High Tech Weighs Risks & Rewards of Moving Beyond China
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Supply chain leaders across the globe are talking about the promise of blockchain, but there have been few demonstrations of suitable use cases. OEMs are already tiring of blockchain, according to market research firm Gartner. At its recent Gartner Supply Chain Executive Conferences 2019, the firm predicted that by 2023, 90 percent of blockchain-based supply chain initiatives will suffer ‘blockchain fatigue’ due to a lack of strong use cases.
At the same time, market researchers continue to predict astronomical growth. A recent report from MarketsandMarkets predicts that the global market for blockchain in the supply chain is expected to grow from $81.40 million in 2017 to $3.5 billion by 2023 -- a compound annual growth rate (CAGR) of 87.0 percent.
Are we tired yet?
The hype around blockchain has been considerable. “We understand the challenges of working with a hot technology like blockchain,” Prasen Palvankar, Oracle's senior director for product management, told EBN, EPSNews’ sister publication. “Everyone is talking about it and saying it will change the world. There is so much hype in the market so blockchain fatigue is inevitable.”
Experts say the high-tech industry usually has a high tolerance for leading-edge technologies. “High tech as an industry is typically more risk tolerant than many other industries when it comes to emerging technologies, so I would expect organizations within this industry to be furthest along in their exploration and pilot assessments of blockchain solutions,” said Evan Quasney, global head of supply chain solutions, Anaplan.
Ignorance in the supply chain may currently be a stumbling block, according to other professionals. “There’s an element of truth to blockchain fatigue but we also need a reality check,” Arran Stewart, co-founder of Job.com told EBN. “By 2025, there will be a new world-changing technology on the horizon and that should make the fatigue of investing today null and void. Further, the supply chain will benefit so massively from blockchain, and there are so many practical applications there that relevance will grow.”
Passing the test
Gartner has found that only 19 percent of respondents rank blockchain as a very important technology for their business, and only 9 percent have invested in it—mainly because blockchain projects aimed at the woes of the supply chain are in short supply. Gartner's survey was conducted between November 2017 and February 2018 among 303 respondents from North America, EMEA, Asia/Pacific and South America.
“Supply chain blockchain projects have mostly focused on verifying authenticity, improving traceability and visibility, and improving transactional trust,” said Alex Pradhan, senior principal research analyst at Gartner. “However, most have remained pilot projects due to a combination of technology immaturity, lack of standards, overly ambitious scope and a misunderstanding of how blockchain could, or should, actually help the supply chain. Inevitably, this is causing the market to experience blockchain fatigue.”
Electronics OEMs hoping to leverage blockchain run into the trap of managing multiple development pilots to uncover which provide value—since the nascent technology makes it hard to quantify value in the abstract. “Organizations are still trying to understand what it is, what the capabilities are, and what it means to the business. They want to understand what problems can and should it solve,” said Pradhan. “That presents a conundrum to organization. Should we move forward or not?”
At the same time, trial and error will likely yield results over time. “In many cases, there are no examples to follow so companies are doing things by trial and error,” said Pradhan. “We don’t want to discourage that because an innovative use case might emerge from someone’s experiment.”
As large players, such as Amazon, adopt blockchain technology, others will surely follow, Job.com’s Stewart added. Further, the completion of common standards created through cross-industry vendor collaboration will also help. “The largest OEMs are trying to evaluate and rough out use cases,” said Richard Barnett, senior vice president of marketing at LevaData. “They are considering joining blockchain consortiums and are in some early stage of triage around what use cases they think they make sense to invest or explore.”
Blockchain still lacks a few, strong software leaders so the market remains fragmented and supply chain organizations often cannot find an off-the-shelf, complete, packaged blockchain solution that meets their specific requirements. Others are confused by the offerings and how to distinguish between them.
“Without a vibrant market for commercial blockchain applications, the majority of companies do not know how to evaluate, assess and benchmark solutions, especially as the market landscape rapidly evolves,” said Pradhan. “Furthermore, current creations offered by solution providers are complicated hybrids of conventional blockchain technologies. This adds more complexity and confusion, making it that much harder for companies to identify appropriate supply chain use cases.”
Real world will arrive
Software vendors, meanwhile, say that real use cases are closer than many think. Oracle introduced its Oracle Blockchain Applications last October. “The first four applications are all supply chain use cases, as the supply chain is where blockchain can currently add the most value,” said Oracle’s Plavankar. “For example, we have blockchain applications for intelligent track and trace, lot lineage and provenance, intelligent cold chain and warranty and usage.”
Further, there are some new use cases on the near horizon. “The real disruption capability of blockchain technology goes beyond reducing supply chain costs for large organizations through micro transactions and micro marketplaces,” said Palvankar. “If we can use blockchain technology to enable fully automated transactions from order creation through to delivery of goods or services and settlement, then very small transactions and working with a large number of suppliers and customers will become economically viable.”
The high cost of product recalls, both monetary and in terms of corporate brand, may also offer compelling opportunities for blockchain technology. “With the high cost of product recalls and issues related to contaminated products, I think we are going to see many organizations in manufacturing, logistics and food and beverage demanding that suppliers agree to join blockchain networks as a requirement of doing business,” said Plavankar.
Gartner recommends organizations remain cautious until the core capability of blockchain emerges and ecosystem enablement has occurred. “The emphasis should be on proof of concept, experimentation and limited-scope initiatives that deliver lessons, rather than high-cost, high-risk, strategic business value,” said Pradhan. “You need to keep a pulse on what’s happening. The market is evolving very quickly and one of these technologies will transform and innovate.”
To identify the right opportunities, it’s important to carefully discern how to move forward in the best interest of the organization. LevaData’s Barnett outlines a potential process:
- Segment relevant use cases to your business. Look for forces or competitors that are potentially disruptive to the business. Consider how blockchain could provide a competitive advantage.
- Consider the economic value. Ask a few questions: Does it tie to optimizing my financial flow? Does it create a new digital experience for user in terms of services that can be monetized? Is it a source of differentiation in the market?
- Perform a risk analysis. Consider the dynamics around risk mitigation and risk response that blockchain offers. Can I trace source of supply and reduce recovery time in a recall or enhance brand protection?
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