The following is a Supply Chain Matters guest blog contributed by Chris Kirchner, Co-founder and CEO of Slync
International logistics today is complex, messy, and inefficient, largely a result of the legacy systems and processes that are a staple across a large portion of the industry. Many companies are built to profit from the inefficiencies and therefore haven’t been incentivized to innovate or modernize their processes. This has made the logistics industry ripe for disruption by new technology to bring increased efficiency and revolutionize an essential, but costly, part of moving goods through the global supply chain.
As a result of the dominant, legacy processes and systems, disputes between partners are frequent. Common problems in logistics such as trucks waiting in detention or issues that slow an item getting through customs have ripple effects, leaving companies looking for someone to blame for the economic cost of the problem. The result: the various stakeholders point the finger at other parties to avoid liability, which results in costly and often time-consuming disputes.
When you consider internal audits, lawyers, human capital and accounting teams, the costs of dispute resolution add up quickly. In fact, it’s not uncommon to find shippers and carriers to budget a significant portion of their revenue to handle these types of disagreements.
Simplifying Dispute Resolution with Blockchain
There has been tremendous buzz around the application of blockchain technology and a lot of it is justified by the impact that the technology will have on various industries and companies all over the world. One such use case is in the international supply chain and international logistics process.
While a supply chain dispute can arise from just about anywhere, there are three common problems inherent in almost every dispute:
- Lackadaisical contract enforcement across partners
- Ineffective partner accountability methods
- Lack of visibility in the network
A technology such as blockchain can provide support to these problems.
Contract enforcement is difficult because it is impossible for a lawyer to oversee every deal between partners in a large, global, supply chain. The employees executing these transactions on a daily basis aren’t going to read through an extensive legal document to ensure they are following the parameters of their agreement. With blockchain, companies can now bake the logic, such as pricing or other decision criteria from a legal agreement, into a smart contract that will govern the transaction between parties. These smart contracts won’t replace the legal document but will reduce or eliminate breaches due to ignorance of the employee or simple human error.
Partner accountability is a difficult problem to solve. How do you effectively and objectively measure performance, evaluate contract compliance, and consistently levy penalties on poor performers? It is extremely difficult given the siloed nature of data among partners and even within individual companies. The collaborative system of record that blockchain creates among the stakeholders in an international shipment enables all parties to hold each other mutually accountable. It is clear who is complying with contractual agreements, the data to evaluate partners is readily available and fines or other consequences can be automatically applied.
Transparency in transactions can give greater visibility to all partners in the blockchain network. This will open opportunities for better line of sight into inventory, exception identification as well as resolution, and unlock new efficiency across the entire chain through better collaboration. Blockchain’s potential for hard cost reductions and impact on soft costs across partners are why many see this technology as the greatest thing since the Internet. That is incredible to think about.
With blockchain, supply chain disputes and problems that used to take hundreds of hours, and hundreds of thousands to millions of dollars, to resolve, can now be solvable in far less time.
Let’s face it: Many of the processes we rely on today across the supply chain are sometimes inefficient and out of date. The introduction and deployment of blockchain has the potential to create a radically different and easier way of doing business that can eliminate significant costs for the stakeholders in a supply chain. Cutting costs associated with audits and dispute resolution, and increasing collaboration and efficiency, will have a direct, positive impact on the bottom-line of many companies.
About the Author:
Chris Kirchner is CEO and Co-Founder of Slync, an intelligent, blockchain-based platform revolutionizing how partners exchange value throughout the supply chain.