Global Supply Blockchain

Introduction

Many processes within the supply chains of companies are becoming more complex with increased globalization. Many different parts are used in the manufacture of a product, making the sequences very intricate. In many industries, such as the automobile industry, end products consist of more than 10,000 individual parts, all of which come from different suppliers and industries. As a result, a far-reaching supplier network is crucial to the manufacturer.

A clear mechanism for identifying products and sub products, such as RFID technology, offers definitive advantages in the supply chain process. With identification the manufacturer can track the supply chain with all of the measured values for individual products so that they are later accessible without gaps.

In the transportation of products or partial products the general conditions such as temperature, time of delivery, and humidity have to add up. If, for example, transport containers are equipped with RFID chips, these measured values can be read unilaterally and be written into a Blockchain database. At any time, each participant in the supply chain can see where the product is located and under which circumstances.

The basic idea is to be able to identify products at all times through a global supply chain based on Blockchain technology, thus ensuring maximum transparency and quality in production and delivery processes.

This document describes a successful supply chain management based on Blockchain technology – the Global Supply Blockchain. We will address current challenges and provide solutions to those challenges.

Supply chain management

Supply chain describes the organization and networks that take part in adding to the value of products and services. In economics, this process is described as supply chain management (SCM). Supply chain management deals with all flows of information, raw materials, components, partial products and finished products along the supply value and supply chain. This means that all parties (from supplier to the end customer) are important for supply chain management.

Supply chain risk management is becoming increasingly important in supply chain management.   This is due to increasing globalization, which is responsible for complicating supply chains and expanding outsourcing processes. Supplier networks are becoming increasingly opaque and complex – with this comes the rise of risk.

Risk management is aimed at ensuring the company’s continued existence and reducing the susceptibility of the supply chain to allow it to prosper.

Obsolescence management is a part of risk management. It deals with the availability of components (product lifecycle) and the discontinuation of products (usually in the form of a product change notification).

One goal of obsolescence management is to increase the availability window of components by extending the life cycle. To do this, components are stored to the extent necessary to cover foreseeable consumption. If the original products are not sufficiently available, they are replaced with comparable components (substitute goods).

Another goal is the end of life (EOL) of a product. This is important, for example, when dismantling an aircraft, since a documented deconstruction must take place. This is necessary to rule out that aircraft parts appear again on the market as counterfeit spare parts.

Goals of supply chain management

Since supply chain management is divided into various sub disciplines, the objectives are varied, but the all-around focus is on resource optimization. Combined with this, cost optimization is achieved by capturing material flows and provisions at the right place and at the right time. The strategic choices of supplies, site planning and optimal transport routes (avoiding production delays and layovers) are an essential part of supply chain management. This is to achieve a shortening of the delivery and transit times and at the same time ensuring adherence to deadlines. The lowering of market risks, betterment of forecasting and planning accuracy, and avoidance of the bullwhip effect are side-effects of successful supply chain management.

Effective supply chain management increases the strength of the entire supply chain when faced with disturbances.

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The following statistics show that supply chain management is becoming increasingly important in the global environment.

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The statistics show the largest ports in the world ranked according to their annual turnover volume in millions of TEU (twenty-foot equivalent unit = standard container with a maximum total mass of 20,320 kilograms). These figures are intended to illustrate the volume of world trade.

Cargo handling forecast for the Port of Hamburg

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The statistics show the cargo handling for the Port of Hamburg (in millions of tons) from 1990 to today, and gives a forecast until 2025. The Port of Hamburg is ranked 19th in the international ranking and is the largest port in Germany and after Rotterdam the second largest in Europe. The cargo handling of the port of Hamburg is growing continuously and can be used as an example for the growing global freight transport.

The statistics show that supply chain management will play a central role in the coming years. World trade has continued to expand as a result of increased globalization. The tracking, planning, and evaluation of risks is becoming more and more important.

Challenges in supply chain management

For a shipping container transporting cargo from China to Europe, at least 30 parties (companies, customs authorities, and other organizations) are involved in handling. This results in approximately 200 interactions, which each interaction requiring several documents. The bureaucratic management of these documents in becoming increasingly problematic.

Additionally, in classic supply chains participants only know their predecessors and successors, making an accurate status and location determination of products impossible. A major problem is the authenticity of product-related data. For each industry, there are several databases, whose reliability and independence must be scrutinized.

Today’s supply chains are highly susceptible to interruption since supply surpluses and material bottlenecks can not be predicted or sufficiently monitored. Country-specific raw material regulations, varying definitions of dangerous goods, as well as ever-changing customs and safety regulations (import regulations, storage of documents, etc.) continually provoke major problems with supply chains.

Another challenge is high processing times caused, for example, by manual information transfer and the use of suboptimal transport routes. Furthermore, the consistent traceability to the original source is a problem because of the lack of end-to-end transparency. This also make plausibility checks difficult or impossible to carry out at all. The customer or consumer can thus have only limited confidence in their product or service.

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Possible technologies for the identification of products

For complete documentation of all products and services (log and trace), there are a number of technologies available. Some of these technologies are: Radio Frequency Identification (RFID), SmartLabel, Global Trade Item Number (GTIN), QR Code, Data matrix Code, Serial Number (MSN), Electronic Drug Monitoring Code (EDMC), and holo-inlay and UV-reflecting surfaces. The exact functions and explanations of these technologies are found in the appendix.

Blockchain

What is Blockchain?

Blockchain is an invariable, highly available and distributed database in which all data written in to it is tamper-proof and can be protected against unwanted access via encryption. It is like a database in which, similar to in a normal ledger, all transactions are entered chronologically. In order to prevent manipulation, blocks are formed and then closed with a checksum. The blocks are then arranged one after the other, each block containing the checksum of the previous block. Thus, a type of chain is created, hence „Blockchain.“ Many copies of this chain are created and distributed. There is therefore no central unit that has control over the chain.

The Blockchain ensures that all participants have the same copy of the Blockchain, making it easy to detect and subsequently exclude altered versions.

How Blockchain works

The following material explains the technology behind Blockchain.

Smart Contracts and their role in supply chain management

What are Smart Contracts?

Smart Contracts are computer programs that simplify, review, execute and enforce agreements by using Blockchain technology. Once triggered, the Smart Contract is executed autonomously as soon as the agreed conditions have been met. If the contract is executed, it can not be interrupted or otherwise disturbed by anyone. This technique ensures that the content of the contracts is fully implemented /27/. Smart Contracts can replace classic contracts.

Through the use of Smart Contracts, the operational risk of contract parties is enormously reduced and the process takes place in an automated and trustworthy way /27/.

How do Smart Contracts work?

After the contract has been completed, it will be continuously and independently checked to see if the previously defined terms of the contract have been completed. As soon as one part of the contract has been completed, the next part takes place automatically. This results in legally secure contracts, which are executed quickly and cost-effectively.

The process of a Smart Contract is as follows /28/:

• Both participants agree on certain conditions.
• The conditions are implemented as algorithms in source code, which is delivered to both participants.
• Both participants compile the source code independently.
• Both participants compare the code with one another.
• If the checksum or the hash is matched, it is reaffirmed in binding form that the conditions have been agreed upon.
• The source code is deposited in the Blockchain as the basis of the contract.
• The completed program is installed and started at the necessary points.

Global Supply Blockchain

The advantages of successful supply chain management and the associated transparency of supply chains have already been explained. If the supply chains of individual companies are now lifted to a global level, new advantages are created and synergy effects can be used. This global supply chain can now be linked to Blockchain technology, resulting in a Global Supply Blockchain.

The Global Supply Blockchain is composed of several smaller side chains, which are classified according to industry. A classification could be as follows: electronics industry, pharmaceutical industry, automobile industry, etc. These sub-chains are interconnected to form the Global Supply Blockchain.

Goals of the Global Supply Blockchain

The Global Supply Blockchain aims to ensure the best use of global resources, reduce costs by optimizing transport routes, and minimize the risks to companies through forecasting and better planning. In addition, middlemen are eliminated and the transparency for customers/consumers is increased. Every product and service can be tracked without interruption.

The Global Supply Blockchain would serve as a global ERP system by allowing a supplier to react to an approaching bottleneck before it occurs.

Through tracking it is possible to document the progress of a product from production to the end of the product life cycle without any gaps. As a result, it is impossible for a spare part to re-appear as a counterfeit on the world market.

Advantages of the Global Supply Blockchain

The essential element is the labeling of all products with a one-to-one, counterfeit-proof feature, and to store them in a Global Supply Blockchain. With such a Blockchain, it is possible to identify a product from its finished condition right down to the smallest component. This enables the retrieval and identification of even the smallest component in the supply chain process.

The uninterrupted traceability in combination with the unique identification possibilities of each product enable automatic product tracking. This facilitates the identification of plagiarism and simplifies the procedures for preventing product piracy. Police and regulatory agencies will be relieved because commercial trade with plagiarism can be recognized and stopped.

Using a Global Supply Blockchain has the advantage that all involved parties use a unified IT system.

The Global Supply Blockchain provides information on transport, routes, supplies, transport conditions and much more. It is possible to record measured values (for example temperature, humidity, and vibrations) and write them into the Global Supply Blockchain. This transparency makes the entire supply chain process visible.

The seamless traceability and transparency bring sustainability because the information can be documented and viewed from the production process of a product up to the end of the life cycle. In addition, the data that is written into the Global Supply Blockchain gains authenticity because Blockchain technology is regarded as tamper-proof and revision-safe.

The use of Smart Contracts leads to automated, faster process flows and decentralizes the payment process, for example when transporting containers and goods.

Practical example with Global Supply Blockchain as a solution

Example of a manufacturing and distribution process using RFID technology

Here an entire manufacturing ad delivery process with the respective intermediate steps is described. The process assumes that a product is sold to an end consumer via a shop after production and transportation. This repetition can occur as often as necessary until the product has arrived at the end customer.

For more detailed information on RFID in supply chains, please refer to the paper “Supply Chain with Blockchain – Showcase RFID.“

Registration of the RFID chip

Precondition: Manufacturer receives registered chips.

Description: In the production process, the manufacturer inserts the RFID chip into the product.

Post condition: The RFID chip is included in the product, making the product clearly identifiable.

Manufacturer

Precondition: Manufacturer receives registered chips.

Description: In the production process, the manufacturer inserts the RFID chip into the product.

Post condition: The RFID chip is included in the product, and the respective product is thus clearly identifiable.

Transporter

Precondition: RFID chip is included in the product, and the respective product is thus clearly identifiable.

Description: The finished products are transported and handed over to the intermediary by a logistics company. The resulting data (for example location changes, transitions, temperature, humidity, vibrations, etc.) are linked with the product ID and stored in the Blockchain.

Post condition: In the Blockchain the product can be identified via the one-to-one RFID chip and contains all recorded data from the transport process.

Middleman

Precondition: In Blockchain, the product is identifiable via the one-to-one RFID chip and contains all recorded data of the transport process.

Description: The finished product is delivered to the final consumer via the intermediary. Any changes in the state (location, transitions, temperature, humidity, vibrations, etc.) are stored in the Blockchain.

Post condition: In the Blockchain the product can be identified by the one-to-one RFID chip and contains all the data collected in the middleman process.

Consumer

Precondition: In Blockchain, the product is identifiable via the one-to-one RFID chip and contains all the data collected in the middleman process.

Description: The intermediary gets the products to the consumer.

Post condition: The consumer is clearly identified by the RFID chip. It can inspect and verify all relevant manufacturing and transport data.

Sale to manufacturer

Precondition: The customer is clearly identified by the RFID chip. They are able to inspect and verify all relevant manufacturing and transport data.

Description: The finished products reach the manufacturer via the end customer and the delivery process starts from he beginning. Any changes in the state (location, transitions, temperature, humidity, vibrations, etc.) are stored in the Blockchain.

Post condition: The customer is clearly identified by the RFID chip. It can inspect and verify all relevant manufacturing and transport data.

Notice: The process begins to run through the steps from the manufacturer. This repetition can occur as often as desired.

Global Supply Blockchain

Precondition: The Global Supply Blockchain is available for all process participants.

Description: In the supply Blockchain, all the data that is generated for an identifiable product is stored.

Post condition: All data within the production and distribution processes are stored in the supply Blockchain.

Example: Obsolescence management

An electrical engineering company obtains sensors for microcontrollers from a manufacturer. There is a product change notification or discontinuation for these sensors, which specifies that they will no longer be manufactured with the prior specifications.

Problem

The example company only has two options in case of a cancellation. It is possible to buy the remaining stocks of the remaining sensors (last time buy). This creates the problem that there is no uniform database containing a list of suppliers that still have sensors of this type. Time and resources spent on research would quickly get out of hand. A second option would be to replace the old sensor with another one, but a larger search would be required to find such a sensor. This possibility is also costly and time-consuming.

Ideal solution

The Global Supply Blockchain ensures that the electrical engineering company can perform obsolescence management. The company is immediately offered a qualitative equivalent substitute through the Global Supply Blockchain, or is provided with a list of retailers who still have the sensors. This is possible because all parts, quantities, and availabilities are listed in the Blockchain.

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Example:  Risk management

A company purchases screws from three different suppliers. These suppliers obtain their raw materials from a steel producer.

Problem

If the steel producer fails, the total loss of all existing suppliers is threatened. At some point a bottleneck of screws is ensured and the smooth production is jeopardized.

Ideal solution

The Global Supply Chain enables the company to carry out a forward-looking risk management process by continuously analyzing its supply chains and identifying vulnerabilities or single points of failure. Thanks to the transparency made possible by Blockchain, the company can quickly recognize and eliminate risks.

Example:  Supply Chain

Consumers are always exposed to inferior meat and fake food.

Problem

Because of the lack of documentation and transparency in the production of food, it is very easy to forge the manufacturing process by using additives. In addition, plausibility checks are not possible, because it is not possible to trace where a product comes from and who was involved in its production. A farmer owns cattle, which is slaughtered and then sold through various intermediaries and slaughterhouses.

Ideal solution

Through the use of the Global Supply Blockchain it is possible, for example, to trace and document cattle from the farmer to the retail sale. Checksums make plausibility checks possible and the consumer is thus offered transparency and high quality.

How does the Global Supply Chain change the industry?

The turnover of goods will rise enormously in the coming years, such that new, efficient, and cost-effective solutions must be found. The Global Supply Blockchain offers such a solution.

It is conceivable, for example, that a shipping container owns its own wallet (electronic briefcase). Upon arrival at a port, the shipping container would be able to pay its own handling costs independently via a Smart Contract. Time-consuming manual processes would be avoided. The goods in the container also have their own wallets. They must pay transportation fees to the shipping container; all of these transactions happen automatically via Smart Contracts.

Item data is maintained in the Global Supply Blockchain. This makes the products more comparable and interchangeable. By identifying the flow of goods and their dependencies, better conditions can be created for planning and weighing risks, for example the reduction of overcapacities and storage links (reduction of capital commitments).

By implementing risk management, single-point failures are identified and their dependencies are made visible.

Assuming that a partial product is purchased exclusively from abroad, production is strongly dependent on imports. If the customs and import regulations change for the import, this product can no longer be acquired and production comes to a complete standstill. Through the transparency of the Global Supply Blockchain the location of a comparable product can quickly be obtained.

Wholesalers are increasingly deciding to buy products from retailers in order to avoid supply bottlenecks. To do this they must contact the retailers in order to buy products from them, which can be time-consuming. The transparency of the Global Supply Blockchain makes this process much easier. The wholesaler submits a request to the Global Supply Blockchain for the required product and receives the retailers who have the product in stock.

Autonomous factories, that is, companies that function without people, are called DAOs (Decentralized Autonomous Organizations). With the help of 3D printers, products are manufactured quickly and cost-effectively. DAOs can carry out transactions through Smart Contracts. For example, a customer orders a product via an app. This order is received by the DAO and is automatically forwarded to the 3D printers. The finished product is delivered to the customer via a logistics company. The autonomous factory will significantly speed up the production process and be able to respond more individually to the needs of the customer. Adidas, for example, produces soles using a 3D printer and has the goal of producing shoes tailored to the needs of the customer.

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Conclusion

A Global Supply Blockchain has a tremendous number of benefits that will seriously change a globalized economy.

Cost and time-efficient risk management can be used to generate reliable forecasts and better control of production planning. Log and trace (the tracking of products) is an essential building block that creates trust and transparency. Technologies such as RFID or QR codes can be helpful. For example, parameters such as humidity, temperature, and weight can be stored in the Global Supply Blockchain and thus increase the credibility of the delivered product.

Blockchain technology is regarded as tamper-proof and revision-safe. Combining the advantages of good supply chain management with the advantages of Blockchain saves unnecessary costs. Instead of having many different databases, everything is written in to the Global Supply Blockchain. This reduces search times and allows for faster identification of substitution goods. Even demand planning can quickly and easily adapted to such changes.

A major problem with branded products is plagiarism. The use of the Global Supply Blockchain eliminates this because fake products cannot be registered accordingly. In addition, counterfeiters will have a harder time selling their products because they do not have access to the Global Supply Chain.

Global Supply Blockchain offers perhaps the greatest potential for cargo handling. The enormous bureaucratic cost of transporting goods is minimized by automation with the help of Smart Contracts, thus reducing the incidence of errors. Charges can be settled independently when ship containers and products have their own wallets.

The turnover volume of the logistics sector will rise drastically in the next few years. It is currently impossible to predict who will dominate this market and world trade over the next 20 years. But what is certain: the key will be the Global Supply Blockchain!

Referenzen

/1/ Wikipedia
/2/ www.welt.de
/3/ www.focus.de
/4/ Wikipedia
/5/ Wikipedia
/6/ Wikipedia
/7/ www.pharma-food.de
/8/ www.hologram-company.com
/9/ Wikipedia
/10/ Wikipedia
/11/ Statista
/12/ Wikipedia
/13/ Wikipedia
/14/ Statista
/15/ Statista
/16/ www.heise.de
/17/ Wikipedia
/18/ www.logistiktrend.de
/19/ Wikimedia
/20/ www.barcoderesource.com
/21/ Wikipedia
/22/ Wikimedia
/23/ www.hologram-company.com
/24/ Wikimedia
/25/ t3n.de
/26/ www.linkedin.com
/27/ www.computerwoche.de
/28/ www.datenschutzbeauftragter-info.de
/29/ www.heise.de
/30/ sneakernews.com
/31/ www.searchenterprisesoftware.de

Appendix:  Technologies for the identification of products

RFID

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Radio Frequency Identification (RFID) is an automatic identification method that implements contactless communication between a chip and a reader.

An RFID chip can transmit information stored with radio waves to a reader (RFID scanner). For example, the ID card in credit card format contains an RFID chip, which enables a non-contract reading of personal data via a scanner.  An RFID chip comes without its own power supply. The scanner emits a wave on a radio frequency. The RFID chip captures energy from these waves and stores them in a capacitor. Thus, the microcontroller is supplied with power for the time of the interaction. Most RFID chips operate in the frequency range 865 to 869 MHz and use the principle of „modulated backscattering.“ At the same time, secondary frequencies, which are interpreted as digital data by the RFID scanner, are backscattered /2/.

Application areas

• Identification of products
• Access control
• Tracking of products
• Electronic construction documentation
• Chip cards
• Printed circuit boards with RFID tags
• Car immobilizers
• RFID in loading aids

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Smart Label

Also known as smart tags, smart labels are passive RFID transponders. The Smart Label is attached to a film and antenna, and the film is rolled up and can be processed like paper.

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Application areas

• Shipping labeling
• Product labeling
• Automatic identification

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Global Trade Item Number (GTIN)

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Currently 90% of all goods are marked with the GTIN. The globally identifiable GTI numbers are managed and assigned by the Global Standard One (GS1). There are four different GTI number, GTIN-8, GTIN-12, GTIN-13,and GTIN-14. Each consists of 8 to 14 numbers and a barcode. European Article Number (EAN) was replaced by the GTIN in 2009. The GTIN may also be encoded in the form of a 2D bar code (data matrix, for example).

Application areas

• Items in the supermarket
• Warehouse management
• Production
• Carrier
• Accounting
• Cash registers

QR-Code

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QR Codes are 2D codes and are widely used. They are considered very robust because of their capability for automatic error correction. The code consists of a square matrix, the data being shown in binary form. There are markers in three corners that serve for orientation. The code is scanned and can thus be read. The data is protected by an error-corrected code, which allows for loss of up to 30% of the code.

Application areas

• Timetable information
• Mobile business cards
• Marking of domestic animals
• Advertising
• Links to download links
• On products

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Data matrix code

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Data matrix code is a 2D code and was developed in the 1980s. The code is used for permanent direct labeling. In the automotive industry it is used with needle punching (marking by an oscillating tungsten carbide tip, which leaves a depression at every impact). The code is printed on analyzers and instruments (chemistry, medicine).

Application areas

• Automotive industry
• Productions (e.g. PCBs)
• Medical instruments
• Laboratory equipment
• DV franking (electronic payment of postage fees)
• Pharma industry

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Manufacturer Serial Number (MSN)

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The serial number is an unambiguous alphanumeric designation that is placed on the product by the manufacturer, which is intended to enable the traceability and indicate a production condition. The numbers in the serial number are usually assigned to a series or batch. Manufacturers can use the serial number to identify the product.

Application areas

• Vehicles and machinery
• Technical devices
• Software
• Art
• Luxury goods
• Banknotes
• Credentials
• Weapons

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Electronic Drug Monitoring Code (EDMC)

EDMC is particularly important to the pharmaceutical industry in China and is thus also called China code. The EDMC is a one-dimensional bar code consisting of 20 digits and a minimum height of 8mm. The code is attached to the package.

Application areas

• Pharma industry

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Holo-inlay

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Holo-Inlay is a technology based on holography. It is a combination of a holographic safety strip and RFID technology. It achieves a reading range of several meters for contactless pulse acquisition. Holo-inlay is 100% forgery proof because the hologram or nanogram has a resolution of 1,500,000 dpi.

Application areas

• Spirits industry
• Pharma industry
• Automotive industry

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UV-reflecting surfaces

UV light is an electromagnetic radiation which is invisible to humans. Products are irradiated with UV rays and reflect the UV light, which can be detected only by special cameras.

Application areas

• Pharma industry

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Published by: R & D faizod, Dresden, Christina Seifert

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