January 23, 2020

Gartner: supply chain providers need to digitalize before blockchain can take root

In contrast to high-tech banking and finance sectors, supply chain still relies on physical events, packaging layers, transportation assets.

By DC Velocity Staff

Blockchain may have bright potential to help logistics partners improve trusted communications and track and trace tasks, but the technology will largely remain stuck in pilot programs through 2022 until companies become more digital, a Gartner Inc. study says.

From 2020 through 2022, 80% of supply chain blockchain initiatives will remain at a proof-of-concept (POC) or pilot stage instead of emerging into broad-based applications, the Stamford, Conn.-based research firm Gartner said.

The primary reason blockchain will not accelerate faster in the sector is that early blockchain pilots applied models that were successful in other sectors—such as banking and insurance—instead of fine-tuning the technology for the specific demands of supply chain, Gartner said.

Those approaches did not transfer well because in contrast to the fully digitalized realm of financial technology (known as "fintech"), many supply chain use cases still rely on events that are stuck in the analog world, such as events and data occurring across physical products, packaging layers, and transportation assets.

"Modern supply chains are very complex and require digital connectivity and agility across participants," Andrew Stevens, senior director analyst with the Gartner Supply Chain practice, said in a release. "Many organizations believed that blockchain could help navigate this complexity and pushed to create robust use cases for the supply chain. However, most of these use cases were inspired by pilots from the banking and insurance sector and didn't work well in a supply chain environment."

However, that setback should not discourage supply chain leaders from experimenting with blockchain, the firm advised. The technology still has great potential to improve business processes, once a company has sufficiently transitioned from the physical to the digital realm. Before starting a new blockchain test, supply chain leaders should establish key criteria and technology options for capturing data, so they can measure their organization's readiness to explore the technology.

"In a way, blockchain is a collaboration agent. It forces an organization to continually assess on a broad scale if its structure and employees are ready to embrace this new technology," Stevens said. 

"Many supply chain leaders that have conducted blockchain initiatives found that they now have a more complete overview of the current health of their supply chain. By going through the process of deploying a blockchain pilot, they discovered what needs to change in their organization before blockchain technology can be leveraged effectively," he said.

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