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Proceedings of the 51st Hawaii International Conference on System Sciences | 2018

Chains in Chains – Logic and Challenges of Blockchains in Supply Chains


Henrik Sternberg Giulia Baruffaldi
University of Lund, Sweden University of Padua, Italy
[email protected] University of Bologna, Italy
[email protected]

Abstract Hence researchers, non-governmental


organizations, and supply chain actors alike are all
Due to the disruptive role of the Bitcoin in the turning their attention to the blockchain diffusion.
financial sector, both scholars and practitioners are Several conferences are hosting blockchain tracks
increasingly wondering whether it is possible to and Journal of Business Logistics just announced a
replicate the impact of the Blockchain technology in special issue on the topic of blockchains [47]. This
the supply chain context. As a distributed ledger paper aims to outline blockchains in a supply chain
technology characterized by the decentralized perspective and address the question: Will
consensus, Blockchain is touted by many as the blockchains have a disruptive effect on supply
proper platform to collect all the information about chains? More specifically we want to outline a
supply chains from the producer to the consumer. realistic scope of the BC technology to aid
However, the current technology immaturity and the practitioners and researchers in future
lack of successful supply chain implementations pave implementation and diffusion.
the way for doubt about the disruptive role of this To answer this question and outline a scope of the
technology in supply chains. To the authors’ blockchain technology, we first elaborate on what the
knowledge, this work is one of the very first attempts blockchain technology is and the differences between
to link the blockchain technology to supply chain and various types of blockchains. We then cover state of
logistics. This paper investigates the state-of-the-art the art of blockchains in supply chains. That is
application of blockchain in supply chains, exploring followed by an empirical account of an ongoing
both the literature and the industry initiatives, blockchain pilot project, ReLog (http://trnsp.com/),
contributing to the increase of the managerial insight and the challenges from the various stakeholders
and providing a future research agenda. involved in this project. The insights from the pilot
are followed by an application of logical reasoning to
scope the technology. Finally, we discuss our
conclusions aiding future adoption in supply chain
1. Introduction management and logistics and propose future
research questions.
Few information technologies are gaining as The nature of this work is conceptual, as there, to
much as attention as blockchains (BC). Though the the best of our knowledge, does not exist any actual
main application of the blockchain technology is the supply chain implementation of blockchain
Bitcoin currency [26], thousands of startups are technology. Though previous research encourages
innovating on novel blockchain applications in chief technologists to pursue “hot technologies” [30],
various industries, such as healthcare [40] and that applies only to technological concepts that were
insurance [23]. Several initiatives, e.g., implemented, not technological concepts that never
Provenance.org, are in mainstream media [44], riding reached implementation [36].
on the trend of the increasing pressure to disclose
supply chain information [21]. 2. Introduction to blockchain
Several experts and industry speakers outline
blockchains as a disruptive technology [8][37][42]. Firstly, an anonymous creator with the
Bridget van Kralingen, Senior Vice President, pseudonym of Satoshi Nakamoto with Bitcoin [27]
Industry Platforms, IBM, said: "We believe that this introduced the shared ledger paradigm. Nakamoto
new supply chain solution will be a transformative was able to solve the cryptographic researchers’
technology with the potential to completely disrupt Byzantine General Problem [20], proposing an
and change the way global trade is done” [33].

URI: http://hdl.handle.net/10125/50382 Page 3936


ISBN: 978-0-9981331-1-9
(CC BY-NC-ND 4.0)
original system for electronic transactions which authorization of the node to take part of the
overcomes the need to rely on trusted authorities to consensus mechanism. If all the nodes of the network
ensure the ‘honesty’ of participants at the transaction can join the consensus mechanism the ledger results
through a decentralized consensus based on proof-of- unpermissioned, otherwise is permissioned. In the
work. However, the first use of the term “shared latter case, the Report’s authors compare the network
ledger” to indicate any database, ledger, and with a hub and spoke model [2]. Bitcoin blockchain
application that is shared by an industry, a private is one type of unpermissioned public ledger.
consortium, or that is open to the public is claimed by Vitalik Buterin classifies the Bitcoin blockchain as
Richard Brown, Chief Technology Officer of the “public blockchain” to indicate an unpermissioned
Distributed Ledger Group [24]. As stated in [14], public ledger, distributed and characterized by low
shared ledger technologies provide an original efficiency (due to a resource consuming mining
framework that has the potential to radically change process) and immutable stored transactions [5]. To
business collaboration across several sectors, among perform the validation of transactions the Bitcoin
them: finance, healthcare, and supply chain. blockchain relies on a decentralized consensus
The activities and applications of blockchain are mechanism among the nodes of the network. In other
classified by Swan [37] in three broad categories: (1) words, once approved by the network transactions
Blockchain 1.0 embeds all the aspects related to can be updated on the blockchain where it cannot be
currency and digital payment systems, e.g. Bitcoin, tampered with. Thus, ensures the reliability and the
(2) Blockchain 2.0 includes economic, market, and security of data. Two other types of blockchains are
financial applications that extend Blockchain 1.0, e.g. increasingly used in proof of concepts and startups:
smart contracts, (3) Blockchain 3.0 is all applications consortium and private blockchains. Consortium
beyond (1) and (2), e.g. government, art, and health. blockchains are partially decentralized permissioned
In illustrating (3), Swan hypes the extensibility of ledgers where the reader access can be both public
blockchain as the potential deployment of the and restricted to a group of participants. In private
blockchain core technology concepts in every field. blockchains the consensus process is restricted to
In particular, the author claims how blockchain only one organization [45]. Due to the fact that
introduces a new conceptual paradigm in computing private blockchains can no longer be decentralized
[38], which involves the distributed ledger and the [48], some blockchain experts do not consider it as a
decentralized consensus. As of today, there is no “proper blockchain”, but still, as a type of distributed
unified terminology and many sources use the terms ledger technology (DLT) [28].
‘block chain’, ‘blockchain’, ‘distributed ledger’ and
‘shared ledger’ interchangeably [42]. 3. State of the art: Blockchains in supply
According to the Report of Credit Suisse [8],
three main properties or levels of a ledger of digital chains
records or transactions exist: the number of copies,
the reader, and write access. A unique centralized This section will outline the industry and research
copy of a ledger characterizes the traditional systems, initiatives pertaining to blockchains and supply chain
(e.g. in government, in the current banking system management (SCM). It should, however, be noted
and in large corporations), while a distributed ledger that while Gartner's 2017 hype curve places
is an asset database that is shared across the nodes of blockchain near the peak of the slope, it is still sliding
a network, the peers [14]. All participants, who are downward on that slope [7], i.e., moving away from
connected to the peers (through a one-by-one the expectations of being [a universal or an umbrella
connection) and are executing on behalf of the or a blanket] technology.
business they are working for, have their own
identical copy of the ledger. Any changes are sent to 3.1. Industry initiatives
all the copies (in a time step between a few seconds
to a few minutes) making the ledger auditable. With regard to practitioners, some new-born
Moreover, distributed ledgers are decentralized in startups that exploit blockchain for product
order to eliminate the need of a unique trusted traceability [25] are achieving a lot of visibility. This
authority and enhance robustness [34]. The reader is the case of Provenance, which in July 2016 started
access distinguishes between public ledgers, i.e. all to work with the UK’s retailer Co-op in order to track
participants can view the ledger, and a version of the fresh food, such as fish, eggs, and dairy, through its
ledger with a more restricted access, i.e. private. supply chain [44]. Co-op customers are able to access
Private ledgers can be decentralized but not information on the product journey through an app on
distributed. The last level corresponds to the their smartphones. Through deploying blockchain

Page 3937
technology while collaborating with external 3.2. Research on blockchains in supply chains
certifiers and auditors, i.e. non-governmental
organizations certifying socially sustainable fishing, Peters et al. [29] assess the use of blockchain as a
Provenance meets the increasing interest of ledger to record all the ownership details of physical
customers for proven attributes of products (e.g. assets (e.g. Everledger). Consequently, as a public
safety, local, fair trade, environmentally sustainable) ledger, blockchain could enhance the information
[4]. transparency on products and processes along the
In October 2016, the large retail organization whole supply chain (SC) [3]. Furthermore, the
Wal-Mart, IBM, and Tsinghua University signed an prerogative of blockchain of creating a trustless
agreement aided to explore the opportunities of environment could impact business processes
blockchain in food authentication and supply chain integration [43] and, consequently, on operational
tracking [15], Walmart becoming one of the 400 IBM and business performance [10]. In 2017, Korpela et
clients testing blockchain technology (March 2017). al. proposed to use blockchain to accelerate the
That same month, the New York Times announced transition to digital supply chains (DSC) [17],
that Maersk was up to use the IBM version of favoring the strategic sharing of information between
blockchain to track avocados, flowers, and machine all SC actors, improving coordination,
parts on its cargo ships. In addition to realizing an communication, and processes integration. Yuan and
effective traceability system, another aim of Maersk Wang [46] are the first to discuss the potential
was reducing the paperwork (e.g. documents, advantages of blockchain in transportation research.
approvals, stamps, etc.) related to each container They hype blockchain as the proper infrastructure to
which previously required the involvement of as store and manage data from the physical space by
many as 30 people [32]. Furthermore, IBM, which integrating such technology into the IoT architecture
has around 650 employees dedicated to the to support the digitalization of the physical entities
application of blockchain technology, has recently (e.g. roadside devices, vehicles, assets). Key IoT
included new features in its IBM Watson IoT technologies, such as RFID and sensors, can provide
Platform that enable IoT devices to send data to a considerable amount of data that has to be managed
private blockchain ledgers. Use cases include data in order to ensure data security and, importantly,
recording (position, arrival times, and status of confidence in the data quality. Thus, the trustless
shipping containers) and environmental condition environment paradigm and the use of smart contracts
(i.e. temperature and humidity) monitoring during seem to provide a charming solution [13]. In their
freight transportation, component tracking, and work, Mattila et al. [22] explored the opportunities of
compliance, and log operational maintenance data using blockchain to support product-centric
[16]. Another example is the startup company information management in order to provide an
Modum.IO (pilot project launched in June 2016), effective architecture to collect data on products over
whose purpose is the monitoring of temperature and their entire life-cycle. The combined use of RFID and
humidity values experienced by medical products blockchain is also explored by Tian to enable track
during shipments that do not require refrigeration [6]. and tracing of products in the Chinese agri-food
Upon the arrival at the depot of destination data is market in order to enhance food safety and quality
transferred to the Ethereum blockchain, where while reducing food waste [39]. Abayratne and
specific smart contracts monitoring the temperature Monfared discuss the potential benefits of the
compliance with the extant regulations [9]. However, application of blockchain to a manufacturing supply
the current investigation of the effective benefits chain for cardboard boxes [1]. The authors point out
generated by the application of blockchain to the the mutual advantages achieved by customers, who
logistic field is still at an explorative stage. can easily access a great deal of data on products
Furthermore, Reyes reports how DLT are currently from the forestry to the waste recycler, and
under many regulatory discussions [35]. The lack of organizations, which can improve the control of
effective regulations affects the spread of new uses of processes and the security of transactions through the
DLT, for instance, with the application of unfitting usage of smart contracts. Encouraged by the fact that
payment laws. In January 2016, Mark Walport, as the a broader accepted key-driver for successful Supply
UK’s Government’s Chief Scientific Officer, point Chain Finance (SFC) programs is the development of
outs the need for a regulatory framework for DLT, technological solutions favoring the collaboration
which should result from the joint work of academia, among businesses and the speed-up of cash flows,
industry, and governmental institutions. Such Hofmann et al [12] explore the potential benefits of
framework should be able to follow the rapid the introduction of blockchain-based solutions to
evolvement in the use of this technology [42]. SCF. While agreeing in claiming that BC would not

Page 3938
scatter the rules of SCF, the authors underline how Municipalities Purchasing officers (2)
BC technology could enable SFC to speed up Freight planner
processes, make leaner structures and offer less-
costly services. Particularly, they estimate blockchain Technology provider Technology executive
would simplify the onboarding of suppliers onto SCF Nordic blockchain leader
platforms, favoring the inclusion of the long-tail Lead architect
supplier-base. Moreover, BC based platform allowing
the issuance of trade related documents could affect Technology Technical architect
SFC improving the ability to track the goods flows consultancy Head of innovation
and leading to faster payments. Technical project leader

4. Research design
Over the course of this project, numerous
meetings and conversations took place within the
This paper reports findings from an ongoing
core team (consisting of the university researcher and
development effort focusing on transparency in the
the technical project leader), often on a daily basis.
transport industry. The goal is to explore the potential
To strengthen the validity of this conceptual
of utilizing distributed ledger technology together
research, the technical project leader of the project
with the existing systems.
read two versions of this paper as well as other more
The solution was presented and discussed in
condensed industry magazine articles. After his first
numerous meetings and in two major workshops.
read, he suggested adding the section with the logical
Table 1 provides an outline of the people involved
reasoning.
thus far.

5. ReLog
Table 1. Data sources

Retailer 1 Head of logistics development The concept of ReLog 1 is to create an information


Logistics developer disclosure program (IDP) for supply chain
Logistics CSR transparency [20] by disclosing and logging of
Head of transport purchasing individual and organizational identities in a
blockchain. ReLog resembles the concept of
Retailer 2 Logistics developer Provenance.org but with a focus on the links and
Terminal manager nodes between the point of production and the point
of consumption rather than focusing on the
LSP 1 Head of quality production.
Logistics developer (2)
Head of network planning
Account manager

LSP 2 Integration analyst


Project manager (2)

LSP 3 Account manager


Figure 1. Sample goods flow
Haulier association CEO
Head of member relations The researchers met with the various stakeholders
in numerous workshops, meetings, and interviews
Environmental Head of freight sustainability (Table 1) and the main challenges that came forth
association certification were the following.
System integration. Creating a system integration
Transport booking Head of enterprise customers for a specific goods flow (i.e., connecting it to a
provider Account manager blockchain) with existing legacy systems is very
Integration analysts (2) challenging. The LSPs emphasized that the business

1
The ReLog prototype video can be found here:
https://www.youtube.com/watch?v=nWVdg6KU1MI&t=29s)

Page 3939
case needs to very strong to motivate such an 1. A created {chocolate: 210}
integration.
Transport worker privacy. Head of the Swedish 2. A created {coffee: 100}
transport union emphasized that even though the
unions are, in general, positive to the idea of 3. A transferred [{coffee: 100}, {chocolate: 200}] to C
transparency, the privacy of the transport workers
need to be investigated more thoroughly before a 4. C aggregated [{coffee: 100}, {chocolate: 200}] to
large-scale adoption can be fully supported. {shop_cage[{coffee: 100}, {chocolate: 200}]: 1}
Transport worker involvement. The transport
booking company is very positive to the approach but 5. C transferred {shop_cage[{coffee: 100}, {chocolate:
as one account manager said in the workshop: “I do 200}]: 1} to D
not want to be the party pooper, but already today it
is a challenge to make the drivers update goods 6. {shop_cage[{coffee: 100}, {chocolate: 200}]: 1} is
statuses with existing systems and you will need to not active (delivered to destination)
find out a way how to engage them”.
Value and visualization. The retailers were also 7. {coffee: 100} is not active
very positive about sharing their supply chains but
were unsure about the value the additional
8. {chocolate: 200} is not active
information sharing towards customers would
provide.
Need for blockchains. “The benefits of using How do we add a new fact to the world’s history?
blockchains in your solution (note: referring to the We must ensure consistency with all the past facts: if
ReLog application) is long-term because it will A wants to transfer asset XYZ to B, it must be a fact,
enable you to distribute trust faster in the long run”, A and B exists, A has XYZ (created or it was
replied the lead technologist after discussing the transferred to him/her and he/she did not forward it
architecture of the solution with the technical project already), etc. If something is not consistent with what
leader. ReLog initially started out as a pilot project we regard as a fact, it cannot be a fact (it is not “true”
exploring the use of blockchains in supply chains, but about our world). We never alter any facts (we do not
in the summer of 2017, the team decided to abandon change history). We can only save a fact or read a
the technology due lack of usefulness. “Blockchain fact.
creates digital trust, not physical monitoring”, says Therefore, if A creates a {chocolate: 210} that is
the lead programmer in the discussion leading up to not actually a true chocolate since the amount of
the decision to abandoning the blockchain cacao is too low in the recipe, the ledger does not
architecture. help us. We will be able to see the history of
The next section will explain the logic of transactions related to {chocolate: 210}, but we will
blockchains in SCM. not know how the fake chocolate entered into the
supply chain. This means that the trust of the
authenticity of {chocolate: 210} can never be larger
6. Logic of blockchains in SCM than the trust that we have for actors A, B, C, and D.

In this section, we discuss blockchains using logic 6.2. World state


as related to naming and necessity [18]. This is
necessary to determine what information technology
World state is a structure of all active
actually means in terms of practical implications in
assets/shipments and actors. World state answers one
supply chain.
and only question “who has what right at this
moment”, for example:
6.1. Facts (ledger/blockchain)
Identity A has {chocolate: 10}, {candy: 12}
Facts are an accurate and complete description of
our universe – we can call it log, ledger, history. Identity B has {coffee_x001:1}, {coffee_x002:1}
Assume we record every activity from creating
identity/asset to transferring/aggregating/splitting Identity C has {shop_cage[{coffee: 100}, {chocolate:
assets. This fact set will be huge, but the structure is 200}]: 1}
primitive –- facts form a simple, flat, and time-
stamped sequence of documents like this:

Page 3940
We can add a new fact if and only if it is example, a highly competitive environment
consistent with the current world state. Adding a fact determining frequent changing of SC actors may
changes the current world state (the content of the affect the decision process on how to allocate the
fact says how exactly state is changed). blockchain costs along the supply chain [41],
size of world state (only current active shipments) < especially considering the blockchain characteristic
size of fact set (everything, billions of shipments) of data persistency. Moreover, the trustless paradigm
introduced by blockchain scatters the role of the
if we lost current world state we can re-create it by transaction climate among SC actors as well as the
“replaying” all the facts since last saved world state. debate about decentralization in technologies
adoption.
As the public blockchain is unlikely to attract
7. Concluding discussion business interest, companies going forward with
distributed ledger technologies are likely to resort to
Our paper set out to address the question: Will consortium and private blockchains [49].
blockchains have a disruptive effect on supply
chains? As of now, very little is known, as there is 7.1. Future research
no actual running supply chain implementation of
distributed ledger technology/blockchains. Literature
and existing trials confirm the large potential and 1. Future research can expand the domain of the
interest in the adoption of blockchain technology in connection of the physical and digital world by
supply chains, but given the current knowledge, some considering the aforementioned logic of identities
factors speak against a disruptive effect: and trying to answer the question: Should the
1. The logic of blockchains in supply chains give identities have to be physical identities? Moreover,
us that we either need a mechanism to establish we believe that the temperature monitoring protocol
physical trust, such as a reputation system or a central developed through the blockchain, as implied by
authority creating trust. Modum.Io, deserves special attention by actors of
2. Industrial experience and our experiences in the perishable products supply chain.
ReLog project reveal that the integration of logistics
activities and adoption of supply chain technology 2. Further developments should deal with the
may not be straightforward. management of distributed ledger/blockchain
3. Companies and individuals need to have clear platform by multi-actor supply chains. Particularly,
incentives to implement and use blockchain more efforts should be devoted to the management of
technology. While some potential benefits are the ownership of data [22] and the sharing of
present, as of today, it is not apparent how they will responsibility for the platform.
be realized.
Our findings confirm the paper by Mattila et al 3. Potential future studies can also expand the
[22], also questioning supply chain disruption by lynchpin of blockchain success in the financial
blockchain technology. sector, which is its role in discarding the need for
The extant literature has already identified a central authority [12]. The use of smart contracts in
plethora of factors that influence organizations in the certifications might provide large value to supply
decision process on adopting a particular technology chain finance.
[19]. Some blockchain experts [31] believe that to
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