Say you get served a burger at a restaurant, and something about it isn’t quite right. Do you know what went wrong? Does your server? Does the restaurant? The suppliers? Hard to know. Each part of the sandwich – the beef, lettuce, tomato, bun, condiments, cheese – came together on the plate from separate long and intricate supply chains that go all the way back to a farm.
Pinpointing what went wrong, and where, has been a nearly impossible task. Did the beef get too warm while in a refrigerated truck? Did one of the spices in the special sauce sit too long in a warehouse? Supply chains, sophisticated as they often are, have remained silos of information, making it difficult to access and analyze details.
That’s about to change, driven by the convergence of two emerging technologies: the Internet of Things (IoT) and blockchain. The combination of these technologies creates a permanent, shareable, actionable record of every moment in a product’s trip through its supply chain, creating efficiencies throughout the global economy.
Today IBM is working with businesses across industries to implement IoT Blockchain solutions that bring an entire new level of trust, traceability, and accountability to global supply chain systems. And we aren’t alone, C-Suite executives are taking notice, and industry consortiums are forming to advance blockchain innovation, such as the Hyperledger Project led by the Linux Foundation with members ranging from IBM, Cisco, Intel, and Red Hat to Hitachi, J.P. Morgan, and Samsung.
The first step is the IoT instrumentation of everything. Sensors are being integrated into every aspect of business and logistics. They can be put in trucks and ships, and on pallets, packages and produce, each sensor constantly reading its location and other key factors, such as temperature, moisture, or vibration. Since IoT sensors can communicate wirelessly, they can constantly send their readings over the network to be saved and stored. IoT is already spreading quickly: IDC reports that some 30 billion IoT devices will be in place by 2020, growing to 80 billion by 2025.
Blockchain is how we’ll use that IoT data to revolutionize the supply chain. Essentially, blockchain is a way to put IoT data into a permanent record that tracks every action that happens to the item. This information can then be easily shared across different companies and across borders. And what is extremely important is that the information cannot be changed once in the blockchain, helping reduce fraud and misrepresentation in the supply chain. For example, Everledger is working with IBM using the Hyperledger fabric to implement a blockchain that tracks diamonds from mine to buyer to verify the diamond and reduce the global challenge of verification and fraud in this industry.
For the first time, IoT devices will be able to communicate with the blockchain to update or validate smart contracts. As an IoT-connected item moves along multiple distribution points, information like location and temperature is automatically updated in the blockchain, allowing members to view the status of the item in real time and verify that the terms of a contract are met at each point. If an item needs to be kept within a certain temperature range, for instance, everyone in the supply chain would know if that range was violated, and exactly when and where it happened.
The information becomes part of an unbreakable chain that is a permanent record, viewable by the parties in a transaction. Blockchains shift the lens from information held by an individual entity – the warehouse, the factory, the shipper — to a cross-entity history of an asset or transaction. Relevant information can be shared with others based on their roles and access privileges. And it all happens on a distributed network, which can be in the cloud, making the system flexible and resilient.
That means that if a restaurant company was managing its supply chain using IoT and blockchain, and a problem was found in burgers it was serving, the restaurant could have visibility all the way back through its supply chain to pinpoint and solve the problem. And these kinds of solutions are already being developed. For example, a startup company out of the UK is working on a blockchain solution to track tuna in order to verify that it is sustainably and responsibly-caught – something that is difficult, if not impossible, for a consumer to know with certainty today.
But IoT on blockchain will mean so much more than just visibility. The process would allow companies to recognize and circumvent problems before they impact the customer. It would encourage partners in the business network to immediately adapt their processes or risk financial penalties.
Smart contracts embedded in a blockchain can speed the flow of capital across a supply chain. The way businesses along a supply chain get paid could be made more efficient. Current processes are lengthy, involving letters of credit, bureaucracy, and human judgment. Smart contracts will collect IoT data and automatically release payment as soon as goods have been delivered. Money flows faster. Capital doesn’t get locked up waiting to be released.
And if government regulations are involved, the IoT data on the blockchain can automatically create a permanent and indelible record based on regulatory requirements.
As blockchain-based transactions become more sophisticated, the business network as a whole will achieve greater levels of autonomy, ultimately evolving into self-governing, cognitive business networks. These autonomous organizations will stretch our definition of what it means to be a dynamic enterprise. Down the road, every consumer will benefit as IoT and blockchain reduce costs, increase the speed of getting products to market, and better monitor quality. In an IoT-blockchain universe, the burgers are always perfect.