NFT's Real World Use Case Example: Supply Chain

With the emergence of digital technologies businesses started to heavily rely on databases to facilitate commercial activity. While the latter storage mechanism provides significant advantages over previous paper-based systems, databases also introduced new exposures to information stored in this way. The threat vectors to databases increased exponentially with the introduction of information exchange protocols, and consequent exposure of databases to electronic networks, including the internet.

New types of network architecture (more ) hold the promise of mitigating against these risks, while providing a host of other advantages. The following is a review of the benefits and risks of decentralized software solutions in general, and blockchain-based solutions - such as NFTs - in particular, portrait in the context of key performance indicators of supply chain management using the automotive industry as illustrative example.

Risk Management

The automotive supply chain is an integration of activities from the supplier’s supplier to the end customer through supplier, manufacturing, assembling operation, dealer (including logistics management activities), information and communication technology, and correlated flows of financial transactions. This is followed by coordination and communication among the internal (within organization) and external (outside organization) stakeholders. The commercial viability of each participant depends on its ability and efficiency to navigate and administer a complex network of business relations. Therefore it is necessary to understand supply chain not only as a relation between a supplier and customer, but as an interconnected system, where the quality, cost and risk of a product offered is a function of the performance of the entire network. The following analysis of the application of decentralized software in general, and blockchain-based solutions (for brevity: BBS) in particular, is divided into four stages: procurement, production, transportation, and warehousing. Within each stage, the analysis will be applied to core KPIs: further divided into financial and technical benefits, identifying and prioritizing the most common risk factors. The following analysis will make use of the prioritization as much as BBS can mitigate against these factors. Of the risks presented, failure of suppliers, lack of information exchange in the chain, supplier does not deliver material, and alterations in production were tied for first place among those with the greatest negative impact on companies studied. Blockchain solves some of the challenges described above.

).

The term blockchain technology refers to a cryptographic encryption method - and referenced in the - which links hashed data in a consecutive manner, albeit neither paper actually uses the term 'blockchain'.

By itself, the term blockchain refers to a decentralized, open, network that makes use of this cryptographic implementation to timestamp and secure computation results, syncing honest nodes for the purpose of creating Byzantine Fault Tolerance.

The latter implementation was introduced with the launch of the Bitcoin blockchain and is sometimes also referred to as public blockchain. The decentralization component of blockchains - the fact that anybody may download the open source software and operate a computational node - makes transactions executed in this way difficult to reverse. The necessary collusion by a majority of network participants is unlikely to occur as the resulting distrust in the network would erode the colluding parties’ investment in computing power and/or allocation of virtual assets (stakes) in the blockchain needed for the manipulation to begin with. Because of these features, blockchains are also referred to as "trustless networks," and the transactions (state changes) are considered , a quality which enables peer-to-peer transactions of blockchain-native assets (coins) and digital assets created on a public blockchain via qualified/standardized smart contract (tokens).

Like the web itself, no single operator maintains a blockchain, and anybody is free to participate in the operation of the network. Unlike the internet, which facilitates information transfer, blockchains can also facilitate the transfer of value. Blockchain transactions are usually public and show network addresses which interact; however, they do not reveal any personal identifiable data, or any other information.

by Accenture showed that inaccurate supplier onboarding data, such as mistakes in product order forms, inaccurate measurements and quantities, and incomplete risk assessment costs businesses about $15 million every year. BBS enable all participants in the supply chain to access the same immutable record on the ledger reducing – and potentially eliminating discrepancies - in information flow between parties.

, a blockchain consulting and tech firm, claims that blockchain’s trusted source of supplier information can: reduce administrative costs by 50%, eliminate up to 90% of repetition and redundancy, and make the process of onboarding new suppliers 70-90% faster. BBS can help decrease suppliers’ cycle time, and as a result decrease the total time it takes from receiving an order to delivering an item (lead time). Without BBS, new supplier onboarding is a time-consuming, manual experience for both buyers and sellers in a supply chain. Blockchain supply chain solutions can speed this process through an immutable record of new vendor details that business network participants can trust.

Production

BBS can drastically reduce production cost by reliably recording and pinpointing errors in production systems. While many manufacturers may turn out fungible products, new BBS standards enable tagging these physically interchangeable products with digitally non-fungible signatures reflected in simple real-world implementations – i.e. QR, and barcodes. Employing these solutions in automotive supply-chains will allow a manufacturer to single out specific car doors etc. with defects related to a
specified roll of sheet-metal. A study by AlixPartners estimates the cost of
recalling just one item at $8M. In 2018 alone, recalls cost the automotive
industry $22.1B. Downstream effects would include the recall of a limited number of vehicles in cases where non-BBS solutions might need to recall all vehicles of a certain built, potentially saving an entire product line from being unprofitable for the manufacturer.

Transportation

The average vehicle has around 30,000 individual parts. Each of those parts is either manufactured in-house or sourced from a third-party provider. A delay in just one section of the supply chain can slow down the
manufacture and distribution of critical components, resulting in the
production line getting shut down. As automobile builders and brands move towards just-in-time manufacturing, any impact on the smooth construction and distribution of vehicles means inventory shortages and revenue loss.

BBS can provide transparency into transportation related costs, and the correlations between them. Examples for these are mileage-based insurance products in which company owners may choose to pay mostly for the actual usage of a vehicle. This will enable more granular cost controls especially for vehicles employed for seasonal purposes. BBS allows for the representation of real-world objects such as materials and products on the blockchain in a digital form such as a token and gives them a digital identity that can be thought of as the real-world object’s ‘digital twin’. The concept allows for the real-world metadata about the object, such as its identity, current physical location, responsible party, possession, container temperature, and other metrics, to be attached to this digital twin in order to yield useful insights about the condition of this objects in the real world, and updated as conditions change (via time-stamping to the geolocation of a transported good),which presents an accurate and timely view of the physical object to all involved parties helping the detection of lost, stolen, and counterfeit goods and materials. Hence, assigning responsibility indisputable to a party.An essential KPIs within transportation is Delivery in Full (DIF), Delivery-on-Time, and Damage-Free Delivery. Since BBS allows the recording of transportation related metadata visibly and auditable to all participants, including the potential recipient, incomplete delivery can be detected even before arrival. As such, it reduces receiving control procedures.

.