5 Ways Blockchain Will Revolutionize Supplier Management

There was a time when we used old-school ledgers to track our business relationships, and they were written with absolute clarity to deliver absolute trust. Parties entered into an agreement with an understanding that the detailed transaction records of a ledger were unaltered and binding, but still there was room for human error. As with almost everything, technology is transforming what we know and how we function within our own knowledge base. The same can be applied to the old-school ledger. Now, thanks to blockchain technology, the business of trust can be cryptographically secured and distributed among all parties involved in a transaction and human error can be eradicated.

What exactly is blockchain?

Blockchain is a digital ledger that records transactions between parties and requires consensus among all parties. Blockchain is also immutable, or unchangeable. The cryptographically-secure document, or virtual agreement, is a binding, accountability-laden accord that can only be modified with total consensus between all enterprises involved. This decentralized chain of certification authenticates and maintains data indefinitely. The result is a secure and traceable workflow record. Ultimately, it simplifies the process, increases transparency and deconstructs silos that stand in the way of moving businesses forward.

5 ways blockchains affect supplier management

There are several clear advantages for businesses that adopt the blockchain methodology.

  1. Provides tracking in real time. Blockchain can provide up-to-the-minute stat checks. One big issue for major manufacturers and food retailers, for example, is food provenance. In the most recent case in the US, tainted romaine lettuce triggered a nationwide listeria outbreak. Blockchain can uncover the journey of the food or perishable item and trace it back to the produce farm where it originated and do so almost immediately.
  2. Enables automation. As digitally-secure transaction data becomes part of blockchain agreements, smart contracts (fully or partially executed or enforced contracts devoid of human oversight) can begin automation of the commercial process once agreed upon terms and conditions are met. With smart contracts, companies can be sure that was is promised is delivered and what is delivered is paid for.
  3. Standardizes processes. Blockchain enables multiparty transaction capability. The resulting transparency and gained access standardizes processes, unifies data silos, and develops technology adoption that makes supply chain interaction and tracking more efficient, compliant, and synchronized.
  4. Creates trust. Blockchain data can be easily distributed to multiple parties and additional party opt-ins, without the fear of corruption or manipulation. It essentially provides a new level of global trust and credibility, and it opens the transaction stream. It also offers immutability – there’s nothing more reassuring than being able to verify that no part of a transaction agreement can be tampered with.
  5. Provides opportunities for growth. Blockchain technology is on track to potentially provide robust growth for those companies that leverage its power. The standardization and automation of processes will bring clear efficiencies. We’re also seeing early examples where blockchain is being tested and applied effectively in some companies and organizations.

    J.P. Morgan has instituted blockchain for payment transfer in some locations; for example, they are doing so currently between London and New York. The government of Estonia is an unlikely leader in the blockchain space. They have an e-government initiative where all citizens have a digital identity on the blockchain. The Canadian government is a big leader as well. The CIO who reports directly to Prime Minister Trudeau is working on digital identities for citizens on the blockchain. And Japan is also experimenting with cryptocurrency as part of the government’s reserve currency.

    Maersk and IBM announced their intention in January to establish a blockchain technology joint venture aimed at identifying efficient and secure methods for conducting global trade. A platform is currently being tested by a number of their partners – including DuPont, Dow Chemical, and US Customs and Border Protection – which all have interest in developing smarter trade processes and streamlining supplier complexity. Their ultimate goal is an open platform in which all players in the global supply chain can participate and extract value.

Challenges on the journey to blockchain adoption

Blockchain is in the early stages of adoption across various industries, so challenges do exist in this exciting and transformative technology. There are some issues in usability as companies seek its most effective applications. Resourcing is also an issue as there simply aren’t yet enough engineers available who are truly skillful with blockchain technology. So, while the benefits for enterprises, partners, and resource providers along the supply chain promise to be numerous and undeniable, the initial expense to put it in place and operate it could be a near-term hurdle.

Current system integration poses its own set of limitations when transitioning to a blockchain system. There are only two practical ways of proceeding when adding a blockchain-based system. One, complete modernization of the current technology, which points to upfront costs. Or two, assimilating current technology with a blockchain system, which comes with its own requirements: skilled expertise, finances, and time investment. Then there’s the age-old issue of regulation and governance. Whether you believe regulation is a hindrance or an advantage, the fact is blockchain is a relatively new tool that will undoubtedly see the development of guidelines and guardrails from federal regulators. Another regulatory challenge of blockchain technology comes from the nature of the technology itself. A core part of the design of this technology is to provide a layer of anonymity in transactions. Within a blockchain network, you are defined by a 64-digit alphanumeric key called your public key or wallet. This obviously reduces transparency and the ability for regulators to have oversight. In order to address the regulatory need for verified identities, we need to link verified business or individual identity data with each blockchain public key. This is similar to assigning a domain name to an IP address. This will allow regulators to be able to link an individual or business entity with a public key. By doing this, we can potentially avoid systemic risks around AML/KYC in this emerging ecosystem.

In our own case as a global innovator of commercial data, analytics, and insights for business, we can currently map a blockchain ID to an existing Dun & Bradstreet D-U-N-S® Number to eliminate complexity and the need to maintain a new identification system for entities using blockchain technology. Ultimately, we’re creating a system of record that’s irrefutable and unbreakable, so that we can potentially act as an identity verification provider (verifying that a company is what it claims to be). In addition, linking all blockchain identifiers to actual companies from a master data management perspective may also be another big area for our company to lend support.

This mapping enables entity identification, reputation management, and compliance screening, which all leverage the same trusted content our customers have come to rely on. That means our customers can focus on propelling their businesses into the future and meeting their evolving needs.