This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting edge ideas and advice for global leaders about emerging markets.
By Ravi Sarathy (Northeastern University)
Blockchain-based Supply Chain Solutions
Traditionally, supply chain and logistics companies generate a significant volume of documentation that accompanies the goods being shipped. These documents verify ownership, stage in transit, regulatory compliance, and change in ownership. Complete and accurate documentation is essential to uninterrupted shipment journey to the ultimate destination because correctly filled, verified, and duly assigned documentation is necessary for shipment clearance and handoff to subsequent stages. However, global supply chains often rely on paper-based documentation. Conflicting information and lost documents lead to errors and suspend transaction approval. This creates a domino effect that results in long lead times, obscured status and location of a shipment, delayed shipments, and inefficient capital allocation (due to higher investment in pipeline inventory and additional costs from detention and demurrage charges). Blockchain-based solutions help overcome these deficiencies.
Blockchain, also known as distributed ledger technology – DLT, relies on three inter-related components – encryption to enhance security, decentralized peer-to-peer networks which validate transactions and make tampering evident, and tokenization, which allows for transfer of value of digitized financial and real assets in an immutable fashion, preventing repudiation and double spend, while incentivizing desired behaviors. This makes blockchain an ideal platform for supply chain applications, as it provides a transparent and secure way to track the provenance and movement of goods and ensures that all parties have the same information about the changing status of a shipment. Deploying blockchain makes it possible to attach tokens to goods as they move along the supply chain, facilitating the addition of smart contracts and transfer of title between supply chain members as conditions are met.
How Maersk Uses TradeLens
Maersk, headquartered in Denmark, is the largest global container shipping firm, with over 70 ports and terminals worldwide. In 2014, Maersk sought to deploy blockchain technology and develop a global trade platform. The product evolved to become TradeLens, a permissioned blockchain network, to serve the entire industry and remedy the deficiencies of current supply chain processes. Maersk formed a joint venture with IBM, owning 51% with IBM owning the remainder, and headquartered in New York, with independent board members. The goal was to keep TradeLens neutral, with a firewall between the TradeLens platform and Maersk, so as to persuade the various industry members who compete with Maersk to join and use TradeLens. By 2022, TradeLens had tracked over 67 million containers and processed over 3.5 billion shipping events. Other competing solutions have emerged, such as Cosco's Global Shipping Business Network (GSBN). A number of government agencies are collaborating using blockchain technologies in a similar manner (e.g., Hong Kong's eTradeConnect and Singapore's Network Trade Platform) to increase their countries' access to global trade, while enhancing the transparency, integrity and security of trade flows.
Monitoring and Control Using IoT
Transporting goods involves tracking provenance and monitoring risks, such as theft, spoilage, and counterfeiting. To address these problems, logistics companies employ Internet of Things (IoT) devices such as Internet-connected cameras, humidity sensors, and identification tags. IoT sensors, if they can be made secure and tamper-proof, can be a source of real-time data when linked to a blockchain network, and used with smart contracts to automate transactions. Once online, they continually provide updated data to track shipments, monitor quality indicators, assess equipment conditions and readiness for maintenance, and help mitigate risk.
Ambrosus is one such solution, using IoT real-time sensors and electronic IDs with blockchain to improve supply chain visibility, provide quality assurance, and prevent counterfeiting. For instance, the Swiss cheese industry uses Ambrosus to track livestock breeds, milk attributes such as fat content and safety, milk transport conditions, and cheese farm operations such curdling temperatures and salting time, offering comprehensive quality assurance to its customers. These practices help the Swiss cheese industry emphasize its differentiation for increasingly discriminating global customers, guard against counterfeiting, and enhance competitiveness.
Management Implications
- Blockchain based supply chains offer a ‘single source of truth', providing up-to-date documentation to all interested parties in a transaction, preventing delays and disputes and their attendant costs. Early adopters of blockchain technology and IoT solutions can gain significant competitive advantages through these benefits, while also gaining experience with using blockchain before their competitors. Such early learning will enable them to extend the scope of blockchain applications to global marketplaces linking buyers and sellers, trade finance applications such as electronic Bills of Lading, and forecasting trade flows. Companies will need to make extensive financial and human resource investments to develop these new applications, but in return will gain competitive advantages while competitors struggle to catch up.
Original Article
Sarathy, R. (2022). Enterprise Strategy for Blockchain: Lessons in Disruption from Fintech, Supply Chains, and Consumer Industries. MIT Press.
Also see Harvard Business School Publishing 2018. Maersk: Betting on Blockchain. Case # 9-518-089.
Contact
If you are interested in learning more about this work, contact Professor Sarathy.
