Posted: 04 Jun. 2019 7 min. read

How blockchain technology boosts operations excellence 4.0 of chemical companies

From Andreas Flegel, Dr. Markus Stulle, Alexander Brox, and Dr. Marcel Papert

Although blockchain technology is already a well-known concept in the financial industry, its meaning for supply chains is still in its infancies. Regarding Supply Chain Visibility (SCV) and trust blockchain technology provides a tremendous potential for providing relevant information on complex supply chains in order to improve its management. As the worldwide consumption of chemicals is growing, chemical supply chains become even more complex. Therefore, the article highlights key issues on how the technology can be applied to enhance SCV and trust in the supply chains of the chemical industry.

Trust between suppliers and customers plays an increasingly meaningful role in global supply chains. However, growing transportation distances, sensitive product quality, and a growing number of intermediate actors are challenging the performance of global supply chains in the chemical industry. As the worldwide consumption of chemicals is increasing, an examination with approaches to enhance SCV and trust in chemical supply chains is mandatory. Considering the development of the Internet of Things, two SCV approaches based on blockchain technology were devised. Blockchain technology provides a feasible opportunity to increase SCV and thereby trust among actors along the chemical supply chain. After an introduction into blockchain fundamentals, the article presents a short overview on our solution approaches.

Supply Chain Visibility

SCV basically results from sharing relevant information between supply chain actors. The information can encompass for example identity, location, or status quo of an object. Especially in today’s complex supply chains, such information provides visibility on operational conditions and activities. With the help of such information, operational effectiveness and supply chain management can be improved, which adds value to supply chain actors.

Blockchain fundamentals

Blockchain technology is based on a distributed ledger concept. Data and applications are stored in decentralized nodes (repositories) of a network (see figure 1) whereby relevant information is recorded in individual blocks. Therefore, a “chain of blocks” grows with every transaction in the blockchain, which is validated by a consensus algorithm. In comparison to centralized systems, a distributed ledger concept allows a reliable storage of data that can be shared within a peer-to-peer network. Thus, a blockchain can facilitate immutable and irreversible data recording whereby hackers, users, or members of a network are not able to change or erase data.

Blockchain technology stores data in distributed networks instead of centralized networks.

Moreover, recorded data by blockchain technology refers to events of physical objects for digital twins. That means the blockchain creates a digital twin (digital identity) of entities or objects from the physical world. The twins contain information on these physical objects and, thereby, document their life cycle. This characteristic of the blockchain technology corresponds to the purpose of the Internet of Things (IoT) in which physical objects obtain a digital identity in information systems.

The exchange of data based upon blockchain technology within a network follows a specific procedure. If an actor A exchanges data with an actor B, this transaction is verified and marked by a transaction number. Under consideration of predefined rules, the validity of the transaction is checked and the exchanged data is dedicated to a block subsequently. Each block is signed by an unique 256bit hash value. Furthermore, each block includes a reference to the previous block (to its hash value) in the blockchain. With the help of a proof of work (PoW), this procedure leads to a chain of chronological interdependent blocks with individual hash values (see figure 2).

Chronological interdependent blocks with data and hash value build a blockchain.

Achieving SCV and trust in the chemical supply chain

In order to enhance SCV and trust in the chemical supply chain two approaches were developed. The first approach uses blockchain technology in combination with Radio Frequency IDentification tags (RFID). RFID tags belong to AIDC (Automatic Identification and Data Capture) technologies and are basically attached to physical objects. RFID tags carry information on the physical object (such as date of production, temperature, ingredients, route of transportation etc.) and allow an automatic communication with information systems. Regarding the chemical supply chain, our approach intends to equip goods or their containers with RFID tags. Thereby, the tags document information along the goods’ supply chain (life cycle). Blockchain technology then helps to securely communicate and file such information among supply chain actors. This approach also includes that actors can define who is eligible to read which share of information inside the network. Considering the distributed ledger concept, the information is stored in ledgers that are distributed on different servers, PCs and other storage devices inside a network.

The second approach represents a less known but very novel attempt. This approach covers an incentive-oriented way to enhance SCV and trust among supply chain actors. It is based on so-called “oracles”. Oracles comprise electronic sensors (such as cameras) or privileged human beings that confirm events or activities of actors in the chemical supply chain and report these events into the blockchain. Information is only added to the blockchain if multiple oracles confirm that the statement of a physical event in the chemical supply chain is true. That means oracles validate the information, which is going to be exchanged by blockchain transactions between actors. Each exchange of information among actors also follows the procedure described above (Blockchain fundamental). As this solution highly depends on the information given by oracles, an incentive system for truthful information is vital. However, this approach can also enhance visibility and trust on supply chain activities, and is especially helpful in complex supply chains where a broad application of tracking and tracing technologies on goods level is difficult to realize.

In this context, the reliable sourcing of rare earths (bulk material) is a highly discussed topic. For example, the increasing demand for electric vehicles boosts the demand for necessary battery storage. Modern battery technology is heavily depending on cobalt. Cobalt is often found in areas that are troubled with violent conflicts and marked by low working standards. Hence, companies as well as regulatory authorities have significant interests to avoid sourcing minerals coming from such areas. As cobalt itself represents bulk material and cannot be easily equipped with RFID tags along the whole supply chain, a possible solution represents our incentive-oriented blockchain approach in combination with the use of RFID tags. That means the use of oracles validates events in the sourcing of cobalt and, thereby, the exchanged information in the blockchain. The use of RFID tags along any possible path of the cobalt supply chain should enhance the security of transported cobalt material by unique identification additionally. Besides, the authors recommend linking the transported amount of cobalt bulk material with a statistical probability. Thereby, actors such as a cobalt refiner or a car manufacturer receive a probability p that proves what amount of cobalt comes from a certified cobalt mine at any point of the chemical supply chain. In this way, our solution intends both to capture all relevant events along the supply chain and to record related information in the blockchain.

Conclusion

In sum, blockchain technology enables the unforgeable documentation and encryption of supply chain data. This data can document the whole life cycle of chemicals and might contain relevant indications, such as the geographic location on a specific time and date, temperature, and humidity. From the excavation of raw materials, over inbound logistics, production and outbound logistics up to the hand of the customer – information on supply chain activities can be actually tracked and shared. Therefore, blockchain technology enables suppliers, customers, and intermediaries to create a single point of truth on supply chain information, and allows for:

  • Verifying sources of raw materials,
  • Tracking and tracing of processed chemicals,
  • Assuring chemicals product quality for customers, and
  • Detecting counterfeit chemicals.

Blockchain technology enhances both visibility on activities in the chemical supply chain and, thereby, trust among supply chain actors.

Read more in the detailed PoV on “How Blockchain technology boosts Operations Excellence 4.0 of chemical companies”.

RegChain – Blockchain for Regulatory Reporting

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Andreas Staffen

Andreas Staffen

Director | Technology Strategy & Transformation

Seit mehr als 10 Jahren ist Andreas Staffen verantwortlich für das Aufsetzen und Durchführen von globalen “State of the Art” Manufacturing Execution und Business Intelligence Programmen sowie der Einführung der dafür notwendigen IT Prozesse.

Florian Ploner

Florian Ploner

Sector Lead Industrial Products & Construction

Florian Ploner has more than 18 years experience in consulting, focusing on manufacturing industries. He has helped his clients across Europe, the US & Asia with global transformation programs and digital transformations, enabling new business models as well as optimizing business processes by leveraging the latest technologies. Florian Ploner leads Industrials in Consulting and is Partner in Technology Strategy & Transformation practice.