Blockchain on demand chain management (DCM)

 

Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the entire demand chain. The customer’s interest is at the core of the chain: the company seeks to reduce costs to offer better prices, provides good customer support and strives to achieve a fast go-to-market from idea to product.

In order to achieve this goal, all stakeholders within a demand chain need to have real-time visibility of what customers want. Therefore, all the parties in the demand chain need to be tightly connected within a network. DCM requires companies to have a complete and accurate overview of the market to choose optimal production decisions. In supply chain management (SCM), companies try to optimize the flow of materials, goods and services of a given product, and decisions might be taken with an incomplete market assessment. Hence, DCM is based on a pull-strategy, in which stakeholders (suppliers, wholesalers, etc.) do not have to wait for a notification but can check the status of the chain at any given point in time. In that way, a supplier can start producing a specific good and deliver it to the original equipment manufacturer (OEM) without the latter having to notify the supplier. And that is where blockchain becomes handy: it enables all participants to read the state of the demand chain at all times, so they can act accordingly, and update it so that other participants can also take action.

Each existing product has its own specific supply/demand chain, which involves different raw material producers, suppliers, wholesalers, retailers, customers, etc. Even the same entity may take different roles across different supply chains, and have more or less relevance within it. For that reason, a single blockchain per supply/demand chain (per product) is necessary, which means that a single supplier would have to be involved in at least as many blockchains as clients it has. For this to work, all blockchains should have compatible formats, and be able to interact between them so that it is possible for that same supplier to choose optimal production decisions.

Where are we at today?

Several blockchain projects are already working to provide blockchain-based solutions to improve the efficiency of supply chains, and allow companies to shift towards a demand chain, where they can benefit from more accurate market data. Even Walmart has partnered with IBM to implement blockchain for food traceability in its supply chain.

VeChain is one of these projects, and they claim to make it easy and safe for manufacturers to share product data with vendors and consumers throughout the lifecycle of the product. This “360-degree view” of the supply chain both informs the parties responsible for bringing the product to market and guarantees that consumers are receiving what they paid for. However, even though they have relevant partnerships and promising projects in other logistic applications, we have not found any information about any supply chain that has been transformed into a demand chain thanks to blockchain.

Conclusion

Blockchain has the potential of transforming supply chains: by giving all participants real-time and accurate information about the state of the supply chain, and by including wholesalers, retailers into this chain, companies can shift towards a demand chain. However, it seems very complicated to bring all participants together for two main reasons. First, supply chains can be extremely complex. Let’s take the supply chain of a car: as we see in figure 1, the OEM (Ford, for example) has many suppliers who supply the tyres, the engine, the exhaust pipes, etc., and many dealers who will sell the product to future customers. What we do not see in the graph is that the tyres, the engine, the exhaust pipes also have their own supply chains with their own suppliers and clients. As we mentioned before, for blockchain to be truly effective for all the participants of the supply chain, a single supplier would have to be involved in at least as many blockchains as clients it has. This would mean that if Ford wanted to implement blockchain technology in its supply chain, the tyre manufacturer, the dealers, and all involved parties would need to do the same. This is naturally a big barrier for the implementation of blockchain.

Figure 1: Supply chain of a car

Figure 1: Supply chain of a car

And second, is blockchain currently able to handle all the data of a supply chain? We all know the technical limitations that blockchain has in terms of throughput and latency, but is it actually technically feasible to build a transparent demand chain powered by blockchain technology?

It would be interesting to see a pilot project, where blockchain is implemented in a “simple” supply chain, where few participants are involved. The idea would be to see how market demand information for a single product can be transmitted throughout the different layers of a supply chain.

Let us know what you think and if you know of any pilot project like this!

 

Sources:

Do you need blockchain — Wüst & Gervais (2017)

 
Javier Bilbao