In 2016, the media revealed the capabilities of Blockchain to the general public. Since then, no less than five articles a day are published online on the subject. This technology, which originated from Bitcoin, a cryptocurrency created in 2008, has now broken away from the financial sector to attract other sectors: insurance, art and even logistics.
Logistics is a complex ecosystem in which many different actors interact. Their diverging strategies and interests affect the pursuit of their common goal: making a given product available to the consumer at the right time, in the right place, at the best cost and with the best quality. Blockchain reconciles this type of ecosystem by offering each actor end-to-end visibility of dispatches. Could logistics finally have found the holy grail?
Blockchain is an answer to new consumer trends that complicate the supply chain
Trust in the brand is no longer enough
Several years ago, sticking a brand on a product served as proof of quality for consumers. Later, consumers turned to blogs for product reviews. Now, consumers expect more. Regulatory, industrial and food-related scandals in recent years have led to a global mistrust of consumer products. In a bid to reassure consumers, brands are now trying to provide proof of the quality of their products: Where do they come from? What are they made of? How were they made? However, this information on the origins and stages of transformation is difficult to obtain and to consolidate due to the large number of actors and subcontractors involved along the chain.
The consumer wants to get their hands on these quality products when and where they want. Studies have revealed that delivery is the number one criterion when it comes to buying online, even before payment. Consumers are loyal to the brand that will provide the desired object as quickly and/or as easily as possible.
This greatly complicates the management of logistics flows for brands, so much so that they ended up multiplying the number of delivery points. In-store pick-up, drop-off delivery or home delivery – the cost of these delivery methods forces brands to optimize their supplies with the ultimate goal of maintaining economic profitability. The stores have become mini logistics platforms closer to the places of consumption, the dispatch warehouses are specialized, and the delivery methods are adapted to the final destinations. They need upstream and downstream visibility since their logistics performance heavily depends on the information they have in order to react quickly. However, the complexity of the ecosystem and the diversity of the information systems adopted by each actor make it difficult to share information. No single actor can assume the cost of the complete interoperability of its information systems with those of other actors, nor impose their own traceability protocol.
How will Blockchain tackle these issues?
Blockchain is designed to provide solutions to complex ecosystems where there is no central actor, where the collaborating actors do not naturally trust each other, where data access must be centralized, and where data protection is essential. All of which is certainly the case for logistics. Blockchain is a technology that will federate said ecosystem. It reproduces the trust necessary for actors to collaborate, whether as partners or competitors, by guaranteeing security, traceability and confidentiality. Blockchain offers end-to-end visibility when it comes to goods shipment. How? Every event pertaining to any given product (production, processing, transport, storage, delivery, etc.) is recorded in the form of a transaction in Blockchain. Blockchain traces the documentation and packaging associated with this product in the same way.
The events related to a shipment are published by the actors on Blockchain and can be viewed by the participants with the necessary rights in near real-time. This information availability will transform the relationship between actors and enable them to take a proactive stance. For example, in the event of a large-scale alert (counterfeiting, health alert, etc.), a brand will be able to easily identify the affected batches, and the campaigns for returning merchandise and/or raising awareness will be perfectly targeted. Tracking shipments is made even easier by the fact that in Blockchain, connections can be made between the different tracking numbers that are applied to the same goods along the chain. By entering their own internal ID number, clients will be able to track their goods outside the network and independently of any successive identifiers applied by other actors.
Blockchain is designed to store evidence of the existence of documents. The actors use a standard sharing tool to file the document they wish to make available. In Blockchain, an imprint of the document is created and stored in the transaction as well as the means to consult the given document. This information may be accessible to all or restricted to certain defined actors. A transaction may, for example, stipulate that a product is organic and display the imprint of the certificate that certifies this and the means to consult the document. In a bid to prove the quality of their products, companies will be able to make various documents (certificates of origin, quality charters, etc.) available to downstream actors along the chain, all the way down to end consumers.
Traceability can be extended to the packaging unit, and in particular, the wooden pallets used to transport goods. These pallets are recorded items. As such, they are subject to an exchange. During a delivery, the driver has to collect the same number of empty pallets as the number of pallets of goods delivered. However, the exchange operation does not always happen in this way and it may be that the recipient returns fewer pallets that may, in addition, be of a lower quality than those previously delivered. Blockchain, as an open and shared ledger, can reliably trace exchange transactions. All actors can consult the balance at any time and schedule the pallets' return transport accordingly.
How will it allow complete traceability?
A bit about Blockchain
Blockchain is not a technology that will replace business software (WMS, TMS). It will make key information held by this software visible to other actors along the chain. It creates a top layer that enables the secure sharing of information. It is necessary to visualize a ledger that includes the events related to the goods. Each actor holds a copy of the ledger, which is updated simultaneously and in real-time. The ledger is open in read and/or write mode, depending on the pre-defined rights policies. This special system is tamper-proof, shared and secured thanks to a combination of several cryptographic processes.
How does it work? A transaction is made directly between the involved participants. Once signed electronically by all parties, it is validated by the system through the distributed consensus process. This jargon refers to validating, registering and securing the transaction. For example, in the context of delivering goods, two actors sign off the transaction one after the other: the one who sends the goods and the one who receives them. Both parties agree on the successful completion of the service. This materializes the transfer of responsibility. In Blockchain, a process validates that the history accounts for the delivery person's possession of the goods at a given time and that the recipient had the rights to receive them. Once validated, the transaction is registered and secured by a technical system based on cryptography and mathematics.
The system does not require a central actor to function. Trust is driven by the technology itself and not a trusted third party. This is where the system breaks away from existing solutions.
Blockchain technology has been proven in the Bitcoin digital money market since 2008. There is no bank involved in Blockchain. Bitcoins are exchanged directly between participants, and cryptographic mechanisms guarantee the security and reliability of the exchanges. More than 560,000 transactions were carried out in 2014, amounting to $159 Million. Bitcoin is the eighth preferred payment method worldwide after Visa and PayPal, and more than 100,000 merchants accept it as a payment method (including Dell, Wikipedia and Expedia).
What are the benefits of Blockchain?
Thanks to Blockchain, actors become proactive and improve their performance. A brand can significantly enhance the shopping experience of its consumers. A distributor can gain visibility on all actors upstream of the chain and thus have a better understanding of the quality of the products it sells. For a logistician, Blockchain makes it possible to meet 100% of the traceability requirements imposed by its clients. Finally, end consumers will have more trust in the brand thanks to the product information available to them. This list of benefits is not exhaustive; each actor will bring other benefits specific to its role in the chain.
2018: the year of experiments
Much like it was impossible to imagine the full potential of the Internet when it was created; it is now difficult to imagine all the doors that Blockchain will open. New uses are identified every day. The problem now lies in establishing their viability and in defining relevant solutions that will rely on it. This technology will make it possible to reach a milestone in logistics performance, since all the actors of a chain will federate around a solution based on Blockchain. It is a way of solving problems that are too complex to be addressed by market solutions, or by a single actor. However, there is no preconceived software solution to take advantage of Blockchain. Each ecosystem must implement a solution based on this technology, which has been specifically studied and developed for its needs. And for this to be possible, the actors must be helped by experts (ESN, start-ups) who possess this level of Blockchain expertise.