XCELPROS | May 4, 2018
Top 5 Areas for Blockchain in Distribution
Distribution industry, both wholesale and retail, are characterized as physical stores/warehouses that serve as intermediary between manufacturers and end consumers. The industry is undergoing a transition as it is faced with multiple challenges such as evolving consumer preferences, heightened competition, digital/e-commerce disruption, rising real-estate cost, etc.
To overcome the challenge and remain competitive, the industry is embracing the digital landscape, omni-channel marketplace, and technological advancement in the supply chain. With consumers increasingly looking for value proposition, distribution too must recalibrate their strategy to ensure its relevance in the industry. In such environment, blockchain or distributed ledger is the answer that distribution is looking for to be agile and competitive.
Blockchain Is No Longer a Technology of the Future
Distribution industry can no longer afford to take a futuristic view in embracing blockchain. Be it the 2016 counterfeit cotton scandal in Egypt, or the 2017 horse meat scandal, distribution industry has been plagued with issues that erode consumer trust. Distributed ledger technology can be used by retail and wholesale distribution industry to bring in efficiency, provenance, transparency, and ease of doing business. Using a secure digital id, the distribution industry can maintain an immutable record of all information a product undergoes through its life-cycle in real-time, without the need of a central point of control. By design, no one party can unilaterally modify the records, without validation by other members in the peer network.
The below graph depicts an indicative investment share committed by various industry in blockchain technology in 2017 and forecasted until 2021.
The distribution industry is only second (21%) to Financial industry (46%) in terms of spend to embrace the distributed ledger technology. The spending patterns indicate that industries with high volumes of transactions are the highest investors in the blockchain technology.
- Per IDC, investment in blockchain is soaring at a rapid pace, growing from less than a billion in 2017, to reaching $9.7B in 2021. The technology is expected to grow at a compound annual growth rate of over 80% from 2016 to 2021. Distribution industry must align itself with this pace, to bring in higher level of efficiency in the system.
- The industry is seeing heightened traction among technology providers and service vendors, who are joining forces to form consortiums to leverage the underlying technology powering crypto currencies. Enterprise Ethereum Alliance and the Hyperledger Projects are examples of leading blockchain consortium. These alliances are working towards multiple solutions using distributed ledger technology in areas including: tracking and tracing shipments in the supply chain, and transaction records for auditing and compliance.
- The US is expected to lead the world in terms of investment in blockchain, accounting for over 40% of the worldwide spending through 2021, evidently as majority of the blockchain investors are native to the US.
What Is Blockchain?
- Blockchain is a digital ledger involving a mechanism where transactions are encrypted and recorded in a peer-to-peer or distributed network.
- They differ by type – public and private. In case of public, any system over the Internet can be part of the network. Private on the other hand is restricted only for the intended participants.
- Distributed ledgers technology (DLT) facilitates adding new transactions in an existing chain using a secure, digital or cryptographic signature.
Is Blockchain Safe? Can It Be Hacked?
- While it is arguably one of the most secure systems, its security depends on its architecture.
- As the name suggests, blockchain is a set of interconnected digital blocks that record transactions using cryptography, making it difficult for hackers/intruders to tinker the system.
- It needs heavy computing resources (>= 51% majority) to access a record in a blockchain and amend it.
- Blockchains are decentralized and distributed across peer networks, with each peer having their own private keys or digital signature. In an event of intrusion, the signature becomes invalid and is known to the network.
Areas Where Blockchain Impact the Distribution Industry
- Distribution involves making/receiving regular payment which attracts commission or fees in a traditional banking system. Cost associated with remittance can be minimized using blockchain. Per McKinsey, a remittance of $200 from US to Asia may cost as much as $12, versus pennies using blockchain.
02Minimizing Counterfeits & Bringing Transparency
- The distribution ecosystem encompasses multiple participants involving logistics (inbound & outbound), vendors, regulatory stakeholders such as customs, insurance, packaging, payment partners such as banks, etc.
- Distributed ledger ensures an auditable record spanning across manufacturer to packager to logistics, bringing in credibility to the system. Using blockchain, a wholesaler or retailer in the Central US can trace the origin of a perishable food item and access the cold chain conditions it was subjected to.
- The Pharmaceutical industry attributes losses to the tune of $200B every year due to counterfeit drugs. Blockchain technology could be used to maintain a trail of custody logs, tracking each step involved in the logistics and ensuring supply chain integrity.
03Reduced Cost of Business
- It reduces the paperwork at each stage the goods exchange hands with stakeholders across the lifecycle, from pre-manufacturing to sale.
- Distributed ledger mechanism allows to obtain all the required information using a single scan, thereby reducing the operational cost.
04Compliance & Regulatory Guidelines
- Blockchain makes batch tracking efficient, and in event of contamination or quality issues, the entire batch can be easily traced and pressed for necessary action.
- Sharing logs with regulators can ease compliance procedures, improve the chances of approval, and reduce recall or rejection.
- From a futuristic view, blockchain could be used to check a candidate’s profile at each tier namely universities, employment history, certifications, and achievements.
- Payments, Post-transaction Settlement - There is an array of application areas for blockchain in the distribution industry. The initial investments are expected to target high volume manual processes involving payments, post transaction settlements, and provenance.
- The technology is also instrumental in clearing payments between organizations, at each step across the lifecycle of the product.
- Transactions Are Auditable & Real-time – Transactions on blockchain are auditable and can be validated near real-time. This eliminates the need for central authority, making the process efficient and less time consuming.
- Transparency – In the distribution industry blockchain has the ability to provide a platform that is transparent. It is secure and maintains records of all stakeholders and transaction involved in the manufacturing and distribution of the product. This helps in understanding what went into the manufacturing, and how the goods were handled during transit.
Last but not the least blockchain is not a thing of the future. It is here, it is now. Embrace blockchain for the ease of doing business, remain competitive, and faster payments.
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