Digital Supply Chain Transformation toward Blockchain Integration
Blockchain Digital Transformation

Digital Supply Chain Transformation toward Blockchain Integration

Digital supply chain integration is becoming increasingly dynamic. Access to customer demand needs to be shared effectively, and product and service deliveries must be tracked to provide visibility in the supply chain.

Companies operating in supply chains establish process and data integration through the specialized intermediate companies, whose role is to establish interoperability by mapping and integrating company-specific data for various organizations and systems. This has typically caused high integration costs, and diffusion is slow.

Even the biggest organizations lack the power, knowledge or capability to themselves design or deploy end-to-end information integration trough supply network. For that reason, companies have collaborated to accelerate integration under the concept of the Digital Supply Chain (DSC). Even competing companies are collaborating to pursue integration of the entire supply network.

Table of Contents

  1. Why Digital Supply chain?
  2. Blockchain Technology
  3. Requirements for Digital Business Ecosystems
    3.1 Business model development
    3.2 Information model platforms
    3.3 Business process standards for supply chain connectivity
    3.4 Operator services for data transfer between actors
  4. Why Blockchain integration?
  5. Summary

1. Why Digital Supply Chain?

A traditional supply chain model can be briefly summarised as the networking between all individuals, organizations, and activities involved in a business process from the manufacturer to the end-user. A digital supply chain carries out traditional supply chain functions with the aid of digital technology such as radio frequency identification (RFID), global positioning systems (GPS) tracking, smart labels, and barcodes.

The primary aim of this is to deliver insights to increase efficiency and to produce higher profits for the organization.

The benefits of Digital supply chain (DSC) include cost-effectiveness of services and value-creating activities that are beneficial to many actors in the ecosystem, including firms and their suppliers, employees, and customers.

The DSC is characterized by the strategic and operative exchange of information between suppliers to enhance communication between actors in the chain. In general, inter-organizational coordination is achieved by means of electronic links between information systems, enabling automated and digitalized processing of source-to-pay processes involving suppliers and customers in the supply chain.

In DSC transactions, organizations currently execute process and data integration through the trusted third parties, most often through the trade finance services of banks. However, several advocates of blockchain technology have promised to change this by minimizing unnecessary use of third-party intermediaries.

2. Blockchain Technology

Blockchain Technology is regarded as a potential means of enhancing the security and cost-effectiveness of DSC transactions. In general, blockchain technology is used to establish integration over the internet and can be understood as a many-to-many integration model, deployed in the public cloud to conduct secured transactions rapidly and at low cost. 

Blockchain Technology

One of the key features of blockchain technology is that it maintains an open distributed ledger of transactions without identifying parties to the transaction. In addition, the ledger is copied to all nodes of the network. If a transaction is changed, a new block is created and chained to previous blocks. Ledger data between nodes of the blockchain network are matched at random intervals. 

Blockchain cannot be described just as a revolution. It is a tsunami-like phenomenon, slowly advancing and gradually enveloping everything along its way by force of its progression.

 — William Mougayar

3. Requirements for Digital Business Ecosystems

Four transformation requirements for digital business ecosystems which constitute a foundation for business and innovation development are as follows.

3.1 Business model development

Companies must develop strategies and business models that maximize innovation and effectiveness in leveraging digitalization and supply chain integration services in their business offerings.

3.2 Information model platforms

Appropriate information models are needed to collect, store and deliver information in supply chains. This often requires the development of platforms and integration between multiple platforms.

3.3 Business process standards for supply chain connectivity

New competencies and solutions are needed for the development of business process connectivity and standards. This relates to how trading partners in the supply chain can be digitally connected to business process transactions.

3.4 Operator services for data transfer between actors

Integration channel intermediaries (e.g., operators) are needed to transfer and integrate information across actors and systems.

4. Why Blockchain Integration?

The level of B2B integration and investment can be estimated by means of different models. The concept of investment cost is based on three variables which are integration volume, the total amount of process integration and volume of transactions.

While two organizations may exchange supply chain documents directly via a document exchange platform, specialized intermediate companies are often used to conduct supply chain transactions with a related exchange of documents.

There are many limitations while implementing the digital supply chain. To address these limitations, we consider the use of blockchain technology. The following features can be used as potential solutions: a public ledger of transactions copied to all nodes of the blockchain network without transaction party identities, the use of public key infrastructure (PKI) to decrypt and encrypt a transaction and to notify counterparties about the existence of an executable transaction with unique single-time keys, and the concept of the smart contract.

5. Summary

For a number of industry sectors (retail, auto, electronic, aviation, chemical), digitalization of supply networks has been an important issue for more than two decades, but this concern is not shared across other industries. Blockchain technology appears capable of providing security and flexibility at a lower cost than traditional transactions.

On the other hand, blockchain technology cannot meet the need for standardization of electronic supply chain documents; international document standards must be relied on for that purpose, probably requiring their further development to ensure the fully automated transfer of documents between organizations. It should then be possible to use blockchain to execute transactions and document exchange quickly, reliably and at low cost.

Digital Supply Chain Transformation toward Blockchain Integration; Kari Korpela, Jukka Hallikas, Tomi Dahlberg

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