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Published on January 4th, 2018 | by admin

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Blockchain in Supply Chain Logistics

Blockchain is changing the way we do businesses. What change will it bring to supply
chain logistics? Gráinne Lynch and Ignacio Lopéz del Moral discuss its applicability to
supply chain.

Supply chain operations are rife with challenges. From
pharmaceutical to food, customers want to know that what
they order is what they get, and giving certainty regarding
origin from producer to consumer and from farm to fork, is
essential. Eliminating counterfeit, fraudulent, and deceptive
products from the supply chain helps protect both brand
and revenue. Knowing where products have originated, are
located and are destined at any one time helps to streamline
reverse logistics and enables responsive recall processes.
The chain of custody, Track & Trace, throughout a supply
chain is a cumbersome process to initiate and continuously
manage especially where specialist handling is required.
Perishable, temperature sensitive goods are often subject to
additional handling criteria, which are typically only
communicated on receipt. Temperature sensing in close–toreal-
time of perishable goods would result in a reduction in
the level of discard and destruction, leading to potential
savings. This is especially pertinent in pharmaceutical cold
chain operations as well as poultry, fish and flammable
products.

Complete ease and swiftness of choosing partners in the
supply chain and integrating them into the supply chain
network has not yet been achieved. Onboarding can still be
costly and time-consuming.
Foreign exchange fluctuations and the costs of banking,
directly affects business operations. It would be more
efficient to disintermediate (remove non-value added steps
and ‘middlemen’) financial transactions and divest banks
from transaction management to deliver payments in
real-time.

At the beginning of a supply chain relationship, contracts are
agreed and are then rarely used to influence, manage and
implicate supply chain execution. They are really only
consulted when something goes wrong (Cecere, 2017).
Even when there are procedures in place for managing B2B
data, track and trace information and chains of custody, all
information is subject to error; either intentional fraudulent
manipulations or unintentional errors.
Blockchain technology is gaining widespread support and it
may help alleviate and solve the challenges listed above, thus
bringing greater visibility and transparency to supply chain
operations.

But what is blockchain technology?
Blockchain is an expanding list of records akin to entries in a
spreadsheet or ledger (called blocks) that are linked together
(in a chain) to the previous block and secured using
advanced public-key cryptographic protocols. The blocks in
the chain are communicated to all members in a network
(known as nodes), this means that the blockchain is
distributed, making it decentralised and thus mitigating risks
from storing information in a centralised database. The
members in the blockchain individually verify the contents of
the records in the blocks, thus providing a distributed
verification mechanism.

Collectively, the independent verification mechanism
provides a robust degree of authenticity to a block, meaning
that any alteration to a record (block) would be detected by
the other members (nodes). This makes the blocks
immutable, which is a great little word that simply means
unchangeable. Blockchain is also known as “Distributed
Ledger Technology.” There are public and private blockchains.
Cryptocurrencies such as Bitcoin and Etherum are some of
the best known uses of public blockchains.

blockchain_visual_v2

There are a growing number of private blockchains that are
poised to deliver greater visibility, transparency, integrity,
control, over supply chain and logistics operations.
The immutability and transparency provided by blockchain,
the data integrity and the robustness of the system has lead
Roberto Fernández Hergueta, Head of Emerging Digital
Business in Everis to state that “blockchain will improve the
supply chain sector due to the availability of pre-transaction
information for all the involved players, the immutability of
historic data, the reduction in errors in payment processing
and auditing and the real time visibility across the whole
supply chain, resulting in a real time Feedback from
customers” (Hergueta, 2017).

Those convinced of the merits of blockchain, otherwise
known as blockchainers, are paying keen attention to the
importance of smart contracts, which are agreements
between parties executed automatically once a pre-defined
trigger point has been reached, or once the conditions that
have been predetermined by the contractual parties are met.
This concept is revolutionary in the legal world because it
makes the breach of the clauses of the contract practically
impossible, thus avoiding trials, injunctions, seizures, etc.
Therefore, we will see an increase in efficiency and a
consequent fall in costs, in certain operations that are eligible
to be automated.

For example, the first blockchain-based insurance policy for
marine cargo insurance certificates has been successfully
tested by Tokio Marine & Nichido Fire Insurance and the NTT
DATA Corporation. According to Tokio Marine, the certificate
of insurance, the bill of lading, letter of credit and commercial
invoice were all stored and transmitted on the blockchain, “It
was actually proven that the blockchain based system will
cut 85% of the shipper’s time of data inputting work in order
to receive an insurance certificate….When one block was
attacked and rewritten, the tampered block was not
distributed to other nodes and it became obvious that there
was inconsistency compared to the other nodes. It also
showed that the whole blockchain system still worked with
the legitimate data even though one node was attacked,”
Tokio Marine explained (Allison, 2017).

NTT-Data

With respect to blockchain implementations in the
pharmaceutical sector (Blockverify and BlockRx, for instance)
that aim to prevent from illegitimate pharmaceuticals from
reaching patients and causing harm. Dioni Nespral says
(translated by Spanish to English by Ignacio Lopéz del Moral):
“Each time a drug is manufactured, a hash is generated,
which allows to authenticate the origin of this item. This hash
provides all the information related to its manufacture and
components. In addition, each time an agent interacts with
that drug, another hash is linked to the previous one with
more information, with total traceability” (Preukschat, 2017).

Are there any working blockchain
implementations in supply chain logistics?

Yes. There are a number of very interesting blockchain
implementations in the transport, logistics and supply chain
sector, presented below:

Blockfreight is a new end-to-end blockchain system for
global cargo shipping. It is the product of an Australian based
research company, tasked to develop a solution to the
primary pain points in cargo shipping that requires the
manual matching up of bill of lading with letters of credit and
other settlement mechanisms. Blockfreight’s solution
consists of three (it’s the magic number) key elements:

• Smart contracts to securely, permanently define the bill
of lading, terms of payment and other key elements to a
completed cargo shipment, built on the Ethereum
blockchain.
• A tradeable token built as a counterparty asset, which is
secured by the bitcoin blockchain. This token pays for
the transaction fees and effectively eliminates spam on
the decentralised system.
• Storage of the bill of lading and other documents too
large to fit into a bitcoin block using the IPFS (Inter
Planetary File System) protocol (Blockfreight, 2017).

shutterstock_166070336

Hijro is the financial operating network for global trade
powered by distributed ledger technology. Built on
distributed ledger technology, the Hijro Network acts as a
global “fabric” for trade; it provides partners and network
participants with a secure and efficient way to move value
and assets around the world by tokenisng, transferring, and
trading different types of digital assets between financial
institutions (Hijro, 2017).

Skuchain applies the cryptographic principles developed in
the Bitcoin network to security and visibility for the global
supply chain. As goods travel from manufacturers to
distributors to consumers, the crucial electronic information
of what the item is and where it came from becomes
disconnected from the Stock Keeping Unit (SKU) itself. A
blockchain offers a universal, secure ledger by which SKUs
can attest to digitally to their origins and attributes
(Skuchain, 2017).

Walmart is working with IBM and Tsinghua University in
Beijing on a blockchain pilot for tracking and tracing pork in
China since 2016 (IBM, 2016) by using IBM blockchain based
on the open source Linux Foundation Hyperledger Project
fabric. Product information (e.g. farm origination details,
batch numbers, factory and processing data, expiration dates
and shipping detail) is digitally connected to food items and
entered into the blockchain at every step of the process. Each
piece of information serves to provide critical data points
that could help reveal food safety issues (Castillo, 2017).

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The Ambrosus project aims to radically improve the global
supply chains by creating a trusted ecosystem to reliably
record the entire history of products and execute commercial
transactions accordingly. Using a combination of sensors,
biosensors and food tracers, coupled with a unique ID, smart
tagging and anti-tampering mechanisms, Ambrosus
monitors the product in real-time down to the individual unit
(Ambrosus, 2017).

Conclusion
For me, it is difficult to conceive a future supply chain
without some aspect of blockchain. Getting this right means
the right technology build in a robust manner to enable all of
the benefits blockchain can offer, such as immutability,
transparency and security. Scaling blockchain applications so
that all partners can access the benefits and helping partners
to understand the changes are key considerations for the
sustainability of any blockchain implementation.

In the next issue of the Linkline we will discuss the
regulations and legal framework that will assist and enable
Blockchain advancement.

The author acknowledges and thanks Ignacio López del Moral,
Everis.

Grainne Lynch, Vice President of The Chartered Institute of
Logistics and Transport in Ireland, Pharmaceutical Track & Trace
Advisor with ESP, Supply Chain Logistics Innovation Specialist.

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