By Jeff Gerald, WaveDancer’s Blockchain Guru
Imagine the earliest transactions among humans. One person cold, another hungry. They trade animal skins for warmth and a saber tooth tiger for food. They cautiously trust each other to survive. The supply chains were simple but still involved the core elements we demand today. If one of the two cave dwellers failed to deliver, someone would be cold or hungry and wouldn’t do business again. There was no eBay, Amazon, or Bank of America to facilitate transactions between two individuals. Fundamental to these early exchanges was trust and security. Early trade – or the early supply chain – was highly efficient because it was a direct exchange between two individuals.
Of course, as civilizations grew and trade became more complicated, we had to add many intermediaries, such as shipping companies, wholesalers, distributors, importers, exporters, and so on. And while early humans could ensure trust and security with a club or a spear, we added accountants, lawyers, inspectors, and regulators to help bridge the distrust that was created by our advances. All of these layers have created many opportunities for human error and malicious intent. Our tracking of transactions has evolved from cave drawings and paper ledgers to online databases. But alas, all of this progress has not protected us from bad actors and human fallibility.
Along comes blockchain – from the depths of cryptocurrency and Bitcoin emerged an ill-defined distributed ledger technology (DLT) that somehow fit into the void of the “better mousetrap” for trading goods and services. (Peculiarly, it’s the one thing blockchain can’t fix … catching mice more efficiently.) But it can make moving goods around the world a lot easier, at lower cost and more efficiently. This is where blockchain applies to the modern world’s supply chain, bringing us full circle to a one-on-one trusted exchange just like our Stone Age ancestors.
A blockchain is digital “blocks” that contain records of transactions. Each block is connected to all the blocks before and after it. A blockchain cannot be changed or tampered with because it uses cryptography and is not stored in one place but distributed across the Internet. It also makes transactions transparent and available to all authorized parties.
So how does technology built to create and exchange digital currency make its way around the world and into supply chain management (SCM)? The key elements that allowed the transactions from long ago to happen between prehistoric men – trust, security, and lack of intermediaries – are exactly what makes blockchain work for SCM. Blockchain creates trust between people and organizations electronically.
Addressing these key elements is essential to successfully move goods around the globe. We need trust between parties, to allow for goods to be exchanged for currency or other products. Because blockchain creates an absolutely perfect record of each transaction we can establish trust, even if we never meet in person (and without a trusted intermediary). Trust between parties is fundamental for efficient supply chain management. And with sincere apologies to all the sophisticated logisticians around the world; SCM is just an elegant form of bartering.
Next, we need security – we must be positive the transaction is exactly what we think it is and precisely what is/was agreed to – without interference and minimizing SCM friction. In the global supply chain, the goods and the records that accompany them cannot be altered, exploited, or deleted otherwise the system will fail. While early humans established security with large wooden clubs (think Fred Flintstone and Barney Rubble), in today’s complex, worldwide supply chain management system, security becomes a baseline requirement to do business (and there are simply not enough large wooden clubs to enforce the rules). Since data on the blockchain is immutable and cannot be altered or deleted it allows It enhances the security of the supply chain.
Lastly, blockchain removes the need for intermediaries. As a distributed ledger everyone has access to the same data and can feel more confident conducting their business based on this data.
Blockchain has some other remarkable features supplementing SCM. Prehistoric man had to remember or document transactions on cave walls. If they had blockchain, they’d instantly be able to audit their previous transaction and precisely identify what they exchanged. They’d also know that it’s immutable, forever recorded, and unchanged. In SCM we want a complete, guaranteed untouched record of each transaction that we can see on-demand, in perpetuity. Now instead of interpreting what’s been captured via hand by someone, the information is in the cloud where artificial intelligence can be used to predict the next transaction.
Blockchain does all this with remarkable efficiency because every aspect of every transaction is trusted, secure, transparent (to designated parties through access controls imbedded in the blockchain), immutable, and auditable. These are the attributes that the SCM system needs and why blockchain is rapidly being adopted globally.
The benefits of blockchain-enabled SCM extend further. When all this data is entered into a single database, it’s integrated. So instead of digging through documents, emails, and information held by different parties; it’s readily available for decision-making, auditing, and much more accurate forecasting. When processes are transparent, trusted, and all in one place, supply chain management becomes as easy as making deals over a campfire. Yabba Dabba Do!