Before the onset of the COVID-19 pandemic, companies were already exploring the promise of blockchain to modernize certain aspects of their supply chains. Traditional supply chains can be inefficient, data intensive and costly, often characterized by burdensome paperwork, conflicting records and delays resulting from manual reconciliation processes involving a series of transactions and document exchanges among multiple parties. Blockchain offers potentially substantial benefits in this context, including the secure and auditable validation of transactions, automated documentation to support legal and customs compliance, improved quality control, enhanced end-to-end transparency (e.g., for verifying sustainability or ethical sourcing standards), and overall improvements in efficiency and cost-control.
Indeed, ever since news reports in 2018-19 that Walmart had successfully tested a blockchain platform for food traceability and accountability to track mangoes and other products through the supply chain, entities have been looking in earnest at, and investing in, blockchain solutions targeting the supply chain. Indeed, Walmart has continued to invest and conduct trials of blockchain solutions, having recently announced in August the promising results of Walmart Canada’s use of blockchain technology to reduce inefficiencies and invoice disputes for freight and trucking payments. Blockchain applications in the supply chain to date have largely been in the testing or pilot phase, however, due to the complex array of necessary considerations.
As a preliminary step, companies seeking to leverage blockchain solutions need to assess blockchain’s potential applications and advantages, the practical aspects of transitioning away from legacy systems, and the legal and operational issues associated with the use of blockchains. Before going live, participants in a private blockchain must first understand and be satisfied with how the blockchain will be implemented and administered, including, for example, which parties will be responsible for maintaining the blockchain, which data will be stored “on-chain” or “off-chain” to achieve the desired functionality without compromising the confidentiality of certain proprietary data, and how cybersecurity and data origin integrity issues will be handled. In many situations, an overarching written legal agreement among the various participants is necessary to ensure clear and robust governance and to address key legal issues. Also, testing a blockchain solution in the supply chain context is necessarily a collaborative affair (e.g., it may involve assembling a consortium) because a working platform that delivers business value in a supply chain will require participation by the various players in the ecosystem. This can raise antitrust compliance considerations, requiring careful structuring. Thus, while there was optimism in using blockchain to bring the supply chain into a new digital age before the pandemic, many organizations felt that implementation could wait. However, the COVID-19 outbreak has spurred changes in that mindset.