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Eamon Barrett

How Blockchain could make supply chains more efficient

(Credit: Nitat Termmee for Getty Images)

I’ve reported on supply chains numerous times over the years. And each time I learn more about how vast, tangled, and fragile every web of sourcing is, I'm most surprised how little oversight most companies hold over their own supply lines.

Retailers often only know the names and contacts of their most direct suppliers—the first out of four tiers—leaving three levels of operation uncharted. However, recent regulation and crises—the "chip shortage," the U.S. ban on Xinjiang cotton, and the crackdown on Scope 3 emissions, to name a few—are compelling more industries to finally map supply chains from start to finish.

“The ‘Don't Ask, Don't Tell’ era of supply-chain management is over and companies now realize it's going to be safer for them to understand their supply chain than to willfully not understand it,” says Paul Brody, EY’s global blockchain leader.

Brody believes blockchain—the "distributed ledger" technology that underpins cryptocurrencies like Bitcoin—is poised to deliver even greater gains to companies now mapping their supply chains by eliminating some of the pain points of traditional tracking options.

Traditional supplier maps, Brody says, “silo” information off at different junctures in the supply chain. As a raw material like cotton, for example, moves from the farm to the mill, information on the cotton needs to be entered into the mill’s database and deleted from the farm’s database. Although the two data points should, in theory, match, the information is not literally transferred; it is re-created in a new silo.

With blockchain, data can be stored as a “token” on the ledger, with each token corresponding to a particular product or item, down to the screws. Those data packets are then moved down the chain alongside the item—a digital token tracking the progress of a physical item and documenting the entirety of its provenance.

“The result of that is a much more accurate picture of where stuff is [in your supply lines] and the consequence of [that] is that you need less stuff, right?” Brody says, arguing that blockchain will make for more efficient inventory keeping, reducing company overheads, and minimizing the chance of flawed data entry.

The granularity of blockchain could even help smartphone manufacturers pinpoint which finished units are compromised by a bad batch of semiconductors, for example, minimizing wasted expense on recalls.

However, Brody admits that same level of granularity can be achieved with traditional “off-chain” systems, although he contends that blockchain would provide a more comprehensive and seamless supply map.

Blockchain also would not completely eliminate the potential for human error at the data entry level, or for willful fraud, whereby a supplier forges documentation on the ethical sourcing of its materials.

“I think in the world of blockchain, there's a lot of people who are sort of under this misapprehension that you can get rid of trust or the need to trust people,” Brody says. “You're always going to need to trust some independent third parties [such as auditors].”

A lack of trust seems to be the main sticking point hindering the adoption of extensive supply chain maps, either on- or off-chain. Low-tier suppliers are often reluctant to share sensitive company information on a datastream owned and operated by a distant, indirect customer. Making matters worse, Brody says the “privacy design of almost all blockchains…is very poor.”

But Brody and his team are working on a way to overcome that obstacle and embed more privacy into blockchain maps. He’s confident that, when that’s done, blockchain will have the power to provide smoother, more visible, and more accountable supply-chain solutions.

Eamon Barrett

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