Fall 2022 Supply Chain Scholarship runner up Dominique Fatal wrote a very academic essay about how blockchain technology works and can transform the security of supply chains. Presenting great research, this essay shines as one of our runners up!
We created the Supply Chain Scholarship to help identify fresh talent in the industry, a major struggle presented to us by our warehouse management system (WMS) customers. We hope that our scholarship will help the industry grow and thrive in the future by locating and cultivating the brightest young minds studying the supply chain.
Here is a future visionary in logistics and runner up for the Fall 2022 Supply Chain Scholarship, Dominique Fatal, and her essay on blockchain technology.
Blockchain is the latest revolutionary technology gaining increasing attention from academics and practitioners alike. Although blockchain technology is still in its stage of infancy, various sectors have accepted it in general-purpose technology applications. Blockchain technology has the potential to transform the supply chain into a better structure in areas of traceability, security, and the facilitation of automation processes. There is no doubt that blockchain technology will revolutionize the supply chain world in the next decade.
According to the article "Blockchain" by Nofer et al., blockchains are data sets organized into a chain of data packages, or blocks, integrating into multiple transactions. The blockchain is then extended by each additional block and represents a ledger of transaction history. Blocks are validated by networks using cryptography. Each block possesses a timestamp containing the value of the previous, or parent, block followed by a nonce. The nonce comprises a random number generated and used to verify the hash.
Overall the process aids the integrity of the blockchain as the article elaborates:
This concept ensures the integrity of the entire blockchain through to the first block (‘genesis block’). Hash values are unique, and fraud can be effectively prevented since changes of a block in the chain would immediately change the respective hash value. If the majority of nodes in the network agree by a consensus mechanism on the validity of transactions in a block and on the validity of the block itself, the block can be added to the chain. (Nofer et al., 2017, p. 184)
The overall mechanism is a set of rules and procedures allowing a particular set of facts between nodes, thus not automatically adding new transactions to the ledger. Instead, it ensures that transactions are stored in a block for a specific time.
Due to its uncommon and valuable use, blockchain technology is predicted to become a booming industry globally within the upcoming decade. Many countries, governments, and organizations are racing to capitalize on early adoption of this technology.
As stated in the article "Security and Privacy on Blockchain" by Zhang et al., banks and governments are scrambling to take advantage of this vastly growing field. The article further elaborates how governments have released white papers and technical reports to support the development of blockchain technology. European central banks have begun discharging documents on distributed ledger technologies in securities post-trading. China has also been interested in blockchain technology and released white papers on its development.
The emergence of such a world-changing phenomenon has led scholars and experts to discuss the implications of blockchain technology in many fields, such as economics, technology, and finance. However, a field not so heavily discussed but equally important is the area of the supply chain and the implications of blockchain technology in logistics. Blockchain technology will become the next big advancement in supply chain management and can lead to a gold mine of innovation if utilized to its greatest productive capacity.
The inclusion of blockchain technology influences the prediction of governance structures in the supply chain, thus limiting opportunistic behavior or uncertainty. The term 'transaction cost theory' was coined by Oliver E. Williamson, stating that the optimum organizational structure achieves economic efficiency by minimizing exchange costs. The application of blockchain technology can reduce transaction costs to enable more market-oriented governance structures. As elaborated in the article "Blockchain and supply chain relations: A transaction cost theory perspective" by Schmidt et al.:
Blockchain might substantially affect supply chain management, its relations and governance structures (Kshetri, 2018). Blockchain also influences the purchasing and supply management (PSM) function, as global transactions are non-transparent and prone to delays, inefficiencies and human errors (Casey and Wong, 2017; Rosenbush, 2018). (Schmidt et al., 2019, p. 2)
A supply chain covers all forms of activities, technology, company structures, and human resources. Such processes are converted into products and delivered to the end consumer in the last stage. Therefore, traceability, auditability, and security—in privacy or transactions—are vital structures in supply chain management. It is established that a blockchain is a database of transactional records in which a central authority controls the database to ensure the integrity of the transactions and manages user access.
In terms of providing security within transactions, blockchain can limit environmental and behavioral uncertainty as well as opportunistic behavior, allowing for transparent and valid transactions. Blockchains potentially add permanence and transparency across organizational boundaries to current database functionalities, ultimately revolutionizing how digital and physical goods and services are transacted. Although blockchain fundamentally does not invalidate the transaction cost theory, it can significantly reduce transaction costs and governance decisions, enabling more market-oriented supply chain relations for buyer-supplier transactions in the supply chain.
Furthermore, blockchain technology employs the use of operational efficiency and smart-contract. As emphasized in the article "TPPSUPPLY: A traceable and privacy-preserving blockchain system architecture for the supply chain" by Sezer et al., blockchains use smart-contract, thus eliminating the need for intermediation and allowing more structure among negotiations and coordination with other contracts (Sezer et al., 2022). Operational efficiency is another benefit of implementing blockchain in the supply chain. Bugs and problems are quickly identified at the beginning to make systems more effective. Optimal operational efficiency increases the speed of relevant processes from end-to-end increases.
In conclusion, there is still much to be learned about blockchain technology. It reduces the overall risk of opportunistic behavior in exchange relationships. Blockchain technology supports the innovation of more advanced concepts, such as smart contracts and smart property, while prioritizing lowering transaction costs. Blockchain will soon be the new frontier for supply chain and a wave worth riding.
References
Nofer, M., Gomber, P., Hinz, O., & Schiereck, D. (2017). Blockchain. Business & Information Systems Engineering, 59(3), 183-187.
Rui Zhang, Rui Xue, and Ling Liu. 2019. Security and Privacy on Blockchain. ACM Comput. Surv. 52, 3, Article 51 (May 2020), 34 pages. https://doi.org/10.1145/3316481
Schmidt, C. G., & Wagner, S. M. (2019, July 12). Blockchain and Supply Chain Relations: A transaction cost theory perspective. Journal of Purchasing and Supply Management. Retrieved May 20, 2022, from https://www.sciencedirect.com/science/article/abs/pii/S1478409218301298
Sezer, B. B., Topal, S., & Nuriyev, U. (2022, February 26). TPPSUPPLY : A traceable and privacy-preserving blockchain system architecture for the supply chain. Journal of Information Security and Applications. Retrieved May 20, 2022, from https://www.sciencedirect.com/science/article/abs/pii/S2214212622000096
