Supply Chain Challenges During COVID-19: Blockchain Solutions

Before the start of the COVID-19 pandemic, companies were already exploring the promise of blockchain to modernize some aspects of their supply chains. Traditional supply chains can be inefficient, data-intensive and expensive, often characterized by burdensome paperwork, conflicting records, and delays resulting from manual reconciliation processes that involve a variety of multi-party transactions and document exchanges. Blockchain offers potentially substantial benefits in this context, including secure and verifiable validation of transactions, automated documentation to support legal and customs compliance, better quality control, greater end-to-end transparency (e.g. to verify sustainability or ethical sourcing standards), and overall improvements in efficiency and cost control. In fact, since news reports in 2018-19 that Walmart had successfully tested a blockchain platform for food traceability and accountability to track mangoes and other products through the supply chain, entities have looked seriously and invested in blockchain solutions. targeted at the supply chain. Indeed, Walmart has continued to invest and test blockchain solutions, having recently announced promising results in August of Walmart Canada’s use of blockchain technology to reduce inefficiencies and disputes over invoices for freight and trucking payments. .

Blockchain applications in the supply chain to date have largely been in the test or pilot phase, however, due to the complex set of considerations involved. As a preliminary step, companies looking to leverage blockchain solutions need to evaluate the potential applications and benefits of blockchain, the practicalities of transitioning from legacy systems, and the legal and operational issues associated with using blockchain. Before going live, participants in a private blockchain must first understand and be satisfied with how the blockchain will be implemented and administered, including, for example, which parties will be responsible for maintaining the blockchain, what data will be stored “on-chain” or “off-chain” to achieve the desired functionality without compromising the confidentiality of some proprietary data and how IT security and data source integrity issues will be handled. In many situations, a comprehensive written legal agreement between the various participants is required to ensure clear and solid governance and to address key legal issues. Furthermore, testing a blockchain solution in the context of the supply chain is necessarily a collaborative affair (for example, it may involve assembling a consortium) because a working platform that provides business value in a supply chain will require the participation of various ecosystem actors. This can raise antitrust compliance considerations, which require careful structuring. Therefore, while there was optimism in using blockchain to bring the supply chain into a new digital era before the pandemic, many organizations felt that implementation could wait. However, the COVID-19 epidemic has spurred changes in that mindset.

The impact of COVID-19 has shown that traditional supply chains are not always resilient or adaptable enough to handle a pandemic or other widespread disaster. During the pandemic, for example, many businesses experienced severe supply chain disruptions, perhaps most acutely in the healthcare sector, which was disrupted by a shortage of vital medical equipment and supplies. In the early days of the pandemic, affected companies had to make quick decisions to solve supply chain problems, but in many cases those efforts were hampered by the inefficiencies of traditional systems, where real-time data was needed to diagnose the problem. and finding new supply chains may not have been available or reliable. Even during the best of times, data on a supply chain can reside in numerous parts and may not be conveyed accurately down the chain. These issues add to any regulatory hurdles on the part of government agencies, which in turn were understaffed or impacted by the crisis. Therefore, as supply chain problems have become extremely pressing, companies have struggled to resolve sourcing issues or conduct proper due diligence on new suppliers (especially those new manufacturers who have switched from another industry to produce goods. needed to fight the virus). As a result, many companies have found themselves unable to hire alternative suppliers and fulfill their contractual obligations.

As other similar impact events are likely to occur in the future, many companies are trying to mitigate current and future disruptions by rethinking their supply chains, diversifying, “near-shoring” or trying to adopt a blockchain solution.

Since the outbreak, there have been reports of blockchain research and implementation to solve stubborn supply chain problems. For example, the blockchain was examined for applications in the early days of the virus response, such as helping to connect healthcare providers with the equipment needed during the COVID-19 outbreak and potentially producing reliable COVID-19 immunization passports. stored on a blockchain and even use technology to prevent price cuts. On a related front, blockchain-based contract tracking apps are being developed to enhance the privacy protection of mobile users by storing digital information in a cryptographically secure manner. As for the implementation, the Rapid Supplier Connect blockchain network was launched at the end of April to help government agencies and healthcare entities find new suppliers and excess inventory to procure supplies to fight the virus, as well as control and hire. new suppliers. Similarly, Rapid Medical Parts was created when a company leveraged its existing blockchain network, VeriTX, for the purchase and sale of digital assets, to establish a new blockchain platform that allows customers to order the necessary parts. for medical devices. It was also recently announced that the US Air Force has funded a project to use blockchain to modernize its supply chain and procurement processes; The Department of Agriculture, in a proposal for a regulation on strengthening organic food certification, also expressed the view that digital ledger technology will play an essential role in the traceability of the supply chain. Additionally, members of the Congressional Blockchain Caucus wrote a letter in April to the Secretary of the Treasury urging the department to explore blockchain and distributed ledger technology to help streamline the process of sending stimulus payments and other government aid to recipients and a another letter in September to various agencies begging the government to create a digital infrastructure to modernize crucial supply chains. And in the commercial finance arena, a Japanese bank recently announced that it has joined two blockchain trade finance consortia. Interestingly, the bank noted that, due to the post-COVID-19 remote work arrangements, it was having problems in its document-intensive trade financing process, driving a trend towards digitization.

As a result, blockchain will be part of the modernization of supply chains and that investment and testing in existing or new applications will likely be a higher priority in the future. While we see consortia successfully conducting testing of new supply chain platforms, there is growing consensus that a licensed blockchain platform connecting suppliers, customers, shippers, government agencies and other actors can work to bring transparency and efficiency necessary for the goods handling process. the distribution chain.

As the company moves towards Industry 4.0, characterized by greater implementation of automation, IoT, big data, smart solutions and data exchange, blockchain seems to have earned a place in the next digital revolution. With COVID-19 laying bare the weaknesses of the traditional supply chain, the use of blockchain to modernize the supply chain is likely to increase, as companies see firsthand the benefits of smart manufacturing and smart distribution. .