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Blockchain is a database distributed over the computers of all of its members or supply chain participants, so the ledger grows stronger as its user-base grows. When iron ore, an ear of corn or a t-shirt is traded between companies that participate in a blockchain, the system records it. Each transaction creates a unique numerical identifier, which is recorded in encrypted form in a data block. When the next transaction involving that product happens, such as the item being shipped, the data is entered into another block. That block is chained to the first data block. Hence, blockchain.
The distributed computer ledger technology records detailed supply chain information, securely and permanently. For example, it can verify whether a participating supplier in China has enough purple fabric in stock to fulfill an order for soccer team shirts, record when the order is dispatched to the sewing factory and automatically confirm that the shirts have shipped. Blockchain enthusiasts say that the technology will irrevocably change the way people and companies move goods and money. It has the potential to disrupt many industries where ensuring the trustworthiness of the various parties is critical, including financial services, trade finance, purchasing systems, manufacturing, utility billing, government registries – and supply chains.
International Data Corporation, a global market intelligence firm, estimates that spending on blockchain software will reach US$2.1 billion (€1.79 billion) in 2018, rising at a compound annual rate of 81% and hitting US$9 (€7.79 billion) in 2021. “Unlike customer relations management software that sits on a company’s own computers, blockchain allows you to automate workflows across company boundaries with your suppliers and customers,” said Shawn Muma, who leads blockchain research at the Digital Supply Chain Institute. The institute is part of the Center for Global Enterprise in New York, and arranged the pilot study at Li & Fung. “As we move forward, you will see that the supply chain is the biggest and best application of blockchain technology.”
A LEDGER NO ONE CONTROLS
Blockchain technology was the brainchild of Satoshi Nakamoto, the pseudonym of the unknown tech genius who invented the cryptocurrency bitcoin. While bitcoin itself has been mired in controversy, businesses realized that the underlying technology might be an ingenious way to track global movements of goods and real-world currencies.
To read the encrypted data, users need a translator called a hashkey. In theory, the data can’t be altered because it’s replicated on each participant’s computer system; a change on one system would be immediately apparent on the others. And because the ledger is protected by advanced cryptography, it’s difficult to hack.
By eliminating the trust issues that gave rise to banks, brokerages and accounting departments in the first place, experts say blockchain has the potential to make all of them obsolete.
“In today’s world, most businesses have lots of data and have to spend a lot of time reconciling that data with other organizations,” said David Dalton, a partner for strategy and operations at business consultants Deloitte in Dublin. “Blockchain allows for multiple business organizations to share data in a way that is safe, secure and immutable.”
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