Blockchain Gets Real for the Electronics Supply Chain
Blockchain has been a compelling and popular technology in cryptocurrency and other financial applications. Now, with supply chain pain on every electronic OEM’s radar, blockchain technologies have found a sweet spot that bodes huge growth for the market, as well as greater traceability, visibility, and sustainability in the electronics supply chain.
In 2017 blockchain hit my radar as a technology to watch, and the hype around it was notable even then. Over the past five years or so, awareness about blockchain in the supply chain (i.e., talk on the street) has been high, but actual adoption has been spotty, at best. Now, that’s changing.
For many, the blockchain conversation has been closely linked with Bitcoin, the best-known cryptocurrency, as it’s based on blockchain. Blockchain itself is a distributed ledger that tracks transactions among different parties across a peer-to-peer network (Figure1).
Figure 1: Blockchain participants can confirm transactions without needing a central clearing authority, which is useful across a supply chain that includes a variety of components suppliers, distributors, logistics carriers, and OEMs. (Image source: PwC)
Although blockchain enables the use of cryptocurrencies like Bitcoin, the core ability to collaborate across a number of entities with a low cost of trust has the potential to improve business processes in the supply chain significantly. The Covid-19 pandemic has highlighted how important this capability is.
Now, not only have I heard more companies talking about really tackling digital transformation, but electronics OEMs are also actively investing in projects to build in supply chain resilience in order to manage unexpected supply chain shifts in the future. It is encouraging to see market researchers, such as Stacey Soohoo at IDC, pointing to these dynamics and the benefits that blockchain delivers in terms of tracking both products and payments across the supply chain as a matter of survival in tumultuous times.
Soohoo is not alone. It seems many analysts now agree that blockchain spending is likely to boom over the next five years. In fact, IDC forecasts that global spending on blockchain solutions will be nearly $19 billion in 2024 and will enjoy a compound annual growth rate (CAGR) of 48 percent from 2020 to 2024.1
In the supply chain, that growth will be even more spectacular. Researchandmarkets.com said that it expects the blockchain supply chain market to grow at a CAGR of 81.7 percent from 2021 to 2026.2 It attributes this growth to the need for greater supply chain transparency and transaction security. Not to be left out, Quince Market Insights predicts slightly more modest but still impressive growth, estimating that the global blockchain in supply chain market will reach $375.6 million globally in 2021, and will grow at a CAGR of 69.5% during the forecast period from 2021 to 2030.3
In the supply chain as a whole, blockchain spending will outpace the general market by as much as 58 percent. To me, this indicates that supply chain blockchain has made the shift from concept to reality: organizations are putting cold hard cash into these projects. If OEMs and their partners plan carefully, blockchain will be integral to supply chain success in the very near future.
Why blockchain for electronics OEMs?
I’m not surprised that blockchain is generating interest because it attacks some of the biggest challenges in the supply chain: accountability and protection from fraud and counterfeiting. Other benefits, such as cost reduction, provenance monitoring, simplified record keeping, and inventory tracking, are just icing on the cake.
In the electronics supply chain, there are at least four compelling use cases for blockchain:
- Supply chain finance: These solutions have the potential to increase efficiency and accuracy in invoicing while providing both increased transparency and security in transactions. For example, a smart contract solution could use the technology to trigger immediate payment once a product is delivered and signed for.
- Supply chain logistics: OEMs and their partners rely heavily on third-party logistic providers to deliver goods that are needed to manufacture finished products, then put them in the hands of customers. Using blockchain, transactions can be verified, recorded, and coordinated autonomously without third parties, making for more seamless and simple transactions. Using a unified digital document management strategy, all supply chain participants can track the location of cargo and products. Further, the technology provides data that can eliminate payment disputes in most cases.
- Supplier payments: The nature of the electronics industry is global, and blockchain allows for payment directly to suppliers using encrypted distributed ledgers that verify transactions in real-time. This cuts out the need for intermediaries such as banks and clearinghouses, which in turn improves efficiency.
- Authentication and quality checks: Blockchain allows tracking of goods from the origin of the materials to the finished product. Depending on the value of the goods, tracking can be done on a batch, or a single item, using a tag that monitors the location of materials and interactions between participants within the supply chain.
Figure 2: In the general supply chain, initial forays into blockchain have been focused primarily on product tracing and logistics applications, followed by financial transactions. (Image source: The Centre for Blockchain Technologies)4
Today, food, pharmaceutical, and retail supply chains are already making headway in the application of blockchain technology. I expect the lessons learned there will ensure even greater success and shorter project timelines in our own industry.
Getting everyone on board
As with any new technology, a lack of standards can hinder adoption. At least in part, we can point to this as a reason for the relatively sluggish adoption of blockchain in the supply chain. But this is changing rapidly. The IEEE Standards Association created a number of blockchain standards, including recommended practices for e-invoices, cryptocurrency payments and exchanges, and data format standards.5 This marks a giant step forward in making the above use cases realistic.
We’ve been talking about blockchain for years, so it’s good to see ideas on how to apply it to the electronics supply chain. While it’s no cure-all, blockchain relieves some pain points: transparency, security, and efficiency. Emerging standards and better understanding may make this the year that starts the emergence of blockchain from the realm of big talk into use for electronics OEMs. The next few years are going to be interesting.
1 – International Data Corporation (IDC), “Worldwide Blockchain Spending Guide”
2 – ResearchandMarkets.com, “The Blockchain Supply Chain Market - Growth, Trends, COVID-19 Impact, and Forecasts (2021 - 2026)"
3 – Quince Market Insights, “Blockchain in the Supply Chain Market”
4 – The Centre for Blockchain Technologies, “An Analysis of Blockchain Adoption in Supply Chains Between 2010 and 2020”