Navigating the complex world of supply chains with blockchain

 Michael Zargham, founder and CEO of BlockScience, gives his presentation during the New York Supply Chain Meetup group's discussion on “Decentralized Systems & Supply Chains.”

Michael Zargham, founder and CEO of BlockScience, gives his presentation during the New York Supply Chain Meetup group's discussion on “Decentralized Systems & Supply Chains.”

Supply chains are such a complex enterprise, that it’s nearly impossible to solve any one problem without it impacting another part of the chain. That was one of the main points that Michael Zargham, founder and CEO of BlockScience, told about 150 members of the New York Supply Chain Meetup group during a discussion last month in New York City entitled, “Decentralized Systems & Supply Chains.”

To illustrate his point, Zargham noted the supply chain of an automobile. The finished car is pulling components from numerous supply chains, for items such as electronics, steel, oil, seats, etc. “At some level, they cross-constrain each other,” he said. “Ultimately, you’re not solving a local problem, you’re solving a global one.

“The problem for me as an entity [within the supply chain] … is fundamentally limited by the information,” Zargham added.

The introduction of blockchain to the supply chain is a significant step towards bringing these disparate systems and information into agreement. “In the blockchain world, our consensus algorithms provide a solution that is Byzantine robust,” Zargham said. “The bridge into blockchain is that the blockchain allows us [to approve prior data/events].”

This is done through the distributed ledger technology – allowing ledgers to only update when the transactions are approved by the appropriate participants.

Ultimately, the key is agreement, Zargham noted. “If we have the record and agree on the priors, then we can move forward [with the next transaction],” he explains. “We can use blockchain to agree on a state and then we can do a local computation.”

That will help solve those local problems, but everyone will have access to that solution, making the overall chain more effective. “Blockchain allows us to agree on the current state of things … so we can get better models,” Zargham said, adding that blockchain’s effectiveness in the supply chain will likely fall in three areas: finance, logistics and for chain of custody applications.

In response to questions following his presentation, Zargham suggested not looking at the big blockchain picture. “It’s probably not useful to talk about the whole blockchain,” he said. “I think we’re talking about specific networks, likely permissioned, to run the supply chain.

“I think in the blockchain hype, it’s easy to forget that when it is actually operating, it’s facilitating things and we won’t be talking about [blockchain],” Zargham added, comparing it to current operating systems that in essence, just work without the need to discuss how they work or even what system it is that is doing the work.

Following Zargham’s keynote address, a group of panelists discussed blockchain in a free-flowing discussion. Representing different backgrounds, each panelist talked about their vision of blockchain within their operations.

“What’s really fascinating to me about the promise of blockchain … is the shared ledger of tracking products through the supply chain,” said Rob Bailey, CEO and co-founder of MState, a growth lab for enterprise blockchain companies. He mentioned that within the cold chain, temperature of product can be monitored as it moves through the supply chain and a shared ledger can assist everyone in ensuring that product maintained the correct temperature throughout.

Later in the discussion, he pointed out that it’s important for the larger companies to be involved in pushing blockchain. “I don’t think blockchain will be successful without big companies like SAP, UPS and L’Oreal,” he said, before noting that startups will play a critical role in this.

“I think some of the startups are being agile and have some of the ideas, but they need the big companies [to leverage their networks],” explained Kange Kaneene, director of business development for SAP Ariba, which provides cloud-based solutions.

Mahesh Sahasranaman, principal architect, Supply Chain Solutions at UPS, agreed. “You need the startups with the ideas that can provide [the innovation] to solve use cases,” he said.

UPS and SAP are both members of the Blockchain in Transport Alliance, which is a collection of companies involved in the movement of freight working toward creating common standards and providing education on blockchain.

Sahasranaman noted that UPS views risk management as a potential avenue for blockchain, in addition to the more traditionally thought of supply chain applications. “We do have a risk management [division] where we provide insurance for maritime parcels that move on ships,” he said. “We want to utilize blockchain to facilitate” writing and enforcing policies.

All the panelists agreed that within 5 years, an enterprise blockchain solution will reach critical mass in the supply chain. A few, such as Bailey and Kaneen, believe it will be within 18 months. Sahasranaman predicts 2021 or 2022, while Natalie Stanetsky, manager of IT application security at L’Oreal and co-organizer of the group Women in Blockchain, says it will happen, but there are still limitations.

“From a blockchain perspective, we need to be aware of the limitations [of the supply chain],” she said. “Fortunately, there are companies working on those limitations and I think within five years, many will be solved [and blockchain can take off].”

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