Wednesday, April 11, 2018

REPOST: Blockchain for Supply Chains-A single, immutable truth for our future.

(This article was originally published in April of 2018. While Blockchain is still a potential solution for supply chains, it is still far from being a viable system for some industries, such as the fashion industry and other lower-priced items. I believe my proposed solution below is still the best one, but even so, Blockchain is still at the starting line)

Today “Blockchain” is one of those words that everybody uses but few understand (until recently, count me in that group).

A paper by the Amber Road group entitled, “ Blockchain for Supply Chains: Ghost in the Machine or Breakthrough Technology?” (link below) allowed me to understand what Blockchain is (at some level) and to visualize the potential for applying the technology to supply chain management. IF I understood the author correctly, the possibilities are dazzling.

So first, what in the world is Blockchain, anyway? On a very simple level, Blockchain is the technology that empowers Bitcoin transactions. It substitutes Digital for Analog (being: paper and anything non-digital) steps in the transaction, each of which is verified by M2M (Machine to Machine) transactions.
The aggregate of these transactions is a Digital Ledger, which can be explain as:

a digital ledger is a decentralized database that is shared by network participants across any number of peer-to-peer computer connections. Somewhat analogous to a traditional accounting ledger, a user-certified, distributed ledger is where cryptographic signatures are verified, transactions are authenticated, assets are exchanged and, in the end, where blockchains are built.

So, all the individual pieces of a financial transaction can be digitized, reducing paper, hands, mistakes and time, producing a quality transaction in less time with more accuracy. Did I get that right?

IF so, let’s just imagine the impact it could have on supply chains? I will focus here on the apparel industry, as it is always the most embarrassingly arcane, slow and prone to stupid mistakes. The author talks about “Smart Contracts” as the solution-we are far from that.

The author of the essay uses an example of footwear from Vietnam. Vietnam, as recent as it is on the scene of textile powerhouses, is very progressive in its mentality and its willingness to adopt and adapt. China has distinguished itself lately in its adaptations of technology to daily life, such as the quick transition from a cash to cashless society and the millions of rented bikes running around major cities. Now let’s imagine the aggravation of trying to complete an analog transaction from Bangladesh or Myanmar…

The author also focuses on the financial and logistics element of an international supply chain transaction. Maybe this is because they are the most obvious and easily converted from analog to digital. That said, LCs and shipping paperwork such as BOL, transportation/clearance documents are not traceable and trackable until they appear, after someone’s lunch or afternoon rest or a poor soul working overtime. OMG.
Now let’s expand the view slowly until we can’t stand the anticipation anymore. How about production PO? Let’s just start with payment terms and actualizing. I remember a maddening number of spreadsheets and contradictory numbers because nobody could agree on the deposits/amount shipped/amount paid vs. balance owed. Not to mention how much time it took to resolve on the part of the factory/Shanghai office/NY office. IF this alone could be part of a digital ledger, we could all eat dinner on time.

Next step-all transactions in the supply chain that contribute to the successful completion of an order connected by a digital ledger- BOM (fabric, accessories, packaging, including verified inspection and acceptance of supplier materials), WIP (labor value added, production stages completed, quality reports), quality control inspections and results. Connect all this with logistics and financial ledger blocks and you have a transaction which requires a fraction of the effort and aggravation that exists today, even in large firms that sport the BS online as to how progressive they are (PVH comes to mind)-ask their employees- but even more in the millions of small and medium sized companies that still exist in the hope that their star will shine in the new marketplace.

One more tease- the most popular word in the apparel industry today is “sustainability.” Who can prove or confirm the chitchat that passes for proactive activity? With all due respect, I am sure a lot of  (or most) of it is BS that has been passed by someone-it is the nature of the beast in this industry.  With Blockchain technology, we get the opportunity to execute Smart Contracts that will keep feet to the fire (if you want to cheat, you can, but this will tamp down the simplicity of cheating and give much greater accountability).

What I love the most about this: A single, immutable version of the truth. Those of us who have been in industry over the past half century would salivate for this concept.

The article puts a downer on the prospects for the advancement of digital technology in a digital age to an industry that seems hopelessly analog because of various caution points, correctly assessed:

The truth is that there are a lot of smart people out there that don’t understand what blockchain really is, or what it can be used for (the author certainly had this problem, and some people may argue that he still does). Worse yet, when one adds to these misunderstandings the somewhat dubious connection blockchains have to bitcoin, a certain percentage of people will automatically write it off as pure quackery.

So what percent of the CEO’s and boards composed of ancient yahoos who have no clue about the digital age and its possibilities can we write off as clueless?

The author also worries about the lingering perception and association of Blockchain and Bitcoin. Again pandering to the uninformed and those who time has passed by and should be playing golf, not making decisions:

those blockchain professionals committed to moving beyond bitcoin have to mount a public relations campaign that dispels misconceptions while positioning the technology as a true creator of supply chain value.

Again, realistic of the decision maker’s understanding and perspective.

Are we doomed to talk about this technology until it becomes boring to do so, and accept the way things are? How can this game-changing, cost-saving, and future-insuring technology be adopted, adapted and supported in a global industry? The author contributes his suggestion:

Closely related to the above points is that of marshalling the human capital necessary to create blockchain solutions that address real-world supply chain challenges. This might sound like a pedestrian task, but experience has shown that the bane of any supply chain software project is the disconnect between the “techies” and the “operators,” and how the inability to translate needs into code produces solutions that just don’t work very well. Due to blockchain’s complexities and relative newness, finding people that know how to write the code and that understand supply chain won’t be so easy.

Bottom line: We need a company that is committed to bringing together the best minds in supply chain and in blockchain technology, who can create the processes and protocols and then sell it to some suppliers around the world. Techies and groundies together changing the world.

We don’t need consortiums and conferences to adopt protocols and standardize technology-at least not now. What we need is someone who has the guts and money to set an example.

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