Ensuring that every product that reaches the customer, presents the highest quality and arrives on time, is becoming a bigger problem. The increasing complexity of supply chains, as well as other numerous problems, such as guaranteeing the authenticity of a product, make the methods and solutions developed by the transport industry over many years, begin to fail.

Blockchain, although usually associated with the financial market, thanks to its special features, has a chance to solve many problems that the transport industry is struggling with.

Blockchain: a short and simple definition

Blockchain is, broadly speaking, a modern, cryptographically protected, accounting book. It differs from traditional databases in that we save data in a slightly different way. A good example would be a physical chain. Imagine that every “package” of data that we intend to input into our system is the link in the chain. Data is entered by adding links to the main chain, thus increasing it. Our chain, therefore, is slowly becoming longer and longer.

Thanks to this solution, we guarantee that the previously entered information is impossible to change or counterfeit. Otherwise, we would have to rip and destroy the entire chain!

It is good to mention that the data can be represented in a variety of ways. In the case of Bitcoin or other cryptocurrencies, these are records of transactions made between users of the Bitcoin system from around the world (yes, Bitcoin is the currency, but also the system in which the currency is used). However, cryptographically secured transaction records between users are just one of the options.

In a properly constructed blockchain, we are able to enter information about physical products that we want to track. For example food or even things like events (the event may be, for example, a man-made activity, which should be documented for some reason).

Blockchain distinguishes itself from traditional centralized databases in that many users possess copies of all the transactions made in it. Users in this case may be a group of banks willing to create a common and universal payment system, people exchanging digital currency among themselves (as is the case with Bitcoin), or a consortium of food production companies that are willing to optimize their business and keep track of their products and what’s happening with them in the entire distribution chain — from the moment food leaves the factory until it reaches the consumer’s table.

Despite the fact that blockchain is primarily known for its use in digital currencies (for the first time introduced in Bitcoin in 2009), its features prove to be extremely useful in solving many other problems in supply chains, as it ensures security and immutability of data, thus increasing trust of all network participants.

What’s behind a traditional supply chain?

Imagine that you are the owner of a small business — a neighborhood shop with fruit and vegetables. Your supply chain will therefore contain all the “transactions”, events and products that are part of your business.

An example supply chain of a local vegetable store might look like this:

Purchase of food in a larger warehouse or directly at the farmer’s Prepare it for the transport Transport to the specified destination Receipt of all products by the shop owner Food goes to store shelves The customer purchases vegetables and fruits in your shop

As you can see, the supply chain of a small shop does not look too complicated. It seems almost trivial on paper. However, it turns out that even such a simple supply chain can create a variety of problems.

The entrepreneur must ensure that his products: vegetables and fruits in this case, are of the highest quality. That they reach him on time and come from trusted growers. In each of the above-mentioned points it can come to negligence, abuse, delays or frauds on the part of the farmer or people involved in transport.

The owner of the store must be sure that the fruit-grower provides the products specified in the contract (their weight or quality is not different), that the transport company has ensured proper transport conditions (fruits were not exposed to excessive light, were stored for a certain time and at the right temperature, so they have not been spoiled).

Use of an appropriate blockchain optimizes this process, guarding the trust and goodwill of each agent involved in the supply chain. If there is a delay or the food happen to be of a lower quality than the contract specifies, the previously programmed smart contract is able to automatically impose a financial penalty on a specific member.

As you can see, the level of complexity and the number of processes involved in an extremely simple supply chain can be frightening. Imagine, therefore, how many factors can fail in the case of distribution chains of such giants as Walmart or UPS. No wonder that these companies have also begun to work on the application of blockchain in their supply chains. Experts in the transport, consulting and analytics are of the same opinion, quoting Deloitte report:

The use of blockchain in supply chains can help gather more accurate data on price, date, location, quality, certificates and other important factors. In a nutshell, blockchain is more than just a pure hype.

What real problems does the blockchain solves in supply chains?

The need for better visibility of data about everything that happens within the supply chain.

2. The need to adapt all company branches to joint and efficient cooperation.

3. The need to control rising costs and transport delays.

4. Building a culture based on preventing problems and not treating them.

Improved data visibility

As research conducted in 2017 by RiskMethods shows, 41% of companies still rely on Excel when collecting the data about transactions and products. Furthermore, as much as 69% admits, that they do not have full access to data collected in the process of their own supply chains. The problem may lay in fact that some of them are simply lost, not properly collected, or individual entities involved in the supply chain do not share all of the important data collected in the process. This situation may lead to critical business problems and additional costs.

Blockchain, combined with the use of technologies such as IoT and the sensors to track physical products (which process data from the physical world directly to the blockchain) are a great example of how to solve this problem.

Thanks to this solution, every transaction or event is saved and visible to all the users of our distributed ledger (as I mentioned before, transaction can be described as product-related data like weight or size, which is being entered to the blockchain, events for it can be e.g. transporting a product from point A to B, e.g. from a farmer to a warehouse or store).

Using the so-called Blockchain Explorer, an extremely simple software to check all the data entered into our blockchain, we have access to all information included in our supply chain. No matter if it’s the temperature of storage of our vegetables during transport or approval by customs authorities of our containers. The scale does not play any role here. What counts is that everything is saved and easily accessible.

The data available on the blockchain, for simpler understanding, can be visualized. Such functions are provided by, for example, the tool available in AMB-NET, a blockchain for supply chains developed by Ambrosus. One picture sometimes says more than hundreds of words. This is how it looks:

Joint and efficient cooperation of all of the supply chain branches

As our example with a local shop showed, even a simple supply chain can cause many problems. What’s more, its participants do not always have to follow good practices. In addition, there are a lot of human errors, such as delays in transport. Adequate adjustment of all factors in the distribution chain to optimal cooperation is therefore a key challenge.

To achieve this goal, it is necessary for each department or participant to have full information about the whole supply chain. Blockchain solves this problem, since its copies are held by all participants. It is a network that in itself has a built-in trust, because everyone can check all data and possibly detect the unfair behavior of one of the parties. Therefore, this means that transparency and honesty are required of each network participant.

By guaranteeing that all information is properly maintained and available to every department, as well as trustworthy by all the agents in the supply chain, we are able to ensure the highest productivity.

Controlling rising costs and avoiding transport delays

According to McKinsey “The challenges ahead for supply chains” report, the risk resulting from the possibility of rising costs and delays in transport in is increasing at a tremendous pace. The more complicated the distribution network, the more companies, agents and factories are included in it, the more the problem arises with preservation of the previously determined costs, as events such as delays in transport or unsuitability of the product due to improper production or storage are becoming common.

Rising costs are associated, not only with unforeseen events within the supply chain, but also with the previously mentioned problem — the lack of information available for the participants. As McKinsey analysts have aptly described, an “information hole” is being created.

Let’s look at a simple example of how this information hole can threaten. Let’s assume that the supplier has partial information about the service he has carried out: the carriage of products from the warehouse to the store. What’s more, he stores them in a simple Excel spreadsheet. Some error occurs and his computer gets damaged. There will not be much harm if he had a backup. However, what happens when there is none?

In such a scenario, not only the injured supplier is damaged, from whom the store owner is not willing to pick up unverified products, but also the entrepreneur himself, left without the goods to sell in his shop.

Let’s look at a different situation. Let’s assume that the provider has stored all the necessary data on a regular cloud service. In this case, some dangerous situations may occur.

A) Due to the failure of centralized server, the provider loses partial or complete access to the saved data.

B) Access to data is lost due to simple loss /oblivion of password, malware or other human error.

In both cases crucial information is lost, without which the entire supply chain cannot function properly and effectively.

Blockchain solves this problem. Once entered data is stored on every user’s blockchain copy. So if critical data is lost by one of the units, the chain can continue to function because all other participants have it. What’s more, the unit is able to reproduce the previously lost data by synchronizing its copies of the blockchain with the network.

Thanks to this, costs due to data loss do not increase and there is no delay on the part of the supplier.

Building a culture based on problem-preventing.

The global character of the blockchain, its accessibility for all entities included in a specific supply chain, make us able to find and respond to specific problems even before they appear, or become a serious threat, by in real-time network monitoring and blockchain analysis.

A simple example will be the situation where, during transport, our vegetables and fruits are stored at the wrong temperature. Thanks to the fact that the data is transmitted to all blockchain copy holders in real time, we are able to counteract and respond by taking the following steps:

- Inform the transport company about improper storage (there may be a technical fault) in order to repair the error and ensure the appropriate storage temperature for our products

- At the same time, another department within the same company, having such information in a sufficiently short time, is able to proceed to obtain the necessary products from another wholesaler if food spoils due to poor storage temperature

- Finally, the entrepreneur gets clear information that the transport company which services he use (or employees responsible for transport if it happens within one company) is unreliable, uses inappropriate practices, does not make due efforts to the transport service and it should be change (if of course the reason was not a technical problem)

Blockchain is therefore not only a guardian of trust, honesty and good practices in the supply chains, but also prevents numerous problems occurring in it, before they cause additional costs and delays.

The summary

Blockchain, together with the use of technologies such as IoT and sensors to track physical products, solves the problem of “information holes”. Proper use of blockchain optimizes processes within the supply chain. Blockchain prevents data loss through one of the participants in the supply chain. Blockchain reduces the risk and costs, by giving access to tools, such as clear data visibility which helps solve most of the problems that arise immediately.

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