By Geoffrey Cann
Resilient supply chains are beneficial to society. And to improve the resilience of your supply chain, use blockchain technology.
Where there’s a Wales, there’s a way
As you may know, I live near Vancouver. When I told my family that I was getting up at 3 am to participate in Wales Week, they asked what species–orca or humpback. They did ask why whales get a whole week, but Mothers just get a day. I told them to stop blubbering about it, it’s just a fluke.
Here’s a transcript (more or less) of what I’ll be presenting at the event. And yes, there are a lot of whale puns (in bold for your amusement).
The Energy Supply Chain
I focus on the energy industry deliberately. On porpoise, if you will.
The energy industry is one vast complex supply chain. Energy is consumed in every economy, by every company, and at every location. It features logistics, manufacturing, trading, wholesale, retail, and distribution. Four of the five largest companies in the world by revenue are energy companies.
Energy prides itself on its resilience. Here’s a dictionary definition;
- the capacity to recover quickly from difficulties; or toughness.
- the ability of a substance or object to spring back into shape; or elasticity.
Supply chain resilience means the supply chain recovers and swiftly returns to its original state following some breach. Back on even keel.
As we discovered in the pandemic, resilient supply chains are beneficial to society. Supply chains that are not resilient may even be harmful to society. The kinds of widespread supply chain upsets that are impacting increasingly tight chains, coupled with changing consumer and regulatory demands, creates a need for new ways to invigorate our supply chains.
To improve the resilience of your supply chain, use blockchain technology.
The Catalogue of Upsets
Supply chains today are under what feels like a new constant theme of disruption. Barely do you recover from one and you’re impacted by the next.
- Mishap. A ship gets wedged in the Suez Canal, and global markets are suddenly short of shoes.
- Disease. A pandemic gums up ports and suddenly ships are idled and shipping containers are in short supply.
- Public health orders. Everyone works from home causing a chip shortage for car makers, and suddenly you can’t buy a new car.
- Social unrest. A trucking blockade of cross border bridges in Canada shuts down the strategically important flow of maple syrup to pancakes in New York.
- Labour. A shortage of butchers in the UK results in a glut of pigs which have to be destroyed. For clarity, it was the pigs destroyed, not the butchers.
- Terrorism. A US food inspector in Mexico receives an ominous message on his mobile phone, and the US government shuts down all avocado imports, threatening a national shortage of nachos during the Super Bowl.
- War. An invasion of the Ukraine causes Germany to pause its approval for Nordstream 2, which likely puts pressure on gas supplies.
I haven’t even mentioned the weather, which includes intense fires in California and floods in Germany.
Suffice to say, supply chains are now stretched pretty thin. And many have been found wanting. Who hasn’t experienced some weird goods shortfall these past two years? In my case it’s been sardines, dish soap and yeast.
Buyers and shippers rightfully ask ‘where’s my shipment, when will it arrive, how will it get here, are there alternative supplies anywhere, where are inventories, are there any critical spares, are substitutions possible?’
These are hard questions to answer when participants in a supply chain operate their own opaque proprietary data silos, off line systems, and bespoke processes. 30% of all transactional data are captured manually on clipboards or keyed into systems. There are few data standards. Searches for information are slow and manual. Parties interact exclusively through emails. Excel spreadsheets are the glue holding the fleet together.
Consumers and Carbon
These big upsets take place against longer term sea changes in consumer markets and regulatory settings.
Consumers are being educated to expect transparency in their commercial dealings.
- Who made this cake? Can you prove it’s gluten free, green, organic, ethical, low carb, free-range, zero calorie, high octane, fat free, tastes great, less filling, and fuel efficient?
Given a choice, consumers often exercise it. If they could, consumers will purchase provably green energy, ethically-produced energy, terror-free energy, sustainable energy, mission-driven energy, and energy with offsets, except we can’t deliver these today because we can’t trace energy.
And regulators are now adding carbon as an entirely new factor.
- How much carbon was emitted to make this item? Has it been offset somehow? Does this item make the planet better or worse off?
Regulators are embedding carbon targets into their frameworks, and countries and companies are signing up to achieve carbon reductions. However, carbon credit markets are a high risk gamble when you can’t trust the underlying data behind the credit. Do the trees you claim you planted even exist?
If we want to provide consumer choice and meet regulatory demands, we’re going to need to account for the carbon content of all the things we purchase, including offsets, and all the products we sell through our straining supply chains, globally.
The prize at stake is huge — trillions of dollars are about to be spent in new energy products and services. Trillions. The biggest reallocation of capital in human history.
Tracing commodities at scale is what engineers call a whale of a problem.
A few years ago following some pipeline failures in Canada and the US, regulators and litigators asked where the busted pipes came from, and the owners offered vague responses at best. Now regulators want pipeline companies to track every 12 meter segment of pipe used in pipelines.
- Which mill produced the steel? What’s the metallurgical content of the steel? Who inspected it? Who shipped it? When was it installed? What were the welder’s certifications?
There are over 450,000 km of pipeline enabling cross-border flows between Canada and the US, which equates to 37 million individual pipe segments, from dozens of steel mills, and thousands of welders. That’s just the tubular products. The same requirement also applies to pumps, valves, compressors, and bolts.
We don’t have a lot of time to figure out how to trace carbon, molecules, and electrons to answer all these questions. The planet is getting hotter.
Yesterday’s Solutions Are Wanting
Industrialists know how to solve this inside their own firewalls. That’s how they offer services such as a product warranty or guarantee. A database that tracks stuff.
But consider the new automotive battery market. Your new battery car from Germany breaks down in Spain and you need to swap out a battery cell for a new one. Not the whole battery, just a cell. How are you going to do so and protect the resale value of your battery, which will be the most valuable and recyclable part of the car? You’ll need an immutable record of battery servicing.
Energy products are unique in that we’ve never really needed to warrant the provenance of energy. Energy companies claim with some justification that it’s been impossible to actually trace a barrel of oil from source to consumption.
It’s the same with electrons in the power grid, compounded by the fact that natural gas and oil can be converted into electricity. Natural gas from The Netherlands and Russia are mixed, converted into electricity along side wind power from the North Sea. Where did a specific molecule of natural gas go and who is responsible for the carbon emission?
The Blockchain Opportunity
So how will we deal with these changes?
- The upsets and the mishaps
- The changing consumer needs
- The regulatory pressures
How do we net the trillions in new products and services that are out there.
Frankly, the vast majority of energy companies are struggling in the face of these pressures with a horrid mix of manual spreadsheets, guesstimates, and ugly data.
But a few companies have figured out that blockchain technology is ideally suited to improve supply chain resilience.
- Machine-generated context data using the industrial internet of things produces high quality reliable data that can be automatically posted to a blockchain database.
- Smart contracts auto execute without needing human supervision as custodial control over goods changes during their movements. Approvals, authentications, security, and payments are all automated
- Consenualized data eliminates the need for counter parties to maintain alternative trust mechanisms like advanced shipping notices, manifests, and receipts
- Append-only data posting improves audit trails, discovery, and transparency
- Easy integration with existing infrastructure and investments in systems like SAP minimizes regret spend.
- Convergence with tools like AI provides the deep analytics needed to manage the supply chain in turbulent times.
Here are a few examples where companies are applying blockchain today to improve supply chain resilience.
- Quaychain traces fuel movements in harbours and ports to reduce costs and identify illegal fuels.
- Stahl traces its chemicals from plant to end use to ensure the proper use of their products.
- The Mobility Open Blockchain Initiative (MOBI) is a blockchain program by automakers to identify vehicles so as to better manage battery history.
- Repsol traces its petroleum products through its lab testing using Marco by Finboot to maintain high quality fuel supply.
- Iberia Airlines captures its fuel transactions on blockchain to eliminate disputed fuel purchases.
Resilient supply chains are beneficial to society, and to improve the resilience of your supply chain, use blockchain technology.
- Get educated on this technology and how it can transform your supply chain.
- Identify a willing partner and work together on a pilot.
- Join or start up your own consortium.
The time to set sail on your blockchain voyage is now. The mishaps and upsets are not a-baiting, the consumers want choice, and regulators want compliance. A more resilient supply chain is within your grasp.
No sea creatures were harmed in the development of this post. The photo is one from my personal collection, taken off shore of Moreton Island, Queensland Australia, on August 20, 2016.
Check out my book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, coming soon in Russian, and available on Amazon and other on-line bookshops.
Sign up for my next book, ‘Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas’, coming March 15, 2022.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.