Points of View

Providers must look to blockchain to fix the lack of supply chain transparency exposed by COVID-19

Apr 29, 2020 Sam Duncan

With employers scrambling to purchase IT equipment to facilitate remote working, households stockpiling toilet rolls, and manufacturers struggling to remain operational, global supply chains have never been under so much pressure. We all hope that normality will resume following the COVID-19 pandemic, but the possibility of another catastrophe will always loom, and enterprises realize that they must be better prepared. Blockchain could be a start in improving supply chain transparency. In fact, a logistics executive candidly explained to us:

 

“The COVID-19 outbreak could lead to more businesses demanding transparency in their supply chains, and blockchain could be a great place to start.”

 

Service providers must invest in and refine their blockchain-based solutions to win over enterprise clients looking to blockchain in the midst of COVID-19.

 

Supply chains worldwide are facing new challenges as manufacturers struggle to get vital components, leaving them unable to ship their end-products

 

If we look back to March 2011 at the earthquake and tsunami that hit Japan, it’s easy to see the impact a disaster can have on global supply chains. For example, Toyota suffered supply chain difficulties as it built almost half of its vehicles in Japan, where factories were forced to close. We see a similar impact following the outbreak of COVID-19; some examples include

 

  • Apple is struggling to get components from suppliers worldwide, causing a slowdown in its supply chain, although it still continues to function.
  • Ford closed its plants in North America and Europe due to the pandemic, and this, combined with reduced sales, is predicted to cause a $600 million loss in Q1.
  • Tesla was forced to install an inferior processor in its Model 3 cars in China due to supply chain issues following the outbreak.
  • Nintendo is struggling to meet the demand for the Nintendo Switch console, which is manufactured in China, as factories were forced to close.

 

This pandemic will lead to many enterprises rethinking their supply chains, much like Toyota forced suppliers to hold several months of inventory following the disaster in 2011; transparency looks to be the key.

 

End-to-end supply chain transparency isn’t the answer to every problem, but there are numerous benefits explaining why enterprises are exploring it

 

It’s important to remember that enabling an entirely transparent supply chain isn’t going to completely eradicate any problems—there will still be difficulties. However, there are countless benefits transparency can provide; for example, it can make it much easier for enterprises to ensure and demonstrate regulatory compliance, sustainability, or even the quality of their products - it can be a powerful marketing tool. In fact, at the recent EY blockchain summit, which was virtual of course, Rodrigo Santibanez, Director Key Account Relationships and Consumer Affairs, Merck, explained;

  

“In the consumer marketplace, transparency will become a license to operate, rather than a competitive advantage.”

 

Transparent supply chains would have been particularly useful throughout this pandemic, although it’s too late to implement now, it’s crucial that enterprises understand their importance. One of the biggest challenges facing businesses is that they are often unaware of disruption in their own supply chains, leaving them with little to no opportunity to prepare and adapt for any challenges. With increased transparency, it’s likely many businesses could have identified troubles much earlier, giving them valuable time to adapt and overcome where possible.

 

Blockchain has the potential to provide the transparency required —supply chains are already a leading application for blockchain technology

 

Blockchain initiatives are finally solving real-world business problems after years of hype and countless bullsh*t engagements left in laboratories where they belong. Exhibit 1 proves that there really is a wide range of areas appropriate for the technology, with supply chains leading the charge and comprising 19% of all engagements. It’s easy to see why blockchain could be such a good fit for supply chains; its decentralized nature brings with it many benefits that are well suited in the increasingly complex and opaque supply chain, one of the most prominent of which is transparency.

 

Exhibit 1: Supply chain has emerged as the hottest use-case for blockchain

 

 

 

Source: HFS Research, 2020
Sample: ~640 blockchain engagements across 12 service providers

 

 

Bottom Line: COVID-19 has exposed a lack of transparency in global supply chains. Blockchain is becoming an essential tool in a supply chain armory, and service providers must be prepared, or they might miss out on a substantial opportunity.

 

It’s inevitable that the current pandemic will lead to a complete transformation of many businesses, processes, and industries—and supply chain is no different. Enterprise leaders will already be thinking about how they prepare better for any future crisis, and introducing end-to-end supply chain transparency could be at the very top of their list. Service providers, advisors, consultants, and any other technology provider must continue investing in their blockchain capabilities, with a supply chain focus, as it is one area where the technology shows such promise.