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March 27, 2019
Improving supply chains through IoT and blockchain
By: Shailesh Kalmegh​

From raw materials to distribution to after-sale support, understanding the location and flow of assets within the supply chain is critical. Today’s suppliers need to track their assets while in transit, and if necessary, administer instant billing to third-party vendors based on the use of assets. Regulators around the world also require information about supply chains—with penalties for any noncompliance with asset management.

Beyond the need for information, complex supply chains depend on trust to function properly. But distrust between organizations has historically discouraged them from sharing or relying on shared data. Blockchain can remedy that with a permissioned, shared record of ownership, location and health of assets. That shared record can increase efficiency, transparency and trust.

By combining the power of IoT and Blockchain technology we can unlock greater value across a supply chain by providing real time information, ensured authenticity of goods & high value assets, lower operational costs, improved cash flow, new revenue streams, instant cash flow, and enhanced reporting and operations across a different track and trace ecosystem.

How smart contracts transform B2B supply chains
Consider a parts manufacturer that loans equipment to different dealers of automobiles who use the equipment in their service departments. The manufacturer must track and monitor the condition and location of these expensive assets and bill the parties involved for any misuse or time overages.

Currently, this process is comprised of many disparate parties, including the manufacturer, dealers and transportation companies, and spans large geographic regions. Maintaining all of this information without a cohesive system requires capacious paperwork and administration. The manufacturer cannot reliably verify and validate the actual usage of their assets, resulting in loss of revenue and slower cash flow. Moreover, the lack of transparency of events in typical supply chain tracking makes it difficult to investigate and hold parties accountable for any unwarranted activities that have occurred while the asset is in their possession. As a result, it is costly to examine potential cases of fraud, or blatant misuse of assets. This can heavily increase the liability of proprietor of the system.

Transactions --> Smart Contracts
Blockchain and IoT together could significantly improve the integrity and reliability of tracking assets, resulting in secure, efficient, and cheaper transactions that prevent fraud through a distributed ledger that cannot be manipulated.

This is facilitated in blockchain using smart contracts, which are computer programs where two parties can be preprogram, automatically execute, and enforce transactions based on the occurrence of defined events. For example, the manufacturer enters into a smart contract with a shipping partner with the payment terms defined in code and conditions on delivery of assets to the dealer’s dock. Both the manufacturer’s and shipping partner’s banks would have access to the status of the contract. When the assets are transferred from shipping partner to dealer, the manufacturer enters into another smart contract with the dealer with defined payments terms and conditions on usage of assets while the asset is in the dealer’s possession.

Smart contracts eliminate the need to reconcile documents across multiple parties with IoT devices that can monitor the actual status of the assets in real time and trigger the execution of the payment terms of the contract upon delivery. The banks have visibility into the original contract, the sales order, and the actual delivery status. This allows them to validate the origin and authenticity at the same time and speed up the payment cycle.

How IoT complements Blockchain

Real-time data --> Records
IoT, in turn, links the physical world to the digital world, allowing transactions to be executed in real-time, and behaviors to be effectively adapted. Through real-time data collection, communication, compilation into information and presentation of assertive results, IoT acts complementarily to blockchain technology. IoT allows systems and users to aggregate data, analyze trends, perform preventive monitoring and help enforce financial transactions. For example, if a manufacturer is shipping high-value assets inside containers to their dealer through their shipping partner, these containers should be transported under strictly controlled temperature ranges and within specific time windows. Failure to do so could result in high-value shipments being delayed, damaged or impounded for investigation. It’s currently possible to capture temperature feeds from onboard sensors and transmit them online to an IoT platform.

What has been missing is the ability to ensure that the captured, transmitted data is secure and tamperproof. A blockchain framework complements an IoT-based data feed to guarantee the reliability and security of information received and captured. Such a combination enables a manufacturer to capture compliance conditions in a smart contract. In this case, the actual temperature feeds during the journey could be compared against the defined conditions in the contract to govern compliance. If the health of the asset degrades, the manufacturer can instantly charge mishandling fees to the shipping partner or dealer.

Blockchain and IoT can come together to address some of the key issues faced by supply chains today and unlock real value for enterprises. Both are gaining traction in their own right, and this trend will likely accelerate into production as the technologies mature.

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