Forces driving Blockchain Adoption in the Manufacturing and FMCG Sectors

By: Nitin Manoharan

23, April, 2019

Categories:

Blockchain -

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In the last few years, Blockchain and Distributed Ledger Technologies (DLT) started gaining global prominence. Since 2015 articles began to emerge examining the novice phenomenon, e.g. ‘What is blockchain and how does it work,’ (CIO magazine, April 2016) ‘What is Blockchain’ (CoinDesk, Mar 2016) ‘Will Blockchain Transition from Hype to Reality’ (Nitin Manoharan, Feb 2017). In the last two years, the technology started its transition phase from hype to one that has the potential to address complex industry problems. This phase could run until 2021.

Five forces will drive Blockchain adoption in the Manufacturing and Fast Moving Consumer Goods (FMCG) sectors:

1. Consumer Demand

Consumers increasingly continue to enjoy the benefits of personalized services and ubiquitous access to information through smart devices. The proliferation of copycat products means consumers seek a trustable way to verify if a product is genuine rapidly. As the debate between localization and globalization continues, more and more consumers would want to know the genealogy of the product. As increasingly digital natives become a majority of the FMCG consumer base, this trend is only going to get stronger.

2. Regulatory and Institutional mandate

Governments continue to evaluate if the use of distributed ledgers platforms can restore trust in their citizens. This trust could be earned through the new ‘truth protocol’ that underpin their services and the products offered by (for-profit) organizations operating in their markets. Truth protocols could be achieved though immutability of facts and optimal levels of transparency. Estonia is leading by example where they have DLT based systems for various public sector services, for instance, issuing birth certificates, voting and filing taxes. Other institutions for instance Bank of England in the UK, have similar initiatives. It is only a matter of time when regulatory agencies and institutions start introducing DLT policies and standards, e.g., for filing cross-border VAT, shipping container manifests for FMCG organizations to abide.  

3. Upstream, midstream and downstream integration

Today ‘sourcing’ happens in a complex ecosystem of global suppliers. Most Manufacturers seldom have visibility beyond their Tier 1 suppliers, rendering it challenging to manage supply and quality effectively. Continuous proliferation of SKUs and product innovation through consumer feedback mean that these challenges will only get more intricate. Along the same lines, downstream supply chain, over the last two decades, have sprawled to be a complex network of middlemen, raising the average operating cost of the industry. New operating models such as drop shipping, 3PL, 4PL, and 5PL have also increased the sophistication of supply chain distribution models. Over the next decade, leading Manufacturers and FMCGs will grapple with connecting Tier 1, 2 and 3 suppliers, consumers and R&D on a single DLT platform, enabling an ecosystem of trustless parties to interact. 

4. Corporate Governance and Identity Management

Alarmingly consumers, suppliers, and communities (e.g., employees, consumers) identities are becoming opaque and unreliable increasingly, rendering Corporate Governance to be more challenging. One of the original propositions for DLT – Corporate Governance – will continue to stimulate adoption of Blockchain. Banks and Financial Institutions have already invested in DLT based trade finance. A new Corporate Governance framework in FMCG overseeing Supplier Management, Trade Finance, and Communities (e.g., employees, consumers) could unlock end to end traceability and accountability.

5. A strategic response to disruptive industry business models

Startups with disruptive DLT business models and high operating model automation will start to appear over the next few years. It is likely at least in the beginning of this trend a number of established organizations will suffer heavy losses in market share as these new startups consume the share of market or create new markets with new ‘rules.’ Industry-driven consortiums, e.g., Global Shipping Business Networks (GSBN), attempt to achieve increases in operational efficiency and reduction in the operating costs of various industries. Manufacturing and FMCG leaders need to quickly respond to these threats or opportunities to lower operating costs or boost EBITDA.

To conclude, in the short term, Blockchain and DLT will continue its transition from hype to one that has the potential to address complex industry problems. During this period, the five forces described in this article will play a catalyst role in the Blockchain adoption. Other externalities such as Data Privacy, e.g., GDPR in Europe and availability skills will also critically influence the pace of broader industry adoption. In the short to medium term, leaders in Manufacturing and FMCG companies will invest in Blockchain for Operational efficiency gains and subsequently in the long run investments will be targeted for exploiting more disruptive industry business models.

Explore more by attending the Blockchain Expo Global event @ London Olympia 25-26th April.

Blockchain Expo Europe will also take place at RAI, Amsterdam on 19-20 June 2019. Blockchain Expo North America will take place at the Santa Clara Convention Center in the heart of Silicon Valley on 13-14 November 2019.

Blockchain Expo Europe will also take place at RAI, Amsterdam on 19-20 June 2019. Blockchain Expo North America will take place at the Santa Clara Convention Center in the heart of Silicon Valley on 13-14 November 2019.