How blockchain and IoT is making supply chain smarter

These days, supply chains are complex as well as distributed, involving a large number of parties. Supply chain companies are upgrading their business operations by adopting technologies like IoT and blockchain to monitor assets accurately. In fact, since 2018 the blockchain in IoT market (link resides outside ibm.com) grew from USD 30 million to 113 million, and is projected to grow to more than 3 billion with a compound annual growth rate (CAGR) of nearly 93 percent by 2024.

IoT sensors are used to collect information relating to environmental conditions, verify how long the cargo remains in a particular truck or at a specific port, and whether or not it’s being tampered with or affected by any means which violates the handling directions. This information can be used to resolve invoice disputes by providing evidence for insurance claims. It also helps companies by assisting them in optimizing their supply chain operations for improved efficiency.

The economic impact (link resides outside ibm.com) of industrial IoT applications on the global GDP could stand anywhere between USD 4 trillion and 11 trillion by 2025. This economic impact from IoT is majorly due to the visibility and remote controlling capability it provides to almost all industries, which results in improved operational efficiency and safety.

A blockchain-based supply chain management system is built on a shared distributed ledger which provides an indisputable record of all the data related to shipment status, truck status, storage environment conditions and more.

Here are two potential use cases of blockchain in supply chain management:

1. Product source

Both the company, as well as the consumer, can track the entire product life cycle throughout the supply chain using blockchain and IoT technologies. Blockchain is an accurate data record where all the communications among IoT devices are saved in the history. It provides instant access to all the information related to the products, for instance, the date when a fish was caught, registered, and sold — a complete record of its journey from ocean to fork.

2. Smart contracts

Blockchain and IoT together ensure safe cargo shipping, even in cross-border trades. The system acts like an online arrangement between all the parties involved in a trade. It can be said that the terms and conditions of the contract are written in computer codes, facilitating financial transactions among unknown parties without dispute.

Minimization of paperwork is another area where blockchain and IoT technologies can be beneficial. Transportation of a container from one place to another involves many intermediaries. As most of the companies are still using traditional methods of trade, the requirement of paperwork remains. Blockchain and IoT allows companies to save on labor cost and ensure data protection by removing paperwork throughout the ecosystem.

As 50 to 200 billion connected devices get online by 2020 (link resides outside ibm.com), fundamental security risks will emerge and could become exponentially worse with the lack of openly stress tested baseline protocol standards for IoT interaction. IoT may suffer from potential systemic failures with disastrous consequences as it will scale.

The Internet of Things is all about ingestion and transmission of a massive amount of data. The primary concern is to secure that data. Data passes through various devices and integrated solutions — including data analytics, IoT devices and platforms. It becomes complicated to ensure its safety, keeping in mind that data also needs to pass through so many administrative borders, each having its own set of policies.

Apart from just securing the data, it is vital to guarantee safe data delivery at the right time, form and place.

The current IoT ecosystem operates on a centralized model where various IoT devices are identified, connected, and verified by cloud services that offer massive data storage capabilities. No matter if the devices are far away or right next to each other, there is always a need for the internet which serves as a conduit for data passage.

In the centralized IoT ecosystem, businesses have to deal with high infrastructure and maintenance costs triggered by integrated IoT solution implementation. Just imagine the hike in cost when the number of internet-connected IoT devices reaches the millions. An increased in the number of connected devices also increases the number of communications, leading to issues with scalability, economics and engineering.

Since blockchain is a decentralized distributed ledger, no central authority or specific administrator is required for data records and transactions. Based on cryptography algorithms, blockchain technology is designed to make sure data alteration is prevented for high security. Every block on the blockchain network has a hash to the previous block, which means that none of the bocks can be altered or substituted.

When integrated with IoT, blockchain can offer logistics providers rapid deliveries and optimized operational costs across a variety of applications. A blockchain-based use case for cold chain logistics is IBM Food Trust, which uses blockchain technology to create transparency and accountability in the food supply chain.

When you add autonomy and transparency to the process of getting things from point A to B, we make the logistics operations secure and optimized.

The market for global blockchain technology is expected to grow (link resides outside ibm.com) from USD 315 million just a couple years ago, to 20 billion by 2024. And while consumer IoT is harvesting most of the spotlight, the world of smart wearables and connected home appliances will only represent 22 percent of the full potential of IoT.

Blockchain and IoT together can take supply chain management to the next level. Just imagine how the transportation process can work by implementing both technologies.

From time to time, we invite industry thought leaders, academic experts and partners, to share their opinions and insights on current trends in blockchain to the Blockchain Pulse blog. While the opinions in these blog posts are their own, and do not necessarily reflect the views of IBM, this blog strives to welcome all points of view to the conversation.