Supply Chain Operating Models

• Toshendra Kumar Sharma
• April 20, 2018

Blockchain technology emerged as a decentralized currency of the internet with a public ledger that held records of every transaction on the network. However, as adoption increased, people started coming up with more and more use cases for blockchains. Now, blockchain technology has found its use cases in several new industries like supply chain industry, management of intellectual property, the food industry, and several others. That is in large part because blockchains provide a new way to establish trust among the distinct organization. Therefore, their use cases go far beyond the realm of financial services. Here’s a look at how supply chains can be improved with blockchain technology.

What is a Supply Chain?

Supply chain management refers to the logistics and planning that go into the manufacturing of products on a large scale. Modern manufacturing techniques consist of dozens of steps from the acquiring of raw materials to the shipment of the final product. The entire process consists of cooperation between many different players and, therefore, is susceptible to many points of failure. A lot of the difficulty in managing supply chains comes from the fact that the various organizations involved do not want to share their data with others. IBM in a recent report about blockchains and supply chains claimed that with their private, permissioned blockchains these organizations would be able to share information in a trustless manner. For example, the fashion industry supply chain consists of these major steps:

• Artists visiting various fashion shows to finalize designs
• Acquiring and processing the raw fibers required for the product
• Shipping  these fibers from factories to designers to work on
• Finalizing and shipping the designs for large-scale production
• Production of products based on the provided specifications
• Shipping the final product as per requirement

Types of Operating Models

NCSU defines a Supply Chain Operating Model (SCOM) as a management tool used to address and communicate supply chain management decisions within a company and with suppliers and customers of a company. This model describes the business processes required to satisfy a customer’s demands. According to a recent report by McKinsey, a lot of companies get their SCOM wrong because they focus on the wrong things. McKinsey claims that well-run supply chain operations can drive innovation and reduce time to market. Consumer Packaged Goods (CPG) companies can leverage the use of well-run supply chains to stay competitive in the retail landscape and yield significant savings in their operations. But the troubles of designing an efficient supply chain system are compounded even more as companies expand globally. Companies have to make several decisions with regards to their operations like:

• Should the supply chain be organized primarily by product categories, functions, or regions?
• To what degree should each function be centralized?
• How much autonomy should independent contractors have?

These are complex questions that companies usually answer through trial and error or by seeing how their competitors function. But there may be better solutions which take a more structured approach to this problem.

The most successful supply chain operations in the world, like those run by Amazon and the Coca-Cola company, share some characteristics with each other’s operating principles. Blockchains can enable other operations to gain these advantages by sharing information in a more organized form. Already, supply chain operations are heavily relying on digital barcode scanners and other similar technology like RFID (Radio Frequency Identification) chips to maintain inventory. This is the foundation of the Internet of Things (IoT), which relies on interconnected devices which can communicate with one another. Blockchains provide a precious service which acts as a backbone to the IoT infrastructure – a trusted platform for data integrity. The transparency of blockchain based data storage makes it easy to identify and fix errors and also to share information along the entire chain. This makes it easier to anticipate, and plan for delays in the operations.

Blockchain startups like VeChain and Modum are already working on solutions that they can market to other businesses by integrating RFID chips and blockchain technology. For example, VeChain has in-house RFID chip manufacturing which connects to their private blockchain to log changes in location and weather conditions. Additionally, they help make sure that the shipment is secured at every checkpoint using smart contracts. This is unprecedented and adds a lot of value to these supply chain companies as they can now track several important metrics about their shipments.