Inside Supply Management Magazine

In Procurement, Blockchain Remains a Slow Work in Progress

June 24, 2019

When it comes to the potential of blockchain, there’s little debate that the distributed-ledger technology can transform procurement, from enhancing transparency and accountability throughout the supply chain to streamlining payment processes, among other benefits.

The implementation of blockchain has faced resistance in supply management, however, as many executives appear to be in wait-and-see mode, looking for successful applications of the technology before rushing to bring it to their organizations. Two recent studies by Gartner, the Stamford, Connecticut-based global business research and advisory firm, are likely not to test procurement’s patience on blockchain.

Ninety percent of blockchain implementations will need to be replaced within 18 months to “remain competitive, secure and avoid obsolescence,” according to Gartner. Blockchain is still in its infancy, and information-technology experts, let alone supply managers, are still figuring how to harness it. The blockchain-platform market is fragmented and overlapping, Gartner researchers say, and many chief information officers overestimate the technology’s capabilities, creating unrealistic expectations about its immediate impact on their businesses.

“Compounding this challenge is the fact that blockchain platform vendors typically use messaging that does not link to a target buyer’s use cases and business benefits,” Adrian Lee, senior research director at Gartner, said in a press release. “For example, ‘transactions’ was the term mentioned the most in relation to blockchain, followed by ‘secure’ and ‘security.’ While these may be functions of blockchain-enabling technology, buyers are still confused as to how these functions are achieved or what benefits blockchain adds compared to their existing processes.”

That study, released earlier this month, followed up a Gartner report from May, which indicated supply management organizations are not teeming with enthusiasm for blockchain. Only 19 percent of respondents ranked blockchain as a “very important technology” for their business, and only 9 percent have invested in it. What’s more, Gartner projects that 90 percent of procurement blockchain projects will suffer from “fatigue” by 2023 due to a lack of suitable use cases.

Alex Pradhan, senior principal research analyst at Gartner, said in a press release that most blockchain applications remain in the pilot stage due to managers’ overambitious aspirations for the nascent technology, which leads to misconceptions on how to apply it to the supply chain. This results in many situations of trial and (often) error, she added.

“Without a vibrant market for commercial blockchain applications, the majority of companies do not know how to evaluate, assess and benchmark solutions, especially as the market landscape rapidly evolves,” Pradhan said. “Furthermore, current creations offered by solution providers are complicated hybrids of conventional blockchain technologies. This adds more complexity and confusion, making it that much harder for companies to identify appropriate supply chain use cases.”

Many publications, including this one, have published articles and blog posts about the transformative potential of blockchain. However, supply management professionals are still waiting for the technology’s breakthrough application. “In two to three years — if we’re still talking about blockchain — blockchain will have failed,” Saleem Khan, global head of data innovation at Short Hills, New Jersey-based business data and information provider Dun & Bradstreet, told Inside Supply Management® Weekly in October. “The reason I say this is blockchain needs a user interface, a front end.”

The first attempts at this front end are by large corporations that can largely afford to experiment. The Walmart blockchain pilots for its leafy-green vegetable and pharmaceutical supply chains will be highly watched test cases. So will a cobalt-tracking platform by Ford and IBM, and a coffee bean-tracking system and mobile app implemented by Starbucks and Microsoft.

Many supply management executives will likely remain patient, unlikely to implement blockchain in their organizations until the technology’s might catches up with the hype. This is a prudent approach, according to Gartner researchers: “The emphasis should be on proof of concept, experimentation and limited-scope initiatives that deliver lessons, rather than high-cost, high-risk, strategic business value,” Pradhan said.