Daniel Schwartz, retail supply chain analyst, explores how a new era of decentralised applications can revolutionise supply chain.
Looking beyond the sustainability wins that come with radical supply chain transparency through Provenance’s Ethereum based decentralised application, I see opportunities to reduce supplier risks such as sudden changes in production capacity or lead-times. For customers, such as the outdoor retailer that I work for and many other consumer-facing businesses, getting a handle on the risks stemming from second-tier suppliers’ operations is difficult. Getting accurate and trustworthy intelligence about suppliers further removed from the final product is even harder. This lack of transparency leads to delivery delays, quantity discrepancies and other issues that create suboptimal business results.
Provenance offers a great opportunity to reduce these risks because it tracks the quantities and timestamp of product deliveries from supplier to customer. An audit of the blockchain, which in this case represents the transaction history of a supply chain, reveals information about suppliers’ inventory levels and lead-times. With this information, a 1st tier supplier’s likelihood of experiencing delays can be estimated based on the inventory receipts of a 2nd or 3rd tier supplier.
To better understand how powerful this can be, let’s look at a more concrete example. Below is a simplified diagram of the forest products supply chain. It shows the path that trees take as they are cut down, transformed and turned into pulp and paper, lumber and energy. This simplified picture shows the complexity of the supply chain, especially at the levels closest to the harvest areas, and suggests visibility is an issue for consumers and merchants.
Looking only at the market for pulp and paper products (the left most part of the above diagram), if a merchant wants to buy rolls of paper, they will buy it from a company operating a converting plant. The merchant likely has a good relationship with this company, but without good supply chain transparency, it will be very hard for them to get quality information about the paper mills supplying the converting plant, let alone information about the pulp mills, log terminals and harvest areas that are further removed from the final product.
However, if the raw materials at the harvest areas were tagged and tracked using Provenance, the transaction quantities, lead-time information, and 3rd party certificates from every tier of the supply chain would become visible to the merchant, and they would be able to track anomalies in the capacity and lead-time patterns and adapt their orders and partnerships accordingly. Similarly, in the event of a catastrophic mill accident or forest fire, the merchant would be able to directly see how the disruption affects paper production with more certainty than they would in the traditional setup. They wouldn’t have to trust the word of their suppliers, whose interests are not necessarily aligned with the merchant’s. Instead, they could look at the data and act accordingly.
A quick scan of supply chain best-practices makes clear that trustworthy end-to-end supply chain data is of great interest to suppliers, manufacturers, retailers and consumers in every industry. However, current methods of obtaining this information are expensive, time-consuming and require a high-level of coordination between organizations. It is rare that a company is able to have accurate knowledge of their suppliers two or three tiers down the chain, let alone trustworthy information about the entire supply chain. Provenance provides companies with an opportunity to gather and access this data at a relatively low cost and with a high-degree of trust that it is accurate and up-to-date.
There are still many hurdles that still need to overcome, chief among them getting companies to adopt this new technology and overcoming the learning curve. Clearing the hurdles will be a massive undertaking, but it is hard to dismiss the potential gains that come from reducing risk and waste at every tier of a supply chain. Provenance is off to a fantastic start and, as the technology becomes more accessible and better understood by the global business community and public, will be well positioned to lead the way towards radical supply chain transparency.