It was recently estimated by the Ministry of Economy, Trade and Industry that Blockchain has an impact on the Japanese economy of 67 trillion yen and about half of them are said to be on the supply chain management area(SCM area) *1. This article explains why it’s significant to apply Blockchain on SCM area.
One of the ultimate challenges in the supply chain industry is the “supply and demand optimization”. The most ideal way for a supply chain company is to meet as much demand as needed, however in reality, demand is unpredictable for the most of the time, and even if the company is able to read demand, it is difficult to convey the information to the upstream of the supply chain. As a result, companies are forced to plan with limited information that in turn causes overstock or shortage. As a technological element to tackle this challenge, Blockchain has gained attention.
Earlier it was quite common to process internal information in the company ERP system and exchange information with external players outside the company using one-to-one data exchange by e-mail/phone/EDI etc. As a result, many companies were overwhelmed with a large amount of paper, excel files, and complexity of EDI. On the other hand, date sharing, not data exchanging, is becoming a trend. By sharing data outside of the ERP and all players making decisions based on the shared information, the supply chain is trying to solve the problem.
In fact, there are some cases where Blockchain is used to optimize supply and demand among supply chain companies, mainly used by major manufactures and large trading companies. In these cases, the company ERP system acts as the primary and Blockchain is used as a bypass only to exchange minimum information among companies. It is however possible to use existing cloud technology alone to share data outside of ERP system. However, in order for all players to make decisions on the shared information, the information has to be accurate and it has to be able to limit the contents and scope of information to be shared. That is where tamper resistance and transparency of Blockchain and the various concealment technologies that are being applied to private Blockchain can be utilized fully. In addition to concealment technology, there is an instigation to apply the theory of cryptography, such as zero knowledge proof, to block chain*2. Applying this theory to Blockchain, each participant can share only output information without revealing any input information. Specifically, supplier is able to introduce information to the Blockchain while concealing sensitive information such as production capacity, lead time and inventory. Based on such information, for example, the optimal order quantity for the entire supply chain can be calculated, and it is possible to share only the result among all participating companies.
In future, it is possible that data will be output to Blockchain networks much more and various decisions will be made there. Demand information, ordering information, inventory input/output information and contract information etc, will go into Blockchain networks across companies and the automatic and autonomous contract execution will be done there, and settlement will be done with virtual currency. Hence, Blockchain may become more than just a sharing data device but a platform to support corporate activities. In the future, each company may receive data from the Blockchain networks and flow to its own accounting/corporate management system. Blockchain can be used as primary followed by ERP system as sub. Walmart has asked its vegetable suppliers to join Blockchain system by September 2019*3. Such measures are expected to increase, and it may be possible that trading cannot be done without participating in the Blockchain network.