Blockchain Conceptual Model For Supply Chain with IOT and Emerging Technologies

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New technologies are presenting opportunities for improvement across the supply chain. Blockchain, IoT and emerging technologies has the potential to deliver significant improvements and automation. Blockchain applications are providing new ways of exchanging data in a secure manner. Using blockchain in the supply chain has the potential to improve supply chain transparency and traceability as well as reduce administrative costs

Cryptography is at the heart of Blockchain technology and is the practice and study of secure communication in the presence of third parties. Blockchain with cryptography in its nature allows separate parties to have shared trust in a transaction because the ledger cannot be easily falsified (i.e. once data is written it cannot be changed). This trustworthiness is created by a combination of factors including the cryptography used in blockchain, its consensus/validation mechanism and its distributed nature.

Blockchain Proof Of Concept for Trade Finance

In the first article there is an overview about Cryptography, Encryption, Hash Function and Digital Signature.

In the second article there is an overview about how Blockchain works, components of Blockchain, use cases, Blockchain decision algorithm to assist to figure out if it make sense to use blockchain. Also there is a PoC for Trade Finance. Which we will elaborate more on this PoC.

  • Step 1: Importer creates an LC application for the Importer Bank to review and stores it on the Blockchain.
  • Step 2: Importer Bank receives notification to review the LC and can then approve or reject it based on the data provided. Once checked and approved, access is then provided to the Exporter Bank automatically for approval.
  • Step 3: Exporter Bank approves or rejects the LC. Once approved, the Exporter is able to view the LC requirements and is prompted to view through the application.
  • Step 4: Exporter completes the shipment, adds gps sensor along with shipment. Adds invoice and export application data and attaches a photo image of any other required documents. Once validated, these documents are stored on the Blockchain.
  • Step 5: Exporter Bank approves or rejects the application and documents.
  • Step 6: Importer Bank reviews the data and images against the LC requirements, marking any discrepancies for review by the Importer. When approved, the LC goes straight to completed status or is sent to the Importer for settlement.
  • Step 7: If required due to a discrepancy, the Importer can review the export documents and approve or reject them.

3 flows describe the distinctive nature of supply chain:

  1. Goods: Goods flow from exporter to importer in return for funds.
  2. Funds: Funds flow in the reverse direction.
  3. Data: The flow of goods and funds is supported by a bidirectional flow of data such as invoices, shipping notices, bills of lading, certificates of origin and import/export declarations lodged with regulatory authorities.

These three flows are supplemented by a layer of trust. Trust, or lack of trust, underlies almost every action and data exchange in international trade. Trust in :

  • The provenance and authenticity of goods;
  • The stated value of goods for the purposes of insurance, duties, and payment; promises to pay;
  • The protection of goods during shipping (i.e. integrity of packaging, vehicle and container conditions, etc.);
  • The integrity of information that is used by regulatory authorities for the risk assessments which determine inspections and clearances;
  • The traders and service providers involved in a trade transaction.

Layer of trust has seen relatively little support from technology and is still heavily supported by paper documents, manual signatures,insurance premiums, escrow and other trusted third-party services.

Distributed Ledger Technology (DLT) and Blockchain has the potential to deliver significant improvements and automation in this layer of trust.

Although primary focus is on blockchain, it is important to note that blockchain is not alone in its potential to have a disruptive impact on the supply chain. The rise of e-commerce platforms, APIs and cloud-hosted solutions are transforming the way organisations do business. The Internet of Things promises a vastly richer flow of granular data for tracking consignments, containers, through conveyances, ports, and warehouses. And other technologies, such as artificial intelligence and Inter Planetary File System (IPFS) as well as technologies under development such as the semantic web offer known as W3 or Web3 powerful new ways to understand and access data. Therefore, positioning blockchain within the broader context of other new technologies that have an enormous potential to improve supply chain efficiency and integrity.

In this conceptual model blockchain technology support trade facilitation and supply chain automation by leveraging as

  • A smart-contract platform, leveraging its immutable write-once nature;
  • An electronic notary, guaranteeing the content and, optionally, the time of issuance of electronically recorded data;
  • A decentralised process coordinator, leveraging a combination of attributes,including its addressing techniques (public/private key), smart contracts, and immutability.

There are already large number of projects focusing on to overcome challenges in Supply Chain using Blockchain technology. These include shipping information platforms run by carriers, container logistics platforms run by port authorities, goods provenance (traceability) platforms, and many others. Most are permissioned ledger implementations. Technical limitations as well as commercial and political pressures will ensure that there will never be just one blockchain supporting the entire international supply chain. Even a single consignment is likely to touch multiple ledgers during its journey from exporter to importer. Therefore, focusing on supporting interoperability between systems is and supporting inter-ledger interoperability is the key. In the last article here is an overview of implementing transactions across blockchains and interecting with data off chain.

Technologies such as blockchain, IoT, Cloud, APIs and platforms can each, independently, contribute to increased supply chain efficiency. At the same time, when working together within a standards-based framework, the sum can be much greater than the parts. In this context, a conceptual model of the international supply chain that shows the role of each technology within the broader map of stakeholders, services, and standards. Such a model would work equally well for the domestic supply chain, which is just a simpler subset of the international supply chain.

This is a draft conceptual model of the international supply chain with relevant technologies. Importers and exporters often facilitate the flow of goods, funds and data, as well as the relevant trust by using a variety of service providers and third parties. Overlaying blockchain and other emerging technologies on the model can show the relationship with the specifications.

Observations related to this diagram are:

  • All parties in this example use one or more platforms to conduct their business. This may be a single organisation-level internal platform, e.g. a corporate Enterprise Resource Planning (ERP) system, but increasingly will be cloud-hosted web platforms for most participants.
  • Platforms may use IoT data sources and APIs to improve the information flow.
  • Platforms may use private blockchain ledgers to improve trust by recording immutable and auditable transactions.
  • An inter-ledger framework, could provide trust between platforms.
  • A resource discovery framework may use Trusted Execution Environments , could provide a means to locate the authoritative data source for a resource based on its identifier.
  • Trade data work such as the CCL provides semantic anchors to facilitate data exchange

Arrows between boxes/ovals in the diagram represent dependency relationships so should be read as “uses” or “depends on”. They do not represent flows of information which are between various platforms and ledgers.

Multiple platforms exist to address different needs in the trade and transport sectors, and will continue to evolve through innovation in IoT, AI and other emerging technologies.

National regulators play a special role in the network as they provide a unique point of convergence for data in each jurisdiction.

Data is often being integrated data from multiple sources ranging from traditional document-based data sources to more detailed digital data entries and can come in higher volumes and can be delivered in real-time. The same can be true for key transport hubs such as sea, air and dry ports.

Authorities are unlikely to surrender control of their information and processes by conducting regulatory business on a shared platform outside their jurisdiction. They will, undoubtedly, maintain independent systems, but find new ways to verify and appropriately share data with other countries.

Role Of Smart Contracts

All of the above underlines the growing complexity and multiplication of systems and data that traders and authorities will need to deal with in the near and long-term future.

Standards-based semantic models could facilitate this widening network of data exchange around trade transactions and support traders as they look for flexible integration across a diversity of platforms (including diverse blockchain-based applications).

Role Of Interoperability and Inter Ledger Transactions

Significant economic commitments between agents may be associated with specific events in the lifecycle of a resource. Possible examples include:

  • An invoice transition from “received” to “approved” may trigger the release of low cost trade financing for small suppliers.
  • A consignment transition from “landed” to “cleared” represents the release of goods by a regulatory authority.
  • A shipment resource that transitions from being in the possession of agent X to agent Y when containers are sealed and loaded under a bill of lading.
  • If these events can be notarized as smart contracts in a trusted blockchain ledger, then there is a unique opportunity to improve and automate this trust in the supply chain. But only if there is a clear shared understanding of the meaning of each state transition (including the triggering conditions).

Role Of Resource Discovery

As more and more applications anchor their transactions into various private and public blockchain ledgers, there will be an increasing need for a means to discover and integrate transactions across blockchains.

Each transaction on the chain contains only the hash of the actual data and a minimal amount of metadata about the document or transition state. With clear semantics in the metadata, parties can discover data of interest in other ledgers by observing linked-data anchors and traversing them to obtain appropriate access. Each node on a blockchain has a complete copy of the ledger. Specific ledgers (and the nodes that verify transactions) will typically exist for a specific geographic or industry segment. But if a specific international consignment touches a dozen different ledgers, it is impractical for a party that wishes to verify the transactions to host a dozen different nodes. A common inter-ledger notary protocol would allow authorized parties to verify transactions irrespective of which ledger they are created on. Therefore a possible framework for inter ledger interoperability specifications that would define: Standards for on-chain and off-chain metadata; Standards for inter-ledger notarization.

Role of Semantics

Resources,such as invoices, consignments, certificates of origin, containers, etc.,will be increasingly hosted on web platforms. This means that the source of truth about supply chain entities will be online and discoverable, vastly increasing supply chain transparency. At the same time, even for a single international consignment, these truths (information resources) will exist on many different platforms. It is impractical to expect every authorized party to be a registered member or customer of every platform that holds some relevant data. However, it could be possible, given the identifier of a resource, to develop a consistent means to discover where it is hosted and be granted access to appropriate data. Leveraging trusted execution environments may assist to overcome this challenge. As a result, a specification that bridges independent platforms to discover resource data independent of where it is stored may required. Basic requirements for the specification would include the ability to:

  • Resolve the identity of parties, platforms and other agents participating in trade-related activities, using identity providers from all jurisdictions and sectors.
  • Access current and authoritative information about the public keys of participants, to enable secure direct interaction and communications.
  • Support a diversity of entity types (e.g. businesses, jurisdictions, platforms, containers) including high volume entity types (e.g. consignments).
  • This specification should build upon (and not duplicate) existing, relevant technical elements from existing specifications.

Hypothetical Real Working Example

Organizations in the supply chain still must be able to make sense of the data that is discovered / exchanged by various platforms, ledgers, or even network connected sensors. The landscape is changing from EDI hub-centric models to peer-to-peer exchange where platforms are the natural aggregators. The traditional document centric transaction is complemented / enriched by a fast moving stream of events about all the resources in the supply chain. Communities of interest (e.g. fast moving consumer goods in a country) can overlay the core semantics with an industry / geography specific framework that effectively. Platform operators can release semantic frameworks that map their interfaces to international standards.

Most data will not be kept on a blockchain, rather it will be referenced (pointed to) together with a hash for data verification and perhaps a time stamp. There may also be a requirement to describe various cryptographic primitives for the purpose of referencing them from business documents. For example, hashing algorithms, key distribution, cryptographic signatures, encryption schemes an using trusted execution environments.

A hypothetical end to end story of a consignment of goods from an exporter to a importer.

  • Goods/Product producer is a registered business on the Location A with business a business number from location A.
  • Goods/Product Producer produces x number of unit. Each unit has a unique serial number identified by a signed QR code/Smart Tag on each unit using a system from QR code/Smart Tag producer.
  • QR Code/Smart Tags producer writes the batch of QR codes to a blockchain anchored goods provenance system that they run on behalf of goods/product producers.
  • Exporter negotiates an export deal with Importer which is registered on the Location B with a business number from Location B.
  • Importer places an order for x number unit of goods/products with exporter. Using a resource discovery framework, Exporter platform looks up the importers platform and e-invoicing internet address and sends the commercial invoice directly to the target platform in accordance with agreed or international semantic standards.
  • Because Exporter and Importer are on different platforms and because the commercial invoice is one of the foundations of trust, the invoice is also notarized/registered on a public blockchain using an inter ledger notary framework. Importer indicates their acceptance of the invoice (also notarized).
  • Importer creates an LC application for the Importer Bank to review and stores it on the Blockchain.
  • Importer Bank receives notification to review the LC and can then approve or reject it based on the data provided. Once checked and approved, access is then provided to the Exporter Bank automatically for approval.
  • Exporter grants permission to access the notarized invoice to Exporter bank which provides lower cost trade finance when transactions are notarized.
  • Exporter Bank approves or rejects the LC. Once approved, the Exporter is able to view the LC requirements and is prompted to view through the application.
  • The conditions of carriage require that the products/goods remains under certain degrees and above certain degrees centigrade during the shipment, so exporter engages the services of Shippers for freight forwarding. Shippers have instrumented containers with IoT temperature sensors and Global Positioning System (GPS) tracking.
  • Shippers uses Smart Bill of Lading solution based on the public blockchain. Replaces paper B/L documents and drives extremely fast, safe, reliable and cost-effective processing of Bills of Lading. Shippers uses IoT, GPS, banking and financial solutions to provide value-added services such as cargo tracking (location, movements, temperature, origin/producer), insurance, quality control and banking escrow services through the Smart Letter of Credit. Shippers stable crypto currency to facilitate on-chain cargo payment and settlement.
  • Blockchain based Bill of Lading brings users superior service at a fraction of the cost. Users of Smart B/L can transfer cargo ownership rights in safely and transparently, in mere seconds instead of weeks.
  • Shippers provides Exporter with the container ID and Exporter uses a resource discovery framework to find the container web internet address and subscribe to the container data feed.
  • Shippers provides the signed and notarized invoice and the smart tags blockchain reference to the Location A chamber of commerce which verifies the data and issues an automated and signed certificate of origin which is registered on a blockchain.
  • Shippers creates a consignment reference using their logistics platform and provides the consignment ID to Location A customs via an authenticated session established by the single window API. Location A customs uses the resource discovery framework to locate the consignment data and subscribes to data feeds about the consignment.
  • The consignment data includes a reference to the notarized invoice, the container ID, the carrier ID, and the certificate of origin ID. So Location A customs can discover full data about each entity, verify integrity, and create an approved export declaration. The export declaration (with links to supporting data) is recorded as a smart contract on an inter-organization ledger.
  • The importer clicks a button to review and approve all export & shipping documentation and submit the import declaration.
  • Importer Location B customs authority observes a new import declaration. Importer Location B customs verifies the trade documents and confirms that Exporter and Importer have a sufficient history of high integrity trading. The consignment is pre-cleared by Importer Location B customs.
  • On arrival in Importer Port, the container data feed indicates that the cargo has landed and un-packed. The temperature history is notarized and confirms that temperature has remained in conditions of LC which is below certain degree and above certain degrees centigrade for the duration of the journey.
  • When the pallet of product/goods is scanned into Importer warehouse, the consignment resource IoT device emits the “received” event. This, together with other notarized transactions is sufficient information for Exporters’ bank to release an invoice finance payment at very reasonable terms.
  • Importer releases the products/goods to a number of retail outlets in Location B. A customer buys a bottle and scans the QR code on the bottle. The smart tags platform confirms the authenticity of the product/good and records the scanning event against the specific product/good unit serial number.

This example is, fictional but nevertheless entirely feasible. The key difference between this future state vision and current state reality is that each authorized party has direct access to the single source of truth about each entity (party, invoice, consignment, container, etc.) and that all key data is notarized in a blockchain ledger aiming at high levels of trust and so is independently verifiable.

Sources:UN CENTRE FOR TRADE FACILITATION AND E-BUSINESS

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Originally published at https://www.linkedin.com on June 20, 2018.

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I am passionate about Technology, Cloud Computing, Machine Learning and Blockchain

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