How will blockchains impact supply chains ?

An article in the Wall Street Journal titled “Toyota Unit Joins R3 Blockchain group” (June 23, 2016) describes Toyota’s plan for use of blockchain, an online distributed ledger technology, for non-monetary transactions. The article claims that blockchains can track auto parts across the supply chain, and, potentially, connect with customer smart phones or vehicle sensors.  The potential to react to disruptions either on the supply side or demand side through automatic signal updates suggests potential value across the supply chain. How should supply chain entities, from Tier 4 suppliers up to the OEM, plan their adoption of this technology ? Will independent platforms, such as R3, set the ledger standards, or will the final solution be a multitude of possible formats for distributed data tracking ? How will the benefits from such solutions be distributed across the supply chain so that participating entities realize a portion of the savings across the system ?

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15 Responses to How will blockchains impact supply chains ?

  1. Gautam Hardikar says:

    Thank you Prof. Aiyer for this post. With the tremendous power of Block chain capabilities, its usage beyond the traditional financial sector is highly a surprise. Supply chains can leverage these capabilities by establishing digital or smart contracts with other entities in the value chain there by significantly driving down the costs created by the intermediaries. However, the legal, operational and regulatory obligations need to be considered and developed before such contracts come into picture. Imagine mobile phone companies continuously shopping for best deals from network providers and latch on to the best available contract for the consumer instead of being continuously tagged to one provider.

  2. Brian says:

    I think the key to the future of blockchain is understanding that it will not be one size fits all. Your question above asks whether there will be a standard or a multitude of systems and I think we can look to the history of multiple industries to see that there simply won’t be just one. Mobile technology, the IOT, Apple v Android, etc all say that while there may be common systems underlying all these platforms each one eventually creates a functionality all its own that is suited to a specific industry, product, or demand. Blockchain could be different for different industries. Additionally, the regulatory framework for this will be critical to get right. Companies won’t want to share information or have proprietary information at risk in an environment where info is automatically shared within a platform. I think many would view that as a too much loss of control and would want to determine ways to keep the whole chain in house.

  3. Shibashish Sen says:

    I think it is a disruptive move and several other auto makers are soon to follow suite. Data is the next big thing, especially in this decade. There has been a lot of hullaballoo with Cryptocurrencies and DLT since 2013 and it is only a matter of time that Block Chain becomes a part and parcel of Distribution and commerce. I personally feel that Supply chain will be benefitted immensely by the introduction of Blockchain. It helps us move away from the Traditional Supplier-Retailer relationship where one had no idea what the other was doing, to a more integrated environment where each step of manufacturing can be tracked till the product is delivered to the customer. Each component of a Supply chain is its own entity and data sharing between these industries is cumbersome. I saw it firsthand during our tour of the Subaru plant during Week 1 residency that Automotive Supply chain is no different. With companies like Tesla, BMW, Aston-Martin already researching the smart car concept, Blockchain would be the go-to model to design/maintain such intricate system of data share in the future. What works is that DLT allows all parties associated with the product to keep detailed record of its Lifecyle and whereabouts. It is too early right now to say whether R3 will set the ledger standard here, but given that the step is already taken, other companies are bound to take notice and follow suite. When Satya Nadella said when he took over Microsoft in 2014,” We’re going to focus on cloud first, mobile first, that’s what the world is about”, the foundation had been laid for Blockchain technology to be a full-blown part of the industry. One thing’s for sure, DLT is here to stay.

  4. James Berki says:

    The potential of block chain and distributed ledger technology is monumental. To electronically track auto parts across the supply chain will remove an extraordinary amount of costs from the system and ultimately consumers will benefit. However, given that this technology is in its infancy, and large corporations such as Microsoft and IBM are just now developing products, there is currently no “one size fits all” solution. Companies will need to mold this new technology to cater to their exact needs. Consumer regulations need to be solidified as the government has not established any significant guidance. This guidance needs to be established for mass adoption to take place. This technology will significantly reduce costs, however further clarity is needed to determine if R3 or another ledger will be the most versatile.

  5. Brian Cronin says:

    The use of blockchain in a production line seems like a natural fit. The idea that you can track the parts and make the production process seems like a good use of this technology, especially for the just in time manufacturing model. I can see that the major supplier and the manufacturers would have access to the same data. In this case the orders, production plan and the suppliers could all be on the same page throughout the process. I can also see that it would be valuable to the ordering/supply process. I would look for a way to create incentives for the supplier where they could anticipate the parts needed and then push them to the factories without being prompted by the manufacturer. On the other hand, if done correctly, the manufacturer could anticipate what is needed and pull the parts from the supplier. Accuracy and supplier anticipation of parts needed are the two keys here. If those can be solved through this process, it is possible to streamline processes and create incentives for the parts provider to do more of the work on behalf of the manufacture. I do see this technology expanding into other non financial areas. This is a great example of how it can be used more broadly.

  6. Emerson Bersaghi says:

    The idea of tracking all parts that go into a vehicle can bring many benefits in the future, as long a cost effective solution is available. It can easily locate parts of a batch that was later one indicated as defective. It could help finding the vehicles that must go through a recall. It could provide insights on customer habits and new opportunities for designing new products or improving existing ones.

    The whole supply chain could share the data and benefit them all.

    At some point, the industry will define the standard as it always happened. However, if the government things he can also benefit from it or finds potential harm issues or unfair competition, he may intervene and dictate the regulation.

  7. Rachel Austin says:

    I’m quite surprised there isn’t something like blockchain already in existence. I agree with above comments in that since this is a new idea, there will be likely a high up-front cost to ensure the roll-out among the target market gets it right and that there likely won’t be a one-size fits all. If R3 has a similar platform to SalesForce in allowing customization per client, they might see some success that way. It seems like it would be a large implementation process for anyone involved but worth the time and cost in the long-run.

  8. Chris Salkeld says:

    Blockchain will become the standard once the high cost of the new technology settles down. The ability to track the parts electronically would increase company success. This type of technology could be used throughout other parts of the business as well. It is definitely worth the effort and the cost to get this developed and underway.

  9. Kyle Hummel says:

    Being the creator of Lean manufacturing, this addition of blockchain concept to more closely track parts is a natural fit for Toyota. However tracking the parts is one thing, its knowing when and how many to order to keep their just in time manufacturing in line without hiccups. That is where the real advantage for Toyota will be. The number of people working at these large automakers that are in charge of understanding how many parts are where they are located in the supply chain is staggering. And trust me they do not have a fun job. One person can be in charge of dozens of different part numbers, and they are intimately familiar with the supply chain of those parts. But, literally every single time a person goes on vacation or is out sick, something goes wrong. Every single time. So, being able to use technology to track parts more accurately will significantly reduce the number of premium freight shipments due to errors. Also, once employed at the suppliers, it will help suppliers understand what their customers need, and when, and give a faster heads up when things go wrong and the plan needs to change.

  10. Kavita says:

    Automobiles companies like Toyota will greatly benefit from the implementation of the blockchain. With blockchain, all partners would post their transactions into one central repository. This centralized data storage can drive trending, forecasting and understanding the supply chain network at a precise level. The biggest advantage of the implementation of blockchain and having a centralized repository system, is having full visibility into the movement of the product, individual parts across the entire supply chain. This will greatly enable suppliers and producers to anticipate demand (through precise forecasting) and track products/parts during recall.

  11. kevin boodhoo says:

    RIght now the use of blockchain needs to be studied further as it is still in its infancy, and more still a buzz word in the industry, just like the term “cloud” was a few years ago. RIght now as companies learn how to incorporate this concept into there operations, it seems it will be a individual platform, as we do not understand its benefits fully, but eventually, as you asked, the final solution be a multitude of possible formats for distributed data tracking. There is a lot of potential in using this to improve various tasks in the supply chain, as mentioned from tracking parts, to matching supply and demand, removing human error from the equation. But as mentioned there is a lot of work, studying and development, in addition to legal and regulatory decisions to be made for this to be fully adopted.

  12. Ben Hooley says:

    I would agree with the majority of everyone else that this will need to be a gradual introduction and the first instances of the technology will be on independent platforms. It is possible however, that the future will see a standard platform as tends to happen. This is pretty incredible technology with an incredible amount of data. Being able to truly process and make decisions based upon all of the encrypted information that is being collected (potentially around the globe) will require AI or machine learning developments that go hand-in-hand with the platform introduction.

  13. Brandon Thesing says:

    Big Data and the ability to have real time information will continue to change and evolve multiple industries. As with any disruptive technology it will take time to set standards, reduce the cost, and apply across all SOP and protocols. Real time information and decision making allows industries and companies to make more efficient and profitable decisions. But as with any new piece of data, information or technology how will this regulated, monitored and measured? There is already a fear of “big brother” and how much information large scale companies have of people and sharing that information… How about real time tracking? Will all consumers want to share that data?

  14. claudia morato guimaraes says:

    I consider blockchains as technology in development with the potential to disrupt the supply chain. Although the article is from 4 years ago, we haven’t seen a lot of progress especially now in a moment with instability in the global supply chain in many segments.

  15. Diane Vojtas says:

    The real time transparency across the supply chain will allow all firms within the system to refine ordering, reduce inventories, and decrease supply chain disruptions when they occur, which will result in lower expenses and holding costs for all involved. I believe that whichever competitor is able to capitalize on the Blockchain concept the fastest will be the firm that sets the standard, but like any other market, there will always be other competitors trying to operationalize the Blockchain concept in a bigger, better, faster way. As companies begin to launch their versions of Blockchain there will be collaboration across the companies to move the concept into new and different areas.

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