Those who have read my previous articles will know that disruptive technology is a topic I’ve returned to several times. The implications of transformative technologies for the supply chain industry is huge and those able to harness it effectively will be at a distinct competitive advantage.
This isn’t news anymore. However despite recent technology developments, in many ways supply chain is still stuck in the past. Burdened by unreliable processes, reducing efficiency and leading to communication or security issues, payment disputes, and inevitable headaches for people in the industry.
There is a huge opportunity to address many of these issues through the implementation of one key technology development. That technology is blockchain.
An organisation seeking to enable this innovation is OpenPort. Recognising limitations and scalability issues with the blockchain they were using, they decided to create their own open source blockchain. Cue the launch of the Open Enterprise Logistics (OEL) Foundation, a non-profit organisation providing governance and resources for the development of the Open Enterprise Logistics blockchain ecosystem.
In the interests of transparency, I want to disclose that I am affiliated with OpenPort and am a member of the OEL Alliance. However, I haven’t been paid to write this article.
I simply believe the open-source Enterprise Architecture and token the OEL Foundation are offering will be good for the industry. Finding people with the skills to implement this technology is challenging. Using open-source technology enables the pooling of knowledge and resources, and therefore a path to effective use of blockchain.
The OEL Foundation recently published a comprehensive whitepaper: Building The Blockchain Ecosystem For Logistics. What follows is my summary of the key points in the whitepaper.
THE CURRENT STATE OF ENTERPRISE TRANSPORT
Logistics and transport management generates approximately 13% of global GDP and the B2B transfer of ownership of retail goods will reach $15.5 trillion USD by 2021. Projections through to 2050 indicate that emerging market growth led by China, India, and Indonesia will be twice that of developed economies. In emerging markets, increasing turnover of merchandise in retail outlets has resulted in over-extended distribution networks and the companies attempting to meet this demand are facing extraordinary logistics challenges.
The problem is made worse by the lack of secure supply chain control in the distribution channel, which drives up distribution costs due to lost sales, penalties from late deliveries, theft, and product damage. The OEL Foundation recognises that most deliveries to distributors and retailers in emerging markets are therefore being delayed, disputed, short paid, or not settled because of problems related to existing outdated processes.
SUPPLY CHAIN PAIN POINTS
The key challenges that supply chain needs to resolve include:
- Growth constraints – Rapid growth in demand is exceeding the current capacity of supply chain infrastructure and availability of logistics services. This affects expenses, performance, and sustainability as the costs of logistics are outpacing new sales and limiting further growth.
- Fragmentation – the growing demand for consumer goods in emerging markets is leading to increasing levels of fragmentation with little or no transparency into subcontracting by local transporters. In some cases, the final shipment may have already gone through three or four iterations of handling by sub-contractors, with no IT systems used to record shipment data or to provide real-time tracking for the shipper.
- Paper based processes – Without an integrated platform from shipper to consignee, an extensive manual paper trail is required. This slows down the payment process for all parties and increases the likelihood of payment disputes. Often, a full one percent of top-line revenue is lost due to inabilities to invoice caused by disputed, undelivered, or lost shipments.
- Liquidity and cash flow – Lacking a means to verify transaction and shipping events makes it difficult to ensure complete and intact delivery of goods. This results in a cash squeezed supply chain plagued by revenue loss and lack of liquidity.
THE BLOCKCHAIN SOLUTION
Blockchain technology resolves many of these issues by allowing for the secure exchange of value and validation of transactions. It is optimal for managing the movement of goods in a secure and traceable manner because every shipping event and transaction is securely and irrefutably recorded on the blockchain ledger. Once the occurrence of all transactions is irrefutable and the records contained in the decentralised ledger are available to all parties involved in the exchange of goods, then an immutable audit trail is created.
Working in combination with IoT and RFID tracking, there are multiple ongoing projects leveraging blockchain to authenticate products and bring real time visibility to product journeys. This is especially important in sectors like pharmaceuticals and in the movement of high value goods.
These solutions are being implemented by major companies including IBM, Maersk, and Walmart as well as by many innovative start-ups and smaller projects. However, the majority of these efforts exist in isolation from one another and operate in a context of resistance towards data sharing and collaboration. This means that these efforts are still susceptible to bottlenecks as inevitable information asymmetries arise.
Innovative upgrades to state of the art digital ERP and TMS systems among corporate supply chain players are ineffective in a fragmented environment where different actors work on different information standards. With growing innovation and activity in the space, there is a strong need for a common standard decentralised architecture that can support a full range of stakeholders.
THE OEL ENTERPRISE ARCHITECTURE
The OEL Foundation’s mission is to remove this burden through the adoption of a common, shared, and open source enterprise architecture utilising blockchain technology. The OEL Enterprise Architecture will serve as a platform, protocol, and network that can be used to deliver products and services for OEL Foundation Alliance members and the broader industry.
The OEL Foundation aims to empower the transport industry by moving paper-based and offledger digital records onto the blockchain. Through distributed ledger technology, a shipment related entry becomes immutable, providing an indisputable record of the freight’s history linked to a digital agreement – a smart contract.
The OEL Enterprise Architecture will be powered by a utility token, the OPN Token. This token fuels smart contract validation, serves as micro-rewards for sharing data on the network, and acts as a point of access and stake on the network. The token will be created at an upcoming Token Generation Event held in Q3, 2018.
THE OEL FOUNDATION ALLIANCE
The OEL Foundation Alliance will be comprised of stakeholders across the supply chain industry; from multinational brand owners and manufacturers, to 3PLs, transporters, technology providers, and retailers. A variety of membership options to the OEL Foundation Alliance will be available allowing for access to information, applications, and software development kits (SDKs). Members will also be able to influence the direction of development of the Enterprise Architecture.
The Foundation will leverage OpenPort’s existing client base, experience, and knowledge gained through the implementation of several successful pilot projects. OpenPort will be responsible for helping to design, build and implement the OEL Enterprise Architecture by leveraging its real-world knowledge of enterprise logistics.
THE NEXT STEP
The potential impact of blockchain on the enterprise transportation industry is significant. Implementation of the Enterprise Architecture will make blockchain applications real, accessible, and functional for all parties in the supply chain. With network participants incentivised to share data, service levels and accountability will vastly improve.
The transparency and trust introduced by this blockchain-driven transport ecosystem enables acceleration of payments across every step of the supply chain; from the manufacturer and shipper down to the consignee acquiring the goods, to the local transporter delivering those goods to remote storefronts. Improvement of service levels and acceleration of payment cycles will create liquidity and drive profitability.
Future applications extend far beyond improving the cash cycle. The ability to gather immutable data for analytics on tracking and visibility of IoT related sensor data including temperature monitoring, pallet tracking, returnable packaging, and vehicle weights, has significant implications for the optimal management of transport assets. The opportunities are vast and will only increase as blockchain technology is further embraced across the entire industry.
For more information about how your organisation can join the OEL Alliance or participate in the OPN Token Generation Event and help transform supply chain for a new era of efficiency and growth, please contact: hello@oel.foundation
