Building supply management with blockchain

New technology mitigates some logistical risks while adding a few others
By Maxwell Sissman and Kashni Sharma

T
Traditional supply chain management supports the and purchase products and services with increased efficiency
ability to deliver goods to consumers. Supply chains and a reduction in fraud.
are as important to customers as the product itself. This, in turn, means that consumers and investors can have
However, customers are not always provided faith in the goods and services they purchase. This practice
a clear view of the entire supply chain for goods. also provides both parties assurance in knowing that their
To remediate this issue, technology in the form of goods were produced in accordance with the standards and
blockchains can be used to tie the history of a product through quality desired.
its associated supply chain.
The idea of using blockchain as a tool for supply chain has Back to basics
recently become more prevalent given the publicity of cryp- Before discussing integration of blockchain into supply chain
tocurrencies like bitcoin. Integrating blockchain into supply management, it may be helpful to explain exactly what supply
chain management allows organizations to develop, produce chain management should be at its core – a process to maxi-

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Building supply management with blockchain

mize customer value by streamlining business activities. This We have worked to outline several of the benefits of block-
form of management works to develop efficiencies within the chain and how it is the ideal resource to mitigate supply chain
marketplace by centrally controlling production, shipment risks in Figure 1. It is also beneficial to note that blockchains
and distribution of a product or service. This allows for trans- are highly scalable given the vast access to the technology. We
parency across all levels of a product or service for a producer believe that using blockchains as a form of supply chain man-
and supplier. Supply chains are made up of a network of in- agement allows consumers to integrate better with their sup-
dividuals, organizations, technology, resources and activities pliers.
that spread from the initial creation of a product to delivery. Maintainability across products: Supply chain man-
Blockchains are a secure digital ledger that records crypto- agement provides a supposedly seamless flow between a raw
currency transactions in a series of blocks. An individual block product and a produced good. However, if the demand for any
maintains a timestamp to record the transaction, known as a product in the chain from raw product to finished product,
cryptographic hash. To process these cryptographic hashes, a including the intermediary goods, increases, then this has a
network of computers works to solve computationally difficult direct effect on the good. This creates a risk related to sup-
puzzles, and the first participant to solve the problem gets to ply chain volatility. By using blockchains, companies gain an
add their hash to the blockchain and claim credit, or mine awareness of both the production levels of the goods being
cryptocurrency, for processing. Through this process of min- procured as well as the ability to look at subtier suppliers to
ing, the collection of timestamped blocks is added together to avoid potential instability within the market.
form the blockchain. Real-time updates to production: If a company chang-
These blocks are maintained across several computers or es the supplier of a product, a consumer is not necessarily
nodes. Although several timestamps and transactions occur on notified of this change. This issue also arises if the product
a block, the information cannot be altered or removed after it manufacturer goes out of business. This could have an impact
has been added to the blockchain, nor can entries be forged. on the price and/or quality of the product. Using blockchains
This allows for a level of transparency and permanency in provides greater insight to consumers, as they can view the
terms of an information trail. live digital ledger that provides updates to a product’s suppliers,
manufacturers and consumers.
Blockchain beyond the money Awareness of practices: Ideology often influences con-
Although cryptocurrencies are the most common application, sumers’ purchasing habits. These ideologies include stances
the public and secure digital ledger can be applied to things such as preferring domestic goods, sustainable manufacturing,
beyond money. organic food (along with humanely produced food and/or
For instance, if the blockchain records the raw materials in- non-GMO) and other such preferences. These ideologies can
put into production process-
es, thus associating processed FIGURE 1
goods to the raw materials
used to create them, then,
in addition to the financial A solution to your problems
transactions, the materials Blockchains offer a number of benefits that can alleviate some of the risks inherent to supply chain
or goods purchased from a management.
vendor could be accurately
tracked and maintained. This
would allow for detailed in-
formation about a good that
creates a product to be re-
corded from vendor to ven-
dor throughout the supply
chain process. Further, this
would mean that any defects
caught later in the supply
chain could be traced back to
where the defect occurred.
Supply chain, just like
many different management
processes, has inherent risks.

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 FIGURE 2

be marketed to consumers
as products that are labeled Is the blockchain gauntlet worth running?
“Made in America,” GMO- Applying blockchain technology to your supply chain management does carry some risks that
free, organic, conflict-free, must be mitigated.
“Fair Trade,” etc. These at-
tributes are attained through
aspects of the supply chain
that support these desires.
However, companies reap
the benefits from consum-
ers purchasing these types
of goods only if they are la-
beled or marketed as such.
Using blockchain’s publicly
distributed ledger, consum-
ers would be provided with
a clear and verifiable way to
identify goods and services
that meet their demands and
desires. personally identifiable information, protected health informa-
Investment transparency: Investors of a company look tion or classified information. The permanency of the ledger
to generate a profit as well as ensure the company is in line makes it difficult to cleanse any data spillage.
with the beliefs of the investor. Like consumers’ awareness of Network size and standardization: Blockchain is sub-
company practices, blockchain management could provide ject to network effects given that it yields strength in numbers.
transparency in a company and its efforts related to promoting If one organization uses it, there is limited utility. However,
sustainability, relationship with goods that have negative social as it becomes utilized throughout different markets and inte-
views (i.e. – tobacco), awareness of involvement in weapons grated into supply chain, there is added value and increased
production and involvement in fossil fuels, among other goals. levels of data provided to all involved. This would require
Inventory management: Supply chain management pro- implementing further standards and documentation of its use.
motes inventory management as a part of its process. However, The 51 percent problem: With blockchains, one concern
there are limitations in that it only provides insight into the is that an organization that controls 51 percent or more of the
number of units purchased or available for purchase. By being computing power for generating new blocks gains the ability
able to trace up the supply chain, consumers further down are to decide what is or is not true. This opens the organization
able to see if raw material stops entering the supply chain and up to an increased level of risk and security concern, given
anticipant a future loss of supply. that anyone who gains the ability to alter blocks can attack the
This is not to say that blockchains are without risks. Several blockchain.
of these are outlined in Figure 2 and discussed below.
Supply chain transparency: A major flaw in the block- Real-world experience
chain is that although it provides transparency for the custom- With increasing advances in technology, it is imperative that
er, it also does so for a company’s competitors. This level of organizations stay abreast of expertise that could help them
transparency makes it more difficult to stay competitive given gain a competitive advantage over their opponents. By inte-
how much of your enterprise’s information is available to your grating blockchains into supply chain management, compa-
company’s competitors. This transparency allows the compe- nies can increase their quality, efficiency and consumer satis-
tition to see vendors being used by a company and take mea- faction in a competitive market. Industry leaders already have
sures to damage or sever the relationship between the com- begun taking note of this and are finding ways to implement
pany and vendor. Additionally, it makes it easier for companies blockchain as a part of their supply chain management.
to enable disintermediation by learning about second- and To demonstrate the utility of blockchain, we can examine
third-tier suppliers and removing middleman companies. public and private sector examples in the real world.
Permanent ledger: If an organization involved with the In the private sector, IBM has begun selling blockchain for
blockchain advertently or inadvertently adds illicit data on the supply chain as a service for industries across the world. To
blockchain, there is no way right now to remove that data. Il- further expand this service, Maersk, the world’s largest con-
licit data could take many forms, including, but not limited to, tainer shipping company, has partnered with IBM to create a

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Building supply management with blockchain

shipping blockchain by developing a shared record of

transactions to allow shipping companies to save money Make my gems
while maintaining a competitive edge. violence-free, please
Similar to IBM, and definitely one of the world’s largest
public organizations, the U.S. government has also worked to Blockchain technology might one day ensure that your wedding
integrate supply chain into its process. The U.S. government ring doesn’t contain a blood diamond, which refers to gems
is supposed to abide by the United States Code (USC) and, mined in war zones to finance violence.
therefore, has steps it can take to help ensure security of supply Reuters news service reported that Anglo American’s De
through priority rating. Furthermore, the Defense Priorities Beers had tracked 100 high-value diamonds from miner to
and Allocations System Program (DPAS), part of the Defense retailer using blockchain, the first effort of its kind to clear the
Production Act of 1950, supports multiple agencies. The U.S. supply chain of imposters and conflict minerals.
Department of Commerce states that this program, “is used to De Beers is the world’s biggest diamond producer by
prioritize national defense-related contracts/orders through-
value. According to Reuters, the company has led industry
out the U.S. supply chain in order to support military, energy,
efforts to verify the authenticity of diamonds. Five diamond
homeland security, emergency preparedness and critical infra-
manufacturers worked with De Beers to develop the blockchain
structure requirements. The DPAS can also be used to provide
military or critical infrastructure assistance to foreign nations.” platform: Diacore, Diarough, KGK Group, Rosy Blue NV and
Furthermore, according to the Defense Contract Manage- Venus Jewel. The platform, called Tracr, will be launched and
ment Agency (DCMA), “all prime contracts, subcontracts or made available to the rest of the industry at the end of the year,
purchase orders in support of an authorized program are given according to De Beers.
a priority rating.” This supports the notion that the DPAS rat-
ing of a program is applied not only to the prime contractor more popular, businesses have and will continue to merge
but also down the supply chain, including suppliers several the two theories of business together to form a more efficient
transactions removed from the government. While this can form of processing. Blockchain provides an increased level of
be viewed as a burden on contractors, it is also a benefit in that transparency across the production of goods in supply chain
each customer in an emergency can help ensure their ability to management.
get access to needed resources. Of course, blockchain is not the answer to all our manu-
In situations where the U.S. government loses access to de- facturing, production and financial issues. There are risk con-
sired goods, it works with the contractors that provide those cerns associated with utilizing blockchain. We would argue
goods to maintain the ability to supply said desired goods. that, at this time, the benefits outweigh the risks. So much so
Coordinating with the U.S. Department of Commerce, the that, as previously discussed, innovators such as IBM and the
U.S. government can step in and enact a Priority Allocation of U.S. government have begun integrating blockchain into sup-
Industrial Resources (PAIR) to ensure that the needed parts ply chain management. Given that such large businesses have
are procured to maintain supply and keep production going. seen success in their improved processes, it is only a matter
In the current state of affairs, companies may not even of time before the next level of technology and management
know that they are supplying products that make their way merge and become a best practice across businesses globally. 
into goods used by the U.S. Department of Defense. In mov-
ing forward, however, blockchain transparency will give Maxwell Sissman is an associate at Boulevard Consulting Group in
lower-level suppliers insight about the demand for the goods Arlington, Virginia. The certified Six Sigma black belt consults with
they produce. This provides companies greater insight than the private sector and government clients. He holds a master’s degree
receiving a DPAS rating through the chain of a subcontractor in systems engineering from George Washington University and a
to prime contractor to governing agency, a chain that doesn’t bachelor’s degree in aerospace studies from Embry-Riddle Aeronauti-
emphasize how important a DPAS rating is and how it benefits cal University. Additionally, he is certified as a project management
companies throughout the supply chain. professional.
The Department of Defense has undergone a large-scale
consolidation of defense contractors to a handful of prime Kashni Sharma is an associate at Boulevard Consulting Group in Ar-
contractors. Now, blockchain transparency gives the Depart- lington, Virginia. She facilitates the daily execution of client delivery to
ment of Defense the ability to track goods and identify when an array of private sector and government clients. She has several years
mergers could result in the loss of a defense supplier. of project management experience and her research interests include pro-
cess improvement and risk management. Sharma graduated from the
Future chain of events University of Maryland with a bachelor’s degree in economics and a
As technology advances and the use of blockchain becomes master’s in applied economics.

46 ISE Magazine | www.iise.org/ISEmagazine

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