Read the rest of this article by one of our favorite contributors who provide some of the best supply chain content in the industry.

FreightWaves
features Market Voices – a forum for voices with unique knowledge of numerous
transportation/logistics/supply chain sectors, as well as other critical
expertise.

On August 4, the University College of
London’s Center for Blockchain Technologies (UBL CBT) published Distributed Ledger Technology in the Supply Chain,“a market report looking at the adoption of Distributed Ledger Technology
(DLT) in physical supply chains.” The CBT added that the report “is the first
comprehensive outlook on the state of DLT in the global physical supply chain
sector.”

In this article, I synthesize three
themes that the authors of this report identify as affecting the broad adoption
of distributed ledger technology in global supply chain networks.

The report assessed 105 DLT projects.

Track and trace is the most common use-case across industries

The globalization of supply chains presents an advantage – goods can be sourced at lowest cost from any part of the world. However, that advantage comes with an attendant disadvantage – individual consumers, business customers and regulators all require information about products that have been sourced from far-flung parts of the world.

Track & Trace DLT Projects | Source: DLT in the Supply Chain

Given the size of the global food retail market, the complexity of food supply chains around the world, and the need to monitor and minimize outbreaks of food-borne illnesses, it is not surprising that retail food supply chains account for the majority of track and trace DLT in supply chain projects.

Projects by Sector and Focus | Source: DLT in the Supply Chain

The report highlights IBM Food TrustTM,
an ecosystem of food industry participants who share information with one
another to create a more transparent and secure global food supply chain. This
project already counts some of the world’s biggest food companies as members.

One
promising early application of DLT is the digitization of manual, paper-based
processes in supply chain logistics

One
area in which we may see rapid adoption of DLT is in the digitization of
manual, paper-based processes and record-keeping related to supply chain
logistics. This is particularly relevant for the record-keeping required by the
regulatory bodies involved in the import and export of goods around the world.
Some port authorities are experimenting with blockchain-based bills of lading.
One of the startup projects that the report highlights is CargoX, whose chief
operating officer was a presenter at The New York Supply Chain Meetup’s
one-year anniversary event in November 2018. Projects like CargoX have
application across several industries.

On
the other hand, as the authors state, “However, since supply chains typically
involve many and varied participants it is also among the most complex use
cases to implement. As with all blockchain deployments, benefits are only realized
at scale once critical mass is obtained. Consequently, whilst a raft of proof
of concepts have been completed over the past three years, rollout at scale is
still a work in progress. This is challenging because it requires a collective
approach with industry-level engagement.”

I have written that the cultural obstacles to
DLT and blockchain adoption in supply chain logistics may be more difficult to
overcome than the technical difficulties. This is because private, permissioned
implementations of DLT in supply chain need to be interoperable with one
another. This requires intra- and inter-industry collaboration. It requires
collaboration between once sworn competitors. It requires collaboration between
startups and established companies.

DLT
in financial applications may take longer to gain widespread adoption than one
would expect

In my opinion, applications of DLT in
supply chain finance or trade finance are possibly the most exciting and most
significant in terms of their potential economic impact. However, I believe
they may be the last to gain broad adoption amongst enterprises. Applications
in supply chain management and supply chain logistics will need to become more
mature and widespread before applications in supply chain finance gain wider
adoption. The authors of this report explain why this may be the case.

Applications in this area include: payments enabled by smart contracts; selling directly to individual consumers; and alternative methods of obtaining and deploying working capital. The chart below shows how the projects studied for this report are distributed.

Financial Transactions Projects by Sector | Source: DLT in the Supply Chain

The authors point out two reasons financial transaction
applications of DLT in supply chain could take longer to gain adoption than the
others. First, distributed ledger technologies and cryptocurrencies are still
poorly understood. The lack of understanding of the technology creates negative
perceptions. This creates barriers to adoption in financial transactions.
Second, financial transactions must adhere to a high degree of regulation and
legal scrutiny. It takes time for a regulatory framework that accommodates new
payment methods to be developed. As I wrote above, supply chain finance
applications of DLT will become more prevalent once supply chain management and
supply chain logistics applications become more prevalent.

Conclusion: DLT in supply chain is here to stay, even if
it takes time

The authors conclude by stating that DLT is set to transform physical
supply chains, even though there is still much work to be done before
decentralized systems become a reality for real-world applications at scale.
They end the report with three observations. First, data quality remains a
concern in DLT in supply chain applications. Second, input and output
connections between DLT supply chain applications and physical supply chains
must be built and defined. Lastly, “the new co-opetition model of consortia is
not an easy one to implement. It requires a new way of working for companies
and also is potentially challenging from a regulation and antitrust
perspective. New collaborative forums can play an important role here to bring
stakeholders together and drive industry level adoption.”