What if you could document and preserve all the data associated with a product’s life cycle from the origin of the raw materials to the final sale of the finished good as it travels along the supply chain, with 100% certainty?
That could be a reality in the not too distant future, thanks to a fast-growing technology we’ve written about several times here before, called “blockchain.” We thought today we’d take you through a few of the basics of this important new technology, which you’ll be hearing more about in the future.
Some of our source material here comes from APICS and APICS Magazine (Mar/Arp 2017 issue, and others), and other publications. APICS is an organization devoted to improving the skills of supply chain professionals everywhere through teaching and training in principles of supply chain excellence. We are a long-time supporter of the organization and its efforts, and recommend their programs often to our clients. As disclaimer, we are in no way affiliated with APICS other than as longstanding members, benefiting over the years from their training programs, most notably the CPIM (Certified in Production and Inventory Management) certification program. PSSI also holds multiple “Company of the Year” award designations from our local chapter. Learn more about the local chapter here.
Blockchain is basically a ledger system built on a peer-to-peer network (think: database) used to record and track transactions on computers. The first blockchain was developed by Satoshi Nakamoto in 2008 and was implemented in 2009 as a ledger for a new kind of currency called “bitcoin.”
One of block chain’s appealing characteristics is that it does not require a “central authority” or a trusted third party, such as a bank. Instead, a blockchain relies on three components: a transaction, a record of that transaction, and a system that verifies and stores the record. Once stored, it is said to be difficult (though as the remedy to a recent Ethereum blockchain hack has demonstrated, not necessarily impossible) to delete.
According to an APICS Magazine article by Dr. Richard Crandall of Appalachian State University (referencing an article in The Economist in 2015), blockchain has “… a mixture of mechanical subtlety and computational brute force built into its ‘consensus mechanism,’ the process by which the parties involved agree on how to update the blockchain to reflect the transfer of [records or] bitcoins from one person to another.”
When someone wants to add to a blockchain, the other participants run an algorithm to evaluate and verify the proposed transaction. If approved (a process too complex to describe here), the new transaction is added to the blockchain. Or, in the case of the bitcoin currency, a new coin is added.
Marc Andreessen, a highly successful venture capitalist and inventor of the first popular web browser, Mosaic, describes the importance: “The practical consequence is that for the first time… one internet user can transfer a unique piece of digital property to another [that] is guaranteed safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.”
Ultimately, say blockchain advocates, if chains can be used to transfer and track bitcoins, companies can use blockchains as public ledgers to track product attributes including ingredients and history of production.
And that will usher in the next generation of supply chain innovation. We’ll take a look at some of the implication of blockchains on supply chains in our concluding post next. Stay tuned…