Blockchains have exceptional potential in certain industries. In sectors with mission-critical applications—such as health care and the military—knowing the source of all parts, having information on product quality, and being able to pinpoint the supplier of a faulty component can save lives. In 2012, a US government investigation discovered $1 million in counterfeit parts intended for military helicopters. Fortunately, government protocol requires a paper trail for all parts and photographic proof of process authorization, so the source of the counterfeits was ultimately identified.
Blockchain can automate and accelerate this traceability. Moog, which makes precision parts for the US Department of Defense and the aerospace industry, is developing a blockchain platform to securely share computer-aided design specs of plane parts with suppliers and trace and audit the deployment and life cycle of each input.
Blockchains can also be valuable in industries where provenance is critical. In the food industry, for instance, a blockchain’s tracking function would speed up the ability of investigators to find and remove the source of food-borne disease outbreaks anywhere around the world, pinpointing particular crops or factories. In other situations, it’s important to prove that products are authentic, or that they were responsibly and ethically sourced. BCG and BCG Digital Ventures worked with De Beers to construct a blockchain for tracking diamonds throughout the supply chain. The result is a tamper-proof digital diamond register that streamlines manual processes, creates new efficiencies in the value chain, and provides consumers with further assurance that their diamonds are natural and responsibly sourced.
Looking forward, blockchain technology’s potential impact across industries is even greater when examined in a larger context. The convergence of technologies such as predictive analytics, machine learning, robotics, 3D printing, and the industrial internet is already transforming manufacturing and the supply chain. The greatest value will come into play when companies combine a blockchain with a mix of these technologies for greater power and synergy.
As we approach that more decentralized era—one of rapid production responsiveness in which a global array of potential actors will need to move in and out of supply chain relationships at short notice—the industry’s current preference for the permissioned blockchain model may be put to the test. A tendency among permissioned consortium members to block new entrants could limit the competitiveness of the overall chain.
Shifting to a “permissionless” system would create a much more open, dynamic model with fewer gatekeepers, advancing innovation and more rapidly leading to greater network efficiencies. But it would also be far more disruptive than the permissioned model, exposing legacy businesses to new competitors. The shift would require a leap of faith by existing supply chain members and a willingness to sacrifice some degree of control.
In addition, the technology behind more open, public platforms such as Bitcoin and Ethereum must be far more developed to meet the demands of the global trade system and its massive volume of transactions. Large, distributed teams of open-source developers are working hard to address these scaling challenges, and it’s reasonable to assume that they’ll come up with viable solutions. At that point, blockchain technology’s potential could explode. Just as the battle between intranets and the Internet—a battle that the latter won—led to a new era of business change and opportunity, we may be on the threshold of a similarly fertile period, ushered in by the current wave of blockchain innovation.
Now that digital technologies have removed the physical constraints on data transfer, trust may be the last major barrier to optimizing the flow of information that market economies thrive on. Blockchain technology’s ability to remove this barrier may allow us to finally unlock the real economic potential of our hyperconnected age. For supply chains, this could be revolutionary.