Demand Chains Are Creating a Sustainable Supply Chain Future
By Dominik Schiener, Co-Founder of IOTA Foundation
Under the skin of many businesses with some sort of product to move, there is a network of veins and arteries, stocking and delivering this product to customers, warehouses and distributors. This network is generally known as the supply chain. It's a constantly moving part of business infrastructure that traditionally, has been challenging to track.
That isn't to say impossible, but supply chains generally lend themselves to reactive analysis, rather than proactive. That's about to change.
Distributed ledger technology is being applied to traditional supply chain infrastructure in order to reverse the market logic and create demand chains. Instead of waiting for the market to react to a product, a demand chain would ideally react directly and in real-time to consumer behaviors and have data linked all the way back to the actual supply side. In effect, market demand could be met automatically as soon as it exists, rather than waiting for total supply to run out. This would empower businesses to not only have a wealth of supply chain data, but reform their supply chain processes to become more efficient and create a more sustainable future.
Supply Chains As Demand Chains
Consider the simple act of replacing a blown-out tire. We all know the series of actions needed to replace a tire on the side of the highway. What if those actions took place automatically? When the tire blows, the car reports that incident to the nearest repair service garage not just for a tow, but for the exact specification of tire. The garage then sends that message further up the supply chain to the warehouse that triggers production of a replacement of the tire it's about to sell. The warehouse sends a demand request to the tire producer. This runs the supply chain backwards as a demand chain.
This kind of visibility is only capable with a trusted ledger transaction at all stages of communication. It has to create a situation where people trust the data that moves up and down the chain. Ultimately a demand chain would mean a shift in actual production.
We wouldn't be producing for the garbage bin anymore.
Supply would be exact and would eliminate waste in the system, from warehousing to transportation to retailer stock. Excess stock at any level, inaccurate orders based on erroneous supply are all points in the supply chain where money is lost. Basing the supply on demand would change that and cut costs and losses.
Sure, there will be delay in information and reaction in such a system, but it will transform the market structures and create a highly effective system of rapid demand response that can be altered mid-stream.
A perfect demand chain would mean that the next level down is always aware of the demands further up the supply chain and what is already potentially paid for. Today, we produce supply based on history, put it out into the market and hope that the demand still exists. Efficiencies will emerge the more rapid the demand side becomes. Naturally, you won't see immediate replenishment, but the supply chain will replenish itself, quickly and without interference.
With demand chains we can react on the real demand instead of strictly using historical data for predictions.
This is the holy grail for many of the big producers, so they don't end up with too much stock. Creating demand chains using distributed ledgers are one of the big trends being discussed in supply chain circles right now. It can never be perfect, but will take just-in-time delivery to new levels of precision. Demand chains could be a game changer at every level of the supply chain from efficient warehouse management to not having trucks standing idle and improving sustainable supply chain management. Now all it needs is data.
Supply Chains As Data
Last month global healthcare company Novo Nordisk announced plans to ensure its direct suppliers supply the company based on 100% renewable energy by 2030. It's a massive undertaking to completely rethink and redesign a supply chain that encompasses 60,000 direct suppliers. For the sake of the environment and carbon emissions, it's a noble undertaking. But how does a company evaluate every step of the supply chain process in order to understand the full sustainability impact?
That process can be understood with an increased visibility to supply chain data, especially around sustainability criteria.
Supply chains as of today are thought of as discrete actions of goods moving. That's the knowledge base we have. But ultimately supply chains are a continuum flow of data. And if we had better data, we'd have a data pipeline going back to the source. We will be in the “matrix” of supply chains. So supply chains could actually become data chains if we develop them correctly, so we can get to that high level of visibility.
We need to think of trade as pipelines of information. A T-shirt is a complex set of information about the sourcing of the material, the energy and water used to create it, its transportation etc.. There's all this data and if we lift ourselves above the products and see the data of the products, then that visibility becomes the measurement we need to make informed choices. Choices that don't just include the products themselves, but external factors such as politics and regulation. So if we want to change the world to adapt to different sustainability criteria like managing carbon emissions we need to consider the supply chain data that can be captured using the right technology and methodology.
This can be achieved if we can manage to create a digital twin for every product, and use distributed ledger technologies to ensure accountability and trust in the data reported by every actor along the supply chain. With this we can create data chains with visibility of each step in the supply chain process. Then it's all about deciding what kind of data is considered to change how a company does business. It is a revival of the old cliche “What gets measured gets done.”
Finding Sustainability Though Demand Chains
In the case of sustainability, it doesn't have to be only carbon data, it can also be regional regulations such as labor and human rights laws. This additional data helps to understand the full impact of changing supply chain processes. Today, we are doing this through audits and sample testing — using a sampling of data after the process is complete. With data chains we can connect specific items to the supply chain; where does it come from, exactly what time was it produced and so on.
A properly implemented data chain on top of a supply chain would create the perfect incubator for regulators, consumers and other decision-makers to tailor our global production system towards the United Nations Sustainable Development Goals (SDG). With each step of the process communicating directly with the last, it would create a perfect storm of actionable data for companies to reform their processes to reach a level of acceptable sustainability.
If we want to act with a high sustainability ambition, we need to rethink our supply chain processes. Creating demand chains with a constant data stream of every point of contact will result in a more streamlined and less wasteful supply chain process and with full visibility of the impact of our choices. This is what companies need to start thinking about as we move further into a world threatened by carbon emissions and environmental change, and where extreme poverty is still the daily lives of 10% of the global population. The demand for change is there, we just need to supply it.
Dominik co-leads IOTA, the non-profit foundation based in Berlin. He oversees partnerships and the overall realization of the project’s vision. IOTA is a revolutionary distributed ledger technology for the Internet of Things and is one of the largest crypto-currencies in the world. Dominik is an entrepreneur from Italy, with several Blockchain startups in Switzerland, the UK, and Norway. Additionally, he won the largest Blockchain hackathon in Shanghai. For the past two years, he has been focused on enabling the Machine Economy through IOTA.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.