IBM: Tracking the Supply Chain Using Blockchain

IBM is trying to use Blockchain to save the food supply chain billions in costs and also it's own legacy in the technology service industry.

IBM needs a new product to revive slowing sales

Regulatory filings have shown that Warren Buffet continues to cut his holdings in IBM by a third amid struggling sales and a declining share price in the company. This is surprising news as the Billionaire investor has defended his investment in IBM for years ever since his initial purchase in 2011[1].

In the last century, IBM became a household name by dominating the PC[2] and server [3] businesses. However, ever since the turn of the new millennium, they have chosen to focus on cloud computing, IT infrastructure, and data & analytics- markets dominated by Google, Amazon, and Microsoft. Their results have yet proven to be successful, and we have seen IBM’s revenue declining over the past five years- with an average decrease of 6.7% in the past three years alone [4].

Amidst the bad news, IBM has been quietly pushing into utilizing Blockchain to create a new market of services for it’s corporate clients. Blockchain works as a shared, trusted, public ledger that participants in the network can input and inspect, but no single user controls- creating an unbroken chain of trust [5]. Participants will work to update and verify time-stamped information before adding to the existing ledger.

In other words, imagine sharing an excel sheet where data for a product can be inputted in a verified and trustable way in real time as it moves along the supply chain. With this new technology, IBM hopes to bring “breakthroughs in visibility, optimization, and demand” to the supply chain and save it’s clients billions through efficiency and in adding transparency into the system.

Solving problems in the food supply chain using Blockchain
In response to this change in technology, IBM has busied themselves on multiple fronts to capture this new market. In 2015, IBM, along with partners- Accenture, CloudSoft, Ernst & Young, JPMorgan Chase and others launched the Hyperledger Project to promote blockchain solutions for enterprise use.

Since then, IBM has also been on a busy streak signing deals across various industries to explore blockchain as a use case and pilot new projects, especially with stakeholders involved in the food supply chain. Their partnerships announced has included Walmart, Kroger, Nestle, Unilever, Dole, Maersk Ocean Liners, Singapore’s Port Authority, and Tyson Foods- to name a few [6]. To put the potential into perspective, in 2015, industry trade groups believe that stakeholders in the food supply chain spend up to 7% on documentation costs[7] on the back of $137B in trade[8] and each year we lose $14B in economic output due to food borne illnesses.

By bringing together the different stakeholders of the value chain and coupling it with Blockchain, IBM is creating the opportunity align trust and information sharing between farmers, traders, distributors, packers, processors, grocers, and up to restaurants that make up the long supply chain. The complexity of the food supply chain and the decentralized nature truly requires a decentralized solution such as Blockchain.

Blockchain technology allows for traceability along the value chain.                                                         Blockchain technology allows better information management along the value chain[9]

In a note to partners, IBM has also highlighted their longer term goal of developing enterprise-ready blockchain solutions that overcome existing limitations of existing technology in terms of privacy, confidentiality, auditability, performance, and scalability. They aim to accomplish this by: (1) Increasing the speed of blockchain operation (2) Developing platforms for permissioned networks, and (3) Enabling private networks with known stakeholders [10].

Utilizing blockchain to solve problems
Although IBM has garnered a strong start in developing their initial push into Blockchain, in order to see it realized, they need to essentially overhaul the whole industry and the industry standard that has been adopted. In order to do this, IBM needs to work closer with regulatory bodies and hardware/device providers to ensure proper integration into the physical world.

With governance, IBM and it’s partners need to agree on a set of best practices and industry standards (across borders and jurisdictions) on developing the technology to meet different requirements. This poses a huge risk and uncertainty as it is a major hurdle to get everyone on the same page.

Additionally, the value of Blockchain will only be as valuable as the data that is collected and added into the ledger across the value chain. In order to do this, they will need to work with service providers or hardware developers who can create the appropriate devices to verify that the physical goods has met contractual needs. This problem alone could potentially prove to be the technology’s Achilles’ heel.

Questions

With the promise of revolutionizing the way a whole industry manages data, can Blockchain be truly realized across the many actors involved in the value chain?

Furthermore, will this new technology as a service be enough to save “Big Blue’s” future in tech?

 

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References
[1] Buhayar, More, and More Chiglinsky. 2017. “Buffett Adds More Apple, Reduces IBM Stake By Another Third”. Bloomberg.Com. https://www.bloomberg.com/news/articles/2017-11-14/berkshire-hathaway-cut-ibm-stake-by-another-32-last-quarter.

[2] “IBM Sells PC Group To Lenovo”. 2017. CNET. https://www.cnet.com/news/ibm-sells-pc-group-to-lenovo/.

[3] “Lenovo Says $2.1 Billion IBM X86 Server Deal To Close On Wednesday”. 2017. U.S.. https://www.reuters.com/article/us-lenovo-ibm-deals/lenovo-says-2-1-billion-ibm-x86-server-deal-to-close-on-wednesday-idUSKCN0HO08N20140929.

[4] Luzgin, Roman. 2017. “IBM: A Future Blockchain Leader?”. Seeking Alpha. https://seekingalpha.com/article/4086778-ibm-future-blockchain-leader.

[5] “The Promise Of The Blockchain The Trust Machine”. 2017. Economist.Com. https://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-how-economy-works-trust-machine.

[6] “Walmart, Kroger & Nestle Team With IBM Blockchain To Fight Food Poisoning – Coindesk”. 2017. Coindesk. https://www.coindesk.com/walmart-kroger-nestle-team-with-ibm-blockchain-to-fight-food-poisoning/.

[7] “Supply Chain Inefficiency To Blame For Majority Of Wasted Food – Supply Management”. 2017. Supply Management. https://www.cips.org/supply-management/news/2014/january/supply-chain-inefficiency-to-blame-for-majority-of-wasted-food/.

[8] “What Does The TFA Mean For Business?”. 2017. The Global Alliance For Trade Facilitation. http://www.tradefacilitation.org/what-does-the-tfa-mean-for-business.html.

[9] “China: IBM And Walmart Use Blockchain Technology To Track Pork”. 2017. Fleischwirtschaft.De. http://www.fleischwirtschaft.de/economy/news/China-IBM-and-Walmart-use-blockchain-technology-to-track-pork-33638.

[10] “IBM Wants To Make 2017 The Year Of Blockchain Enterprise Deployment”. 2017. Www-01.Ibm.Com. https://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=GIL12345USEN.

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1 thought on “IBM: Tracking the Supply Chain Using Blockchain

  1. This is an exciting application of blockchain technology. Citing the 7% documentation cost and the $14B in lost economic output from food borne illnesses, this is clearly a substantial problem. I am surprised that there was no mention of government subsidies or incentives for solving such a widely felt issue. Looking back at the recent food disease challenges at major companies, I assume that this type of technology would’ve helped to more rapidly find the origin of the problem.

    IBM is making a substantial push to be an early player in enterprise blockchain applications. I look forward to seeing what other industries they are able to change with such a platform. Having already seen IBM Watson used successfully in healthcare, I could see a future synergy there to help maintain the security of American medical records.

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