Blockchain in Supply Chain? Not So Fast!

By Dwight Klappich | August 10, 2018 | 0 Comments

Supply ChainBeyond Supply Chain

We often get questions from supply chain leaders that start something like this: “Our CEO just read a Wall Street Journal article that said if you aren’t doing blockchain now, you are putting your business at risk. She wants to know what we should be doing with blockchain.”

Answering this question requires some soul searching and honest introspection, since some companies might be ready and others may not. CSCOs who have begun to look into the technology might answer by offering some guidance on some of the pilots they’ve been following, or some of the hype being dished out by vendors. Seems like a smart response at first.

However, that might only further ramp up expectations from the CEO for advancing blockchain in your organization. Truth be told, despite extensive media hype, almost no supply chain projects have been commercially deployed, let alone deployed to scale, leaving a lot of uncertainty. While blockchain is all the rage today, many initiatives are targeting business challenges that don’t require blockchain at all.

Some of the most alluring — and overhyped — blockchain solutions can be categorized as large-scale ecosystem enablement projects. In this case, the blockchain is used to foster trust without intermediaries, while enabling secure dialogs across multi-enterprise distributed networks of trading partners. Examples might be immutably tracking pharmaceuticals across all the trading partners in a supply chain, supporting certified organic authentication from farm-to-fork, or managing all the interactions and documents surrounding complex shipments.

With or without blockchain, ecosystem enablement is hard. Consequently, Gartner predicts that through 2020, business partner onboarding and governance challenges will halt 90% of supply chain blockchain initiatives across medium- to large-scale enterprises. So perhaps the best response for a blockchain-crazed CEO is to simply to say “pump the brakes.”

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Without question, blockchain has potential to be transformative in the future, but challenges abound. A high percentage of proposed blockchain projects are targeted at problems companies already understand, like end-to-end traceability. The hope is that blockchain will solve all of the previous hurdles companies encountered; however, this is a fallacy. Truth be told, most of these proposed initiatives can be done just as well with conventional technology. In addition, blockchain doesn’t unilaterally address the bigger challenge of ecosystem enablement.

Other issues include:

  • Hype about blockchain has prompted supply chain leaders to feel competitive pressure to undertake blockchain projects that amount to pursuing technology for its own sake, rather than for solving business problems.
  • Most current blockchain projects will remain as pilots, due to a combination of technological immaturity, lack of standards, overly ambitious scope, and a general misunderstanding of blockchain’s ability to support supply chain.
  • Irrespective of blockchain, ecosystem enablement will remain one of the most significant challenges organizations face due to a lack of standards, governance and process design to onboard, manage and maintain trading partners.

Many organizations wrongly assume that blockchain is the answer to business challenges without first truly understanding the roots of those challenges. Regrettably, there is an assumption that organizations can gather different stakeholders together, determine the criteria, and then develop a blockchain pilot that can easily be rolled out across the supply chain. Technology doesn’t replace good processes — nor do all processes require certain technologies like blockchain. Organizations need to first establish their processes and the foundational technology elements to support these, and then look at how blockchain can complement these processes.

If your company isn’t afraid to take risks and you operate at higher levels of maturity and are willing and able to adopt new early-stage technologies, it might be worth dabbling in blockchain to learn more. Otherwise, educate your CEO on why it is best to remain on the sidelines, at least until better visibility exists about blockchain’s future. Help the CEO understand that blockchain does not eliminate all the challenges of ecosystem enablement. This factor — not blockchain itself — will determine the success or failure of large-scale blockchain projects.

Dwight Klappich
Research VP, Gartner

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