Blockchain in the Supply Chain: Building the IT Stack

Blockchain-based applications developed by SCtech (pronounced “skytech”) players (i.e., software vendors dedicated to developing blockchain-based applications for supply chain management) are dispersed across diverse supply chain (SC) processes: document management, traceability, provenance, and finance. They are currently engaged in proof-of-concept (POC) experiments to identify which SC processes will benefit the most from blockchain-based applications. These POCs also contribute to determining business-case criteria.

POC blockchain-based applications tested for the supply chain promise to accelerate trusted data sharing and automate execution of contractual obligations between SC partners. If that is true, Aite Group expects these applications to resolve the problems that have so far prevented SC constituents from engaging in true SC collaboration:

• Systems used by SC parties are different and siloed, making it extremely difficult to share data.
• Privacy and lack of trust keep SC parties from sharing data with everyone.
• The lack of globally agreed standards inhibit the automatic exchange of data.

Therefore, SCtech players must develop applications in their POC engagements that allow SC participants to:

• Send/receive data between their own and their SC partners’ enterprise systems throughout the full extension of the supply chain
• Guarantee privacy of data and allow participants to selectively share only with elected SC partners
• Ensure straight-through processing and autonomous execution of applications with no (or minimal) manual intervention

Based on current market research, Aite Group suggests the configuration of the IT stack that will enable blockchain-based applications to support and run software applications for true SC collaboration in the below figure.

The blockchain-based software components of the stack build on top of one other and contain features that progressively expand:

1. Depth in the supply chain: From the traditional two-party exchange of data, the applications increasingly allow participants to reach multiple upstream and downstream SC partners in a peer-to-peer fashion.
2. Depth of trust: Applications allow SC partners to increase their confidence on the veracity of the data exchanged and access data on a need-to-know basis.
3. Autonomous execution: The more the blockchain-based applications extend along the first two drivers, the more autonomous they become from manual intervention. Straight-through processing becomes the distinctive characteristic of SCtech solutions.

The quick overview that follows allows an appreciation of software components of the blockchain-based IT stack for the supply chain.

• Interoperability: The first pillar of the stack contains software applications that allow SC practitioners to exchange data between their company and the partners’ enterprise resource planning solutions. Similarly, the elements of this module must connect the company’s ERP with business-to-business networks (e.g., Ariba, Basware, GTNexus, Tradeshift, Elemica, Covisint), through which SC partners exchange purchase orders, vendor ratings, invoices, and payment instructions. Lastly, interoperability with blockchains ensures that applications run on any distributed ledger infrastructure, whether public or private.
• Privacy: With this second module, SC practitioners are able to select the data—up to the single field level—that they want to share with SC partners. Selected parties must be attributed special accessibility credentials, and an administrative module grants rights, permissions, and revoking power.
• Document management: With interoperability secured and data access granted only to authorized parties, applications can now be used to dematerialize paper-based legal documents, authenticate and tokenize them on blockchain for secure record-keeping, track the flow of documents exchange, and allow the transfer of ownership. Documents include receivables, payables, and invoices. The blockchain-based applications of this module ensure digital product memory and provide trusted evidence of receipts of payments to a wider set of SC participants (i.e., depth of the SC) and with increased levels of trust. Document exchange can be increasingly automated between IT systems.
• Tracking/provenance: Provenance of goods requires certificates and documents of attestation, which explains why this module builds on top of the preceding building block of digital document management. Blockchain-based applications designed to interact with existing paper-based documents, contracts, and assets (e.g., letters of credit, bills of lading) are the prerequisite to track the provenance of goods and assets.
• Authenticity/certification: This module of the IT stack contains blockchain-based software that ensures documents and data are original, authentic, and legitimate. Peer-to-peer reputational algorithms constitute an integral part of this stack component: To minimize threats in open SC communities, community-based reputations can be computed through feedback about peers’ transaction histories, helping to estimate peers’ trustworthiness and predict their future behavior.
• Identification: Software applications of this topmost component ensure SC parties are really who they say they are. Software features of this module create and manage identities by including relevant documentation, permitting other participants to access this identity, and allowing authoritative participants to request attestations against the identity.

Aite Group does not see any SCtech vendor with a complete solution stack that caters to all the above items. While SCTech players continue their journey to refine their solutions and identify the SC processes most in need of resolution, they should use the IT stack configuration as reference for future developments, partnership evaluation, and competitive positioning. For in-depth reviews of 15 SCtech vendors, see my latest report, Blockchain for the Supply Chain: 15 SCtech Players to Watch.