
- Single source of truth – enable distributed, autonomous marketplaces.
- Trusted transactions – reduce friction in business transactions and reconciliations.
- Near-real-time data sharing – securely maintain and share decentralized private records.
- Immutable ledger store – track the provenance of products and materials
A cross-industry use case for Blockchain in supply chain
For instance, we are putting a complex tree of parts for a car onto a blockchain supply chain and using the Blockchain to record when things change in assembly or disassembly of that tree of components. We can record stuff like all the manufacturing data, where the elements, parts, or subsystem has been in its journey from the manufacturer through to integration into the final product. We can even keep things down to the individual computer-aided machine programming module used to create the part if that’s relevant. Also, we have a way of maintaining an asset’s lifecycle, who’s done what to it over time. Although this is an example of a complex system of systems like an electric car, there are some fascinating use cases and public references that we’ve got around the supply chain. There are examples of supply chain use cases across the manufacturing industry across all types of different industries. As I say, I think this is probably the most common cross-industry use case. The advantages are clear. The trust goes up because you know who’s done what to each asset as it goes through its lifecycle, we know who’s owned each asset where it’s been in geographical terms word and hence the whole supply chain becomes much more efficient as in terms of keeping track of who owned what. Finally, to this concept of using Blockchain in the supply chain to maintain a complex system of records, we can be very specific if something goes wrong with a car. Maybe there’s a maintenance incidence or something similar. We can be very particular in diagnosing the incident and finding which subsystems constituted are part of the maintenance event. Rather than do a complete cross fleet analysis or cross fleet recall in the case of failure, this can reduce costs from those terms.
Risks in the supply chain – blockchain infrastructure
Blocks and records don’t get changed. The fact that they get distributed, multiple people look at them, you cannot modify them or break them. Why would there be issues when thinking of the capabilities that the infrastructure is giving? One would expect that Blockchain in the supply chain addresses many of the risk capabilities and the risk issues that traditionally we have managed. Still, there are several risk issues we need to think about from a risk management perspective. We now have blockchains and AI coming into the space of finance. From a risk management perspective, what to do about identity theft still being a significant issue, and how is it being addressed or managed on the blockchain infrastructure? Do we know who is playing in the rest of the blockchain space? Multiple layers of approval removed, which means you have simplified the process within reach? How has that changed your methods internally if you were to adopt a blockchain capability, and how are you changing what you’re doing daily to make that happen. There’s a lot of identity theft between 2015 to 2016. There’s been about a sixteen to seventy percent increase and a forty percent increase in losses.
The benefits remain:
We have a transparent blockchain infrastructure providing us with smart contracts. Other records that we can manage like smart contracts across the infrastructure. It’s in all of the technology spaces. You can use it in healthcare; you can use it in finance. There are real estate applications for it, insurance as well, but where are the issues for fraud in most cases? Fraud is occurring on the interchange. But, when thinking about it, there’s much money lost in the business. The reality is, access has been a critical issue for the blockchain infrastructure and lost most of the funds because players in the space participants, fake participants have taken advantage of the lack of access. In most of these cases, we recovered none of this money. There is no criticism of the actual infrastructure itself, but getting access to the infrastructure has caused significant problems from a fraud perspective.
Some are exposed to cases where people who have worked in institutions have decided to reorganize. People leave and get pretty upset and take advantage as they’re going. There are many reasons why individuals do this. Still, the point is people had the actual keys and the right capability to get access to the network, and that’s causes fraud; this is where I think there’s a great opportunity and where the capital for a lot of blocks unit in networks will build and build very quickly. Knowing who the customer is, the platform provides real-time monitoring and timestamps. It gives you a traceable timeline and gives you information. There are real identities in the network. We’ve got news to tie them together. We can figure it out without going through a lot of hidden paperwork, and last but not least, we have eliminated a lot of the third-party approvals, so we’ve simplified the process with this.
Internal Assessment
Take a look at your processes internally from a business perspective and make adjustments for new opportunities you’ve created for the business line. I would subject you to think about the fact that we can trace people digitally. The way one behaves is how to figure out what they are going to have and what’s going to happen, how are we to dealt with it. So, if we could digitally look and tell from a LinkedIn, Facebook account, or credit card transaction activity and the fact that you approved them first and how they behaved, what you were doing is all fine. You can also tell when you are changing your patterns, changing the way you approach things. With a digital footprint of the participants on a blockchain network, we can very carefully manage and monitor the utilization of that network to help reduce some of the fraud capability that is going on with accessing the network.
How much data do you want to give up about yourself, and who’s in control of that data? When you think about it, these are some of the questions we have to answer because the technology is there, the capability is in place for us to monitor and manage. Who are you, or what are you doing on the network? We can reduce losses, reduce fraudulent activity, reduce the behaviors causing issues within the network.
It also draws to the fact that we can tell where you’re going, whom you sell stuff to, the recipients of the transactions you have initiated. It only goes as far as an exit from the program, because like cash, once the money is taken from the bank and given to that person, where they go, what happens with it after that, it’s not traceable.
Conclusion
With multiple processes running simultaneously, involving numerous parties and locations, a supply chain is prone to critical risks like damage to an organization’s reputation, non-compliance with regulatory norms, financial loss from compensations, and cost overruns. Supply chain risk management is the most significant challenge that many organizations face today. With supply chain responsibilities split across multiple departments, a consolidated approach to identifying risk factors and taking preventative measures is challenging. Effective supply chain risk management is important to a successful business. A breakdown in any part of the supply chain connecting to any entities can potentially lead to consequences. No risk management program can fully predict, mitigate, or prevent all risks or effects. Still, companies that proactively implement a risk management program will be more resilient and ready for the day when a threat does occur.
