Wondering if your company should explore blockchain implementation for supply chain management? You’re not alone. There are clear benefits to applying blockchain technology to solve supply chain challenges. However, there are still no hard and fast industry benchmarks for tangibly measuring blockchain value or, more specifically, the ROI of blockchain for supply chain management.
The University of Tennessee Global Supply Chain Institute spent over 18 months researching and interviewing industry-leading companies like Amazon, Mondelēz International and Pfizer on how they’ve pioneered the use of blockchain in their supply chains. And while there are no clear-cut benchmarks or rules for getting the most out of a blockchain for supply chain management (yet), we can safely say that successful blockchain implementation always depends on the application and the business.
Read on to learn how you can evaluate if blockchain implementation may be right for you.
How to Start Evaluating Blockchain Implementation for your Business
Determining if blockchain implementation is right for your supply chain strategy can be tricky. We’re here to help. Consider this blog a starter course to the deep-dive you’ll find within our white paper, “When Is(n’t) Blockchain Right?”
Many of the businesses the GSCI researched for this white paper are still in the pilot phases of their blockchain implementation. They know ROI is a long way off but believe grappling with challenges that come with innovation will earn them familiarity and early-adopter authority in the technology.
Other businesses—particularly in the food industry—see real competitive advantages from using blockchain in their supply chain. While many others are adopting a “wait and see” strategy, hoping to learn from others’ successes and missteps.
So, where will your business and your supply chain fall on the blockchain spectrum?
Within our white paper, we offer helpful information, case studies, and multiple tools, including a set of best practices, a Blockchain Screener and a 15-question Decision-Support Framework to help you answer this question. Below, we weigh the blockchain benefits we’re currently seeing against the limitations.
6 Current Blockchain Implementation Benefits
Blockchain has enormous potential to increase visibility and lower administrative costs in the supply chain. But early-adoption blockchain for supply chain management doesn’t necessarily lead to direct or instant blockchain ROI. First, companies must assess both the specific business goals the blockchain will support and the cost of blockchain implementation in terms of time and concrete budgetary spending. That can be difficult.
Start by taking a look at your company’s supply chain strategy. Make sure your blockchain application can provide at least one of the following blockchain technology benefits better than current market solutions:
Blockchain Implementation Benefit #2: Reducing Time Spent on Negotiations and Invoice reconciliation
- Resolving invoice disputes not only takes time and money. It can also strain relationships between supply chain partners.
- Preliminary success shows that blockchain’s immutable record significantly reduces disputes and the need for procurement staff to resolve them.
Blockchain Implementation Benefit #3: Lessening Liability
- Because blockchain is unchanging over time, it enables reliable supply chain traceability that can reduce your recall response time from weeks to hours.
- This benefit is particularly powerful in the food children’s products, and the automotive industries.
- Blockchain can also limit liability by keeping supplier information current, reducing the risk of regulation fines for changes in ownership, and/or by preventing sweatshops from creeping into the supply chain.
Blockchain Implementation Benefit #4: Reducing Regulatory Compliance Costs
- This benefit entirely depends on the specific regulations in your industry.
- In the pharmaceutical industry, it can take more than 200 days to determine what inventory can be destroyed. This can cost companies tens of millions per year on storage and distribution.
- In this instance, having access to the provenance of pharmaceuticals on a blockchain would radically reduce this unnecessary expense.
Blockchain Implementation Benefit #5: Profit with Provenance
- Companies that have implemented blockchain solutions to trace provenance have attracted some consumer affiliation, particularly in the food industry.
- Traceability and food safety are important to the consumer. As such, some pioneering companies have seen incremental sales from this application.
Blockchain Implementation Benefit #6: Commercial Trust
- Commercial trust was also cited as a primary benefit of blockchain, especially concerning payments.
- Since the calculations have been agreed to by both sides, when the information is fed into the ERP system, it delivers a collaboratively produced and approved invoice.
9 Current Blockchain Implementation Limitations
Blockchain Implementation Limitation #1: Lack of Standards
- Unlike universal product codes and electronic data interchange, blockchain still has many independent efforts led by various industry stakeholders.
- This fragmentation is a hindrance to industry standardization. It is the number one issue limiting blockchain to niche applications.
Blockchain Implementation Limitation #2: Complex Supply Chains
- Single-ingredient supply chains like coffee or tuna can track provenance much easier than multi-ingredient supply chains.
Blockchain Implementation Limitation #3: Insufficient Incentives for Participants
- Even when participating in another company’s blockchain or consortium, blockchain costs both time and money.
- The blockchains that provide the most value to supply chain partners, not themselves, will win out.
Blockchain Implementation Limitation #4: Time and Cost
- While initial costs to set up and maintain a blockchain are an expected and necessary evil, the time required can be even more of a problem.
- Creating a governance model for blockchain can be as consuming and complex, from a resource perspective, as other digital ledger and data sharing technologies.
- The cost of cleaning up an existing data structure before loading it into a blockchain should not be underestimated. Depending on its structure, blockchain can share the same data governance woes as current data exchange technologies.
Blockchain Implementation Limitation #5: Speed and Scalability
- Scaling blockchain is a significant challenge because of the computing power required to carry out a transaction.
- It is said that Bitcoin can only process 4.6 transactions per second.
- Compare this low average number to Visa, which can process 1,700 transactions per second on average.
Blockchain Implementation Limitation #6: Interoperability
- To reach its potential, blockchain requires end-to-end integration with existing systems, both internal and external.
- Development to date has primarily focused on private (or permissioned) blockchains that result in disparate platforms without industry standardization.
Blockchain Implementation Limitation #7: Potential Increased Liability Risk
- When the Justice Department cited FedEx and UPS for their role in transporting illegally sold prescription drugs, their original defense was ignorance of the packages’ contents.
- If everyone has access to information about content, but no one is monitoring it, the liability increases.
Blockchain Implementation Limitation #7: Change Management
- Any time a firm changes a business process, it comes with challenges.
- For many companies, implementing blockchain is not a technology problem but a company culture and adoption issue.
- Even though it has been one of the most talked about technologies of the past decade, mentioning blockchain as a serious business solution still elicits eye rolls or confusion from colleagues.
Blockchain Implementation Limitation #8: Government Buy-In
- Blockchain disrupts many processes and systems that governments are built upon.
- Lobbying for its use in government entities could take years, making large-scale adoption difficult and timely.
Current Blockchain Implementation Best Practices
While we’re still in the early days of blockchain, some lessons have emerged that can help businesses just beginning their blockchain journey. These are the best practices we gathered from early supply chain experts who have pursued initiatives to enhance organizational value through blockchain solutions:
- Involve business leaders: Managing change often has more to do with perceptions and adoption barriers than the technology itself. Use case studies and build upon the frameworks of others, such as the information and tools presented in our white paper.
- Be agnostic: Don’t lock yourself into a single platform from blockchain’s early days.
- Create value for all: Blockchain implementation must create value for every participant, you set a minimum viable standard for creating value across the ecosystem.
- Be strategic: The adoption of blockchain technology must support overall business strategy, rather than serve as a strategy in and of itself.
- Leverage unique blockchain capabilities: Blockchain should meet a need that no other application or existing solution can address.
- Wrap blockchain in emerging technologies: Pursue blockchain projects in coordination with the Internet of Things (IoT), machine learning, edge computing, and similar roadmap initiatives.
- Use Smart Contracts: Smart contracts unlock blockchain value.
How to Start Evaluating Blockchain Implementation for Your Company
As supply chains become more distributed, coordinating the end-to-end flow of information, goods, and funds will grow more challenging. More partners, more data, more headaches. If your company is dealing with these issues now, consider how blockchain could become a key piece of your solution set in the future.
Three steps for establishing if blockchain is right for your company:
Step One: Strategize for Incremental Improvement
To leverage a blockchain for incremental improvement, organizations must set three strategic goal posts:
- Identify pain points that can be and must be addressed now.
- Reduce the non-value-added tasks created by archaic or poorly designed processes.
- Review the entire solution portfolio to take in both current and long-term pain points.
Blockchain should not be considered an all-encompassing solution but rather a technology that can either solve some pain points or contribute to solving several.
Step Two: Business Reimagination
- Reimagining your business in a fully enabled blockchain world requires careful attention to its potential impact on the more strategic areas of your business.
- This can include considerations for employee value proposition, customer experience, augmenting customer value, identifying and deploying new products and services, and creating new business models to move the organization forward and increase its competitiveness in the marketplace.
- It’s worth noting that this can mean expending purposeful effort towards internal stakeholder education and managing change and adoption mindsets.
Step Three: Conducting a Blockchain Decision Support Framework
Consult the full text of our white paper to find a ready-to-use Blockchain Screener based on both primary and secondary research. Additionally, you’ll find a 15-question Blockchain ROI Decision-Support Framework for mapping out blockchain implementation opportunities for your organization.
A word of caution: While blockchain has high potential, it’s critical to comprehensively assess the blockchain business value for your organization as a whole and avoid falling into the trap of thinking solely about the operational benefits. Organizations honing in on blockchain’s ROI, and whether to move forward with it, should consider its capabilities, incremental improvement, and business reimagination.
Find a full explanation of blockchain’s ROI for supply chain management and the above-mentioned tools for screening use cases in the full, free and downloadable GSCI white paper.
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