Insights / Supply Chain / Article

Blockchain For Supply Chain Requires These 5 Lessons

September 21, 2018

Contributor: Rob van der Meulen

90% of all supply chain blockchain pilots will be proof of concept trials through 2020.

Few recent digital trends receive more attention than blockchain. But according to Gartner principal research analyst Alex Pradhan, supply chain leaders should not bow to hype and pursue the technology for its own sake.

Pradhan explained that there were few functional deployments at the moment and that most attempts are likely to remain in the pilot stage, a situation she predicts will persist for 90% of projects through 2020.

For those organizations planning to experiment with blockchain, Pradhan shares the following five learnings from early pilot efforts.

First evaluate supply chain processes and digital maturity

Early blockchain pilots show one thing very clearly: many organizations haven’t focused enough on the type of supply chain decisions or processes that blockchain might enhance. Too often organizations treat blockchain as some kind of panacea, without actually understanding the problem it is supposed to solve.

“ Not all organizations are ready to pursue 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,” says Pradhan. “Not all organizations are ready to pursue blockchain beyond observation; there is a correlation between supply chain maturity and supply chain technology adoption.”

Keep the scope of pilots compact

Many blockchain initiatives have been driven by the fear of being left behind – companies aren’t sure where or if blockchain fits, and often seek to deploy pilots as a solution to problems they have struggled to solve in the past. A number of pilots have been targeted at tricky problems like end-to-end traceability, or end-to-end global logistics. Unless a company has a lot of capital to invest and is comfortable with risk, these problems are far too big for a blockchain pilot.

“There are complex and unresolved challenges and barriers associated with using blockchain in our supply chains,” she says. “Although it may appear that a lot of blockchain activity is happening, in reality, few organizations are conducting pilots and far fewer are deploying blockchain solutions.”

To identify blockchain pilots that actually have a higher chance of succeeding, organizations must understand why the problem exists relative to complexity, time to value and cost. Then start by working in a small group, with just a few stakeholders and clearly define where the pilot begins and ends.

Look at culture, governance and processes too

The extent to which blockchain projects will bring meaningful benefits to businesses will depend on the technology and on how ready the organization and trading partners are to move on from decades-old business, governance and operating models.

“ If a cultural shift doesn’t happen, it’s likely blockchain will offer limited benefit”

“Technology adjustment is just one aspect of implementing blockchain,” says Pradhan. “For many organizations, despite any initial interest in blockchain, it remains to be seen whether they are ready to accept truly decentralized and distributed networks and the ramifications concerning control and economics.” If a cultural shift doesn’t happen, it’s likely blockchain will simply end up shoehorned into legacy value streams and systems, with limited benefit.

Expect the vendor landscape to change dramatically within 18 months

There are many leading-edge companies competing for a first mover advantage in delivering an off-the-shelf blockchain solution that is standardized, scalable and sustainable. There is also immense pressure on traditional IT vendors to accelerate support for blockchain within their existing portfolio.

“ Invest proportionally as the technology matures”

“Dramatic changes are likely in the next 18 months,” explains Pradhan. “Invest proportionally as the technology matures. If you are going to experiment, focus on a short term tactical, narrow-scope, deployment of blockchain technology but be aware that the vendor landscape is likely to change over the next couple of years and this will require that those early adopters accept significant levels of risk.”

Address data standards and management

There is a “chicken and egg” conundrum surrounding data standards in blockchain. Organizations need to talk about standards now for them to be part of the lessons that pilots are working through. But without better understanding the role of blockchain in certain initiatives, it is nearly impossible to have a productive dialogue.

“Data standards are vital to enable a common language to share data across a supply chain ecosystem,” says Pradhan. “At the moment, there is no agreement on common data standards that can facilitate the data sharing conversation.”

Keep in mind that hundreds of data points and metrics could be collected around each transaction in the blockchain, but it’s probably not viable to do so within the scope of a pilot. Going from a pilot to at-scale deployments will require immense effort for any organization. Start small, and build understanding of what data management, interoperability and privacy issues arise.

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