Why Supply Chain Collaboration Needs Blockchain

As published in SupplyChainBrain May 2019

Effective collaboration between independent entities is the key to unlocking the value of supply-chain processes.

The race to push I.T. applications to the cloud isn’t enough to improve collaboration within the supply chain. The shift away from on-premise apps is often sold with the promise of enhanced productivity. The reality is that cost savings are minuscule when compared to the value of synchronizing supply and demand.

I.T. requirements for collaboration are becoming more complicated, as companies come to understand the importance of supply-chain networks. The task requires a decentralized network protocol, not just point-to-point communications within a linear supply chain.

Most entities in a supply chain work asynchronously. They make a request and expect a rapid response. But there’s nearly always a built-in delay, while the request is examined for feasibility and profit potential. The lag time isn’t eliminated by the cloud because it’s not the fault of technology — it’s in the nature of people doing business with one another.

Say that a brand owner requests that its contract manufacturer supply 1,000 SKUs a week for 52 weeks. Did it provide adequate time for a response? And is the supplier’s commitment a correct interpretation of the request? Whether the response takes days, seconds or nanoseconds, it isn’t “real time.” It requires a buffer of communication, a permanent recording of the request, and a commitment to it.

Improvements in supply-chain synchronization can be implemented rapidly by respecting and mirroring the workflow. But I.T. strategies to promote the cloud, either by accident or design, have attempted to bypass the human communications protocol, and force the conversation into real-time cloud applications.

A bit of history: Before the rise of the internet, asynchronous collaboration was addressed through electronic data interchange networks. EDI supported the request-and-promise model well enough, but it was rigid, expensive, slow and generally deployed in a point-to-point manner. EDI communications protocols remain the basis of many supply-chain purchasing networks today, although they run much faster over the internet. Yet they still aren’t deployed via a decentralized network protocol.

In response to I.T. departments’ cheerleading in favor of cloud-based applications, operations staff might appear to cooperate, even as they create workarounds such as e-mail, phone and other means of supporting the request-and-promise workflow. This leads to even more waste, as management has to build and support two systems. It’s time to eliminate this redundancy.

Another disturbing trend of late is when the same I.T. forces driving cloud migration pile on extensive big data, artificial intelligence and machine-learning algorithms, with the intention of solving a problem that was created by a lack of human interaction. Only when request-and-promise communications are enforced by the system can A.I. and machine learning be of value to the process.

We’ve seen this trend play out in recent years, where supply-chain I.T. vendors pushed for cloud applications to support visibility. They promised that if you could capture big data via internet of things (IoT) sensors and cloud applications, something of value would be achieved.

What they didn’t tell you was that control towers and other visibility solutions require that you supply the messaging infrastructure — and that’s the hard part. Moreover, centralized supply-chain planning solutions might push connected planning, but fail to mention that the only kind of connection they provide is real-time, online, top-down, synchronous communication of a centralized database transaction.

Blockchain offers a way to support advanced collaboration, through the unique packaging of technologies that have been with us for some time, including encryption, P2P network communication, decentralized databases, and application development. Think of blockchain as a workflow engine for supply chain.

The benefits of blockchain as an architecture to support extended and loosely coupled workflows between applications and humans constitutes a breakthrough. Supply chains can achieve simple but high-value wins just by applying blockchain to communication. And when applications are built to live and execute within a decentralized network, the potential value scales exponentially.

There’s an immediate need for improved synchronization of supply-chain networks through collaboration. Yet the results of many initiatives have grown worse, due to the trend of synchronous cloud applications and, on a more basic level, a misunderstanding of the cloud.

We suggest moving rapidly to decentralized blockchain communication in your supply-chain communications. We also recommend planning for even more exciting decentralized network applications that will live in this blockchain network. 

What you’ll find in your journey is that the majority of value can be created through cycle-time reductions in these loosely coupled request-and-promise workflows. We believe you’ll derive far more value from this approach, instead of treating supply-chain solutions as synchronous modal applications, like an ERP order-entry system.

The resulting reduction of working capital buffers and growth of top-line sales have the potential for massive financial benefits, both in scale and efficiency. As for blockchain, it isn’t a perfect technology. But it can be an incredible enabler in eliminating waste, improving lives, generating ROI for shareholders, and supporting innovative business models.

Jon Kirkegaard is president and CEO of DCRA Inc. and DCRA Technologies, a specialist in decentralized S&OP software and supply-chain execution data management.

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