Blockchain is the new technological broom in town, sweeping away the complexities of elaborate global supply chains, simplifying processes for greater transparency
“It’s not a global village, but we’re in a highly interconnected globe,” American writer, Howard Rheingold, said. Indeed, technology has connected the world with a degree of intensity that has, ironically, heightened the complexity of connectivity.
In contemporary global trade, the service is far beyond the simple act of selling a product or service to a customer. The network is elaborate and includes people, organizations and infrastructure that convert materials and human capital into intermediate and finished products that are delivered to customers in all corners of the world. It will provide a more secure transactions between sellers and buyers. Currently, many business owners have to resort to a BIN database in order to detect fraud. With blockchain, there will be no such need.
Amidst burgeoning trade, businesses have come to realize the importance of logistics. As Kevin Holian, Vice President Global Operations at Boston-based New Balance Inc, said, “Logistics is a little bit like plumbing in your house. As long as it’s working well…you don’t tend to worry about it or care about it. But the moment that stops working properly, it escalates to probably become perhaps the most important issue in your home and certainly in your business.”
According to forecasts, international trade in 2018 is expected to show a surge in shipping costs, with rising fuels costs and the billowing costs of hurricanes other natural disasters. Also, according to the World Trade Organization (WTO), in recent years, the quantity of products shipped in ocean containers, has increased around 17 times, from 102 million tons in 1960 to 1,720 million tons in 2016. Today, annual global trade is counted as 70 million containers.
The global supply chain involved the entire range of transport modes – that is, road, rail, air and sea. And each of the modes employs its own local systems to take care of its part of the business before handing it over to the next. All these processes involve physical paperwork – faxes, couriers, mail, and face-to-face meetings. And the paperwork becomes mind-boggling voluminous stacks of paper, with several copies of different documentations needed at each point of handling. These include consignment notes, insurance policies, loading and unloading contracts, declarations for customs clearance, packing lists, shipping specifications, quality and origin certificates, invoices, bills of health and veterinary certificates. According to tests conducted by IBM and Maersk, the costs associated with paperwork in a particular trade interaction, would be about 15-20% of total cost.
The complexity of the global supply chain in an increasingly connected world, has taken about 70% of a company’s logistics out of its control. This has made businesses vulnerable to various risks, as they commit themselves to deliver value to customers.
Among all the risks to a supply chain, probably the most harmful is the risk of corruption. A 2009 survey of 729 senior executives from different international businesses found an average loss in trade returns of $8.8 million over three years. Of this loss, 20% was categorized as losses incurred through vendor and procurement fraud, while 19% was due to bribery and corruption. According to estimates today, the cost of corruption exceeds 5% of global GDP, while over US$1.5 trillion get paid out as bribes every year. A recent survey by Pricewaterhouse Coopers shows that 61% of supply chain managers categorized corruption as the second most serious of risk of their business, the first being product safety. Furthermore, 83% of all imports into the US, of clothing, footwear and accessories are from countries with severe corruption threats.
Modern technology, in the form of Blockchain, offers a tamperproof solution to the problems of counterfeit or corruption that could occur in a global supply chain,. Blockchain, invented in 2008, by a person or group of persons known as Satoshi Nakamoto, is an innovative method of tracing product supplies. It is a decentralized ledger system, where every new entry on the ledger can be immediately seen by all participants in a particular supply chain. Therefore, at any given moment, everyone connected in the supply chain knows exactly where the cargo is and exactly how much there is. They are also able to verify that no one has interfered with the consignment because all inventory can be tracked as each item has a particular code. As Blockchain theorist & strategist, William Mougayar, said, “The blockchain cannot be described just as a revolution. It is a tsunami-like phenomenon, slowly advancing and gradually enveloping everything along its way by the force of its progression.” Blockchain, allows a speedy, digital flow of information in real time. And with no central server, no one is able to make furtive changes to information. Don and Alex Tapscott, the authors of Blockchain Revolution, said, “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
With zero hard-copy paperwork, and files all integrated into a single system, updated in real time simultaneously at all nodes, and safe from single server cyber-attacks, Blockchain takes care of fraud, illegal and unethical practices, corruption and human error.
As technology futurist, Ian Khan says, “Blockchain truly is a mechanism to bring everyone to the highest degree of accountability.”