There are huge benefits associated with being able to track an asset's provenance, or its existence, ownership, and control, from point of origin to final destination. Identifying and verifying when and where handovers occurred, as well as the condition of assets at each point in the chain of custody, is not only helpful for improving supply chain visibility but also for insurance purposes. This is especially true for high-value assets, such as diamonds, fine art, and wine, which are often subject to fraudulent activity. Shipping, insurance, and other companies, however, are currently struggling to validate, authenticate, and track assets of all kinds as they move along the global supply chain. The combination of two relatively new technologies—blockchain and the Internet of Things (IoT)—holds great potential for addressing this difficult problem.
What are blockchain and the IoT?While originally developed to deal with cryptographic transactions, a blockchain is essentially a constantly updating and incorruptible database that enables parties who might not trust each other or do not interact on a regular basis to have a shared perception of the truth. Because blockchain technology is cryptographically secure and stores data indefinitely, data is virtually tamper-proof, increasing transparency and accuracy. Blockchains are also automatically kept in sync in terms of record keeping, therefore removing the risk of human error. It is a validated and transparent database that cannot be altered by one party without the rest of the chain knowing. This aspect of the technology solves the problem of multiple parties holding "siloed" versions of the truth on their own systems, and it reduces the large number of processes required to reconcile those different versions before a party is able to act based on that truth.
In the supply chain, blockchain can bring together importers, exporters, insurers, credit-rating agencies, and logistics and supply chain service providers to achieve a single view of the financing of a shipment.1 It can also enable "smart contracts"—transactions and processes that are automatically executed when specified conditions are met—to achieve "straight-through processing" (STP), or an automated workflow.
The Internet of Things (IoT) is a network of connected "things," which can include people, objects, equipment, and devices. "Things" in this network are equipped with an assigned Internet protocol (IP) address so that they can transfer data over the Internet and communicate with other parties or devices within the network. For example, shipping containers could have sensors that are connected through the IoT to gauge factors like location, temperature, humidity, light, impact, door closed/open, and more. These sensors can be built-in or added to the container. In the same vein, conveyances such as trucks, rail, ships, and aircraft could be equipped with geographic positioning system (GPS) tracking devices that show the location of the vehicle. This information can be used to analyze in real time what routes make the most sense and when or where delays are likely to take place given current traffic or weather data.
The market intelligence firm IDC reported that in 2016, US$737 billion was invested globally in the IoT, and it projected that US$1.29 trillion would be spent on IoT by 2020. Similarly, Intel has projected that there will be 200 billion connected devices by 2020. With all signs pointing to an IoT-fueled future, it is important to understand how this can affect business processes. In particular, we need to understand how the IoT can work with other technologies, like blockchain, to bolster its power.
IoT and big data analysis have the potential to have a huge impact on supply chain tracking and asset provenance. Currently companies use milestone-tracking methods, which rely on the asset reaching certain checkpoints. As a result, there are gaps in visibility in between these check-points. IoT can help prove a full scope view of the end-to-end movement of assets.
Using blockchain + IoT for asset provenanceBlockchain's potential for transparency and accuracy paired with the power of IoT and data analytics could truly revolutionize asset provenance. Recent advances in sensor technologies have made them smaller and cheaper, and therefore more accessible. These sensors are able to process a plethora of data in real time. That data can be combined with data collected from GPS, telematics, and social media as well as weather and traffic reports to paint the full picture of each shipment's journey and help predict delays, diversions, damages, and estimated time of arrival.
Asset provenance is also one of the top early use cases for blockchain in the supply chain. The information collected and mined from sensors and other data streams could be fed into the blockchain for a shared view within the value chain. Recording the movement of goods on a shared blockchain would ensure that there are virtually no gaps in the handling of assets and enhance transparency and traceability for shippers, insurers, banks, logistics companies, and anyone else in the value chain. It would also ensure that the data is immutable and transparent, since the data cannot be changed or removed, and all parties along the value chain can see each data point. Furthermore by implementing smart contracts on the blockchain, insurers can act in (near) real time on the supply chain data provided by the IoT sensors.
As a result, many startups and incumbent parties are now exploring how these technologies can improve and simplify provenance for the supply chain. For example, startup Everledger is using blockchain to digitally store the provenance of diamonds. The company currently has over 1 million diamonds stored on its blockchain today. Everledger helps to minimize risks of fraud and assists with compliance with prohibitions against "conflict" diamonds and products by having the provenance on the entire value chain of each diamond. Earlier this year, Everledger was the first to secure provenance on wine using blockchain. Another startup, Provenance, helps companies provide better, more transparent information to customers by using blockchain to store the origins and histories of products in a digital format. The company's ultimate goal is to have an open, end-to-end traceability protocol that can track anything from coffee beans to high-value items.
The benefits of such systems are numerous. An IoT-blockchain system for asset provenance would significantly reduce risk for insurers and supply chain companies, as they would be as-sured of the authenticity of the goods that have been insured. Additionally, as sensors advance and are now able to measure characteristics such as shock, temperature, and humidity, companies could detect in real time any problems there might be with the shipment before it reaches its end destination. This would be especially beneficial for insuring certain high-value items. For exam-ple, sensors that measure shock could detect potential damage to electronics while en route. Other types of sensors could verify that pharmaceuticals or textiles have been kept at a certain temperature or humidity level during transit.
The automation via smart contracts and straight-through processing could remove the chance for human error. Companies could also see immense gains from using these technologies to analyze and improve their supply chain. For example, IoT technologies could be applied to monitor and improve logistics processes and to provide useful data for the entire supply chain network. Blockchain can then serve as a record of this data, offering shared visibility to all partners, rather than the supply chain organization having to deliver this information manually.
The future state of blockchain and IoTLooking to the future, many startups and companies will be leveraging blockchain and IoT technologies to create less risky, more transparent, and sustainable supply chains. However, as discussed in previous articles published by CSCMP's Supply Chain Quarterly, "Why block-chain is not just for banks" and "To predict the future of blockchain, look to the past," there are hurdles to be overcome before the global supply chain can fully act on blockchain. Next to the challenges described in these articles, there are other roadblocks pertaining to regulatory re-quirements, which may change as assets cross borders, as well as data privacy on a global scale. However, this should not stop companies from looking to these solutions as part of their future strategy. When blockchain and IoT are used together, they create synergies that will surely de-fine the supply chain of the future.
Notes:
1. For more information on blockchain's potential
uses in the supply chain, see Alexander van Tuyll van Serooskerken,
"Why blockchain is not just for banks," CSCMP's Supply
Chain Quarterly, Q2/2017.
