How the technology behind Bitcoin could bring transparency to supply chains
In the manufacture of practically all goods, a long series of steps is required to achieve the creation of the final product. Together, these steps form the supply chain.
To make the manufacturing process as efficient as possible, as well as ensuring complete transparency, it is important to have supply-chain traceability, i.e., to be able to trace the final product through the production process and back to the source of the raw materials. A lack of supply chain traceability to check ethical production, legal compliance, and product safety, can present a significant challenge.
Researchers at Cass Business School have considered how IT-based solutions might achieve this desired traceability. In particular, they looked at “blockchain technology,” which is used in cryptocurrencies such as Bitcoin. Blockchain can be thought of as a distributed database - a long record that is shared among all involved parties. This record is made of a series of blocks, which contain relevant information on every single step for each raw material, intermediate product, and final product, as they travel through the supply chain. The blockchain is created collaboratively, and is completely transparent. However, until now, it has proven difficult for companies to adopt blockchains to suit their traceability needs.
For the paper Blockchain for Supply Chain Traceability: Business Requirements and Critical Success Factors, the researchers reviewed existing literature on implementing blockchains for supply-chain traceability. They then identified what businesses could gain by implementing blockchains. The information in the blockchain could be used to curb illegal activities by providing transparency: activities such as child labour or adulteration of food and medicines, for example. Blockchain technology could also make operations more sustainable in terms of social and environmental issues and help parties demonstrate integrity through compliance. Moreover, blockchain could increase the efficiency of operations by giving visibility and eliminating errors. The supply chain as a whole could be enhanced through cooperation and information sharing.
The research also focused on identifying the critical factors that should be considered in blockchain implementations for traceability to be successful. Importantly, all parties must be technically and technologically capable of implementing the blockchain. They should also be willing to cooperate and align their goals. This implies that strong leadership is necessary to lead these changes. Stakeholders should mutually agree on certain practices to ensure appropriate data generation, and these practices should be in line with global and local regulations.
This study lays the foundation for future studies to analyse in depth the factors involved in blockchain technology. It concludes that the use of blockchain will create a more efficient supply-chain protocol across various manufacturing processes, benefiting a variety of industries.
The paper has been published in Production and Operations Management, Wiley. A draft version of the paper can be downloaded at SSRN.