Blockchain ADPG Knowledge Paper Title - cips.org

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Blockchain – ADPG Knowledge Paper The opportunities for Procurement and Supply Chain

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Blockchain – The opportunities for Procurement and Supply Chain

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Contents 1. Introduction ................................................................................................................................................2

2. What is Blockchain? ....................................................................................................................................2

3. How does Blockchain Work? ......................................................................................................................3

4. Advantages .................................................................................................................................................3

4.1 Decentralisation......................................................................................................................................3

4.2 Transparency ..........................................................................................................................................4

4.3 Security ...................................................................................................................................................4

4.4 Immutability ...........................................................................................................................................4

5. Current Examples .......................................................................................................................................5

6. Building a use case ......................................................................................................................................6

7. Case Study – Collaborating with ByzGen to identify an ADPG Blockchain solution ...................................6

8. Case Study – Infrastructure and Benefits of a Blockchain Solution ...........................................................8

9. Challenges and Limitations .........................................................................................................................9

10. Recommendation and Summary ......................................................................................................... 10

11. About the Next-Generation ADPG ....................................................................................................... 11

12. References ........................................................................................................................................... 12


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1. Introduction

The Next Generation Aerospace and Defence Procurement Group’s (Next Gen. ADPG) Industry 4.0 research report has explored the immense potential on offer to the Procurement industry in future years. The central premise of Industry 4.0 is that increasing interconnectivity generates a new abundance of data yielding innovative insights that, if utilised effectively, organisations can use as competitive differentiators. The interconnectivity critical to achieving these benefits are brought about by the integration of a number of digital technologies. The purpose of this knowledge paper is to introduce Blockchain as just one of Industry 4.0’s digital technologies in the context of the aerospace and defence industry. We use case studies to demonstrate the benefits that could be realised within procurement organisations and industry alike, before presenting recommendations for advancement.

2. What is Blockchain?

Distributed Ledger Technology (more widely known as “Blockchain”) has consolidated as a technology of great interest for many entities in the banking industry; however, the benefits not only apply to financial transactions, they can extrapolate to any kind of data transaction requiring a high level of security and control. Consequently, some aerospace and defence companies have started to investigate in detail the capabilities of the technology to understand the full potential and the possible use cases.

The most widely recognised Blockchain application is that of Bitcoin, the crypto-currency that surged in popularity and interest in 2016/17. While Bitcoin and Blockchain are inextricably linked, they are not the same thing and as such it would be ill-advised to suggest that aerospace and defence organisations will be trading in Bitcoin any time soon. In fact, it is the Blockchains distributed ledger technology that supports Bitcoin, which offers immense opportunity to change the way in which business is conducted in the future (Harford, 2019), hence holding the true potential for our industry.

If you’ve ever bought a property, you will know too well the lengthy process that goes with it. It is extremely paper based by nature and involves lots of different people, hence is a costly and time-consuming process, utilising many intermediaries such as lawyers, to ensure the process serves the purpose of certifying:

- The seller is who they say they are, - The buyer is who they say they are, - The object of the transaction corresponds to what the buyer thinks they are buying, - The seller owns the object of the transaction, - The buyer has the means to pay for the object of the transaction

The process also records that the transaction actually happened. So, the next time someone sells the house, the information of who owns it is up to date and undisputed. Whenever there is a transaction, there is a transfer of ownership. So, trust is an important factor in making the deal happen. It is precisely this challenge that Blockchain seeks to digitalise and address in supply chains. It creates a form of digital trust that speeds up transactions, removes intermediaries and increases security. It is why this form of digital technology can have


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massive implications in the aerospace and defence industry, which is characterised by long interconnected and complex value chains. Describing Blockchain as a form of digital trust is more meaningful and gives a realistic idea of its true potential. It is because trust between partners is at the heart of making business, particularly in the aerospace and defence market. More trust makes doing business easier, streamlines processes, and creates transparency. Furthermore, it means that Blockchain can serve as the backbone of new types of cooperation that were, until now, limited by the cost of building trust or the lack thereof.

3. How does Blockchain Work?

The key aspect of the technology that makes the data so trustworthy is the distributed nature of the servers (known as nodes) that form the system. Blockchain systems are composed of a number of nodes that must all reach consensus or “agree” before a transaction or data exchange can occur. As exchanges do occur, they are encrypted and recorded in a new “block” of data that cannot be changed (Cointelegraph, n.d.). As further blocks are written the “Blockchain” grows and creates an immutable history of the specific transactions associated with a specific data object – this is the ledger.

The diagram from www.blockgeeks.com shows a new block is added to the Blockchain.

Each individual node contains an exact copy of the Blockchain (and therefore the entire ledger) hence the term distributed ledger technology. The ledger acts as a highly secure and efficient single point of truth for all participants, offering many advantages to supply chains.

4. Advantages

Many present the Blockchain technology as a simple ledger or a database. Despite being true, this is somewhat restrictive and does not do it justice. There are four main properties of Blockchain Technology that have helped it gain widespread acclaim.

4.1 Decentralisation

A network of computers stores and verifies any new record of data, making the Blockchain more robust than a single instance (like most traditional databases). Each computer could, in theory, be owned by a different organisation in a value stream, hence the value stream has full control of the data shared among its members. It is truly decentralised, therefore there is no central authority deciding the rules or with an interest to manipulate the data in one way or another (Anderson, 2019). This approach not only cuts out the costs of the middle men required to ensure trust when sharing data, but also adds security to the data as ownership lies across a network of encrypted computers all linked together, rather than one standalone database which could be prone to hacks.

http://www.blockgeeks.com/


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4.2 Transparency

Research conducted by ConsenSys identified that, “The traditional supply chain system is in fact so opaque that we couldn’t find any definable or verifiable information on the supply chains of any major consumer technology company”. The report continued “we have no way of knowing how much slave and child labour, environmental destruction and violence or political turmoil goes into the production of any of our products, not to mention the monetary costs” (Migirov, 2016).

The consequences of this supply chain mismanagement and fragmentation could be particularly dire to an aerospace and defence organisations’ reputation. However, Blockchain technology can help. At each step of the value chain, from extraction of raw materials to the end customer, the Blockchain can be used to store and record all the transactions and exchanges of ownership, creating total transparency at every supply chain level.

4.3 Security

When new data is created by one of the trusted organisations on the Blockchain network, it is cryptographically linked to the previous data record. Data can only be added by a party with read and write access privileges, and before it is added it must be verified as being accurate by all parties. This network security will also create an element of trust between the Blockchain parties. Relationships between procurement and its supply base regularly rely on trust to ensure business runs smoothly and effectively. This is especially relevant where aerospace and defence contracts are concerned, as a Blockchain can provide the security required when contractual trades are taking place and it can also restrict the execution of certain transactions (Badzar, 2016) should security pre-conditions or licences not be in place.

4.4 Immutability

As demonstrated in the example of selling a property above, the Blockchain technology allows digital information (such as product specifications or intellectual property) to be viewed and updated across numerous organisations, partners, suppliers or customers in real time, while ensuring that data is secure and immutable .

It creates a time-stamped series of data records called a “hash” that is managed by a cluster of organisations on a Blockchain (Srivastav, 2019), rather than a single entity as seen in traditional centralised data management systems. In addition, when information is entered into a Blockchain it cannot be tampered with, providing the advantage of immutability and a single source of truth.


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5. Current Examples

The real-estate industry is an area where Blockchain technologies have already been heavily invested in, typically, the industry relies on a number of intermediaries such as brokers meaning that significant savings can be achieved via these Blockchain technologies (Graglia & Mellon, 2018). The Dubai Land Authority is said to have the most advance case, their Blockchain system uses a smart and secure database that records all the real-estate contracts and lease registrations which are then linked with authorities such as the Dubai Electricity and Water Authority (Graglia & Mellon, 2018). The database also includes the Emirates Identity cards and the validity of residency visas, allowing tenants to make payments electronically. The entire process can be completed electronically within minutes, meaning that a personal visit to any government authority is unnecessary (Graglia and Mellon, 2018).

Within the procurement and supply industry the introduction of Blockchain is most prevalent within shipping and logistics. Traditional approaches to importing and exporting goods can involve multiple parties, countless regulations and manual paperwork and (DHL Trend Research, 2018) have highlighted that this creates low transparency, un-standardised processes and data silos. It has earlier been suggested that Blockchain can help to overcome some of these issues, through trusted, legitimate data, that can be easily shared and allows individuals to connect directly with one another, removing unnecessary parties and creating greater visibility across the supply chain.

The Port of Rotterdam are already investigating how they can use Blockchain to improve their practices based on the principle that: “data technology guarantees the necessary checks and balances and ensures that the transaction is processed automatically. This makes it possible to structure large-scale networks, chains and markets far more efficiently than before” whilst also reducing the chance for fraudulent activity (The Maritime Executive, 2017). These ‘checks and balances’ are a key advantage for the aerospace and defence sector, as they guarantee the legitimacy of the products being shipped. If all products are assigned unique identifiers (i.e. a serial number on a part), when they are shipped the data is linked to the unique data property on the Blockchain. Once the user and the data are verified and added to the chain, there is a timestamped piece of data that can be individually connected to that one product. If this is altered or changed, a new block will be created with a reference to the previous, ensuring the traceability.

Warehouse Scanner diagram as adapted from www.boyum-solutions.com

DHL have also suggested that Blockchain when combined with smart contracts and smart devices can offer increased traceability and reduce manual procurement tasks. Using embedded smart devices, rather than etched serial numbers or barcodes allows real time tracking of product, “on delivery a connected pallet will be able to automatically transmit confirmation and the time of delivery as well as the condition of the goods to the Blockchain based system. The system can then automatically verify the delivery, check whether the goods were delivered as per agreed conditions (e.g., temperature, humidity, tilt) and release correct payments to the appropriate parties, greatly increasing efficiency as well as integrity.” (DHL Trend Research, 2018). This ensures legitimacy of products, as well as confirming key data regarding the shipment. As seen in the example, the date or time of delivery is recorded in the Blockchain removing any ambiguities, the smart contract then processes this information within the contract parameters, removing any payment queries that may normally arise.

http://www.boyum-solutions.com/


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Furthermore, suppliers could use Blockchain as an opportunity to demonstrate their environmental standards, which in turn will provide the market with transparency regarding product origins and movements throughout the supply chain (Badzar, 2016). A Blockchain network and the transparency that it offers, would create a better understanding of the sub-contractors involved within a transport network, this could enable more efficient communication between sub-contractor parties (Badzar, 2016).

6. Building a use case

How do we get started with Blockchain? Choosing an initial use case to demonstrate the technology and its business value is the first stage of the Blockchain journey for our organisations. Aerospace and defence companies should embark on a structured journey that aligns the business value, technology journey and system change that Blockchain can bring. Should a use case deliver the expected business benefits, this approach would allow organisations to scale the capability and build organisational confidence. The Next Gen. ADPG have partnered with tech company ByzGen to develop and conceptualise one such use case that is pertinent to our supply chains – the sharing of sensitive data to support collaboration and innovation. This use case is presented on the following section.

7. Case Study – Collaborating with ByzGen to identify an ADPG Blockchain solution

A UK based Blockchain Development Company focused on integrating Blockchain applications within both Public and Private Sector defence and security organisations. ByzGen normally work in tandem with larger software integrators as part of multifaceted delivery projects, but also engage in smaller research projects seeking to investigate new Blockchain applications. They have previously worked with ATOS to successfully create an end-to-end security vetting application for the Ministry of Defence; the application significantly improved the operational efficiency and security of one of the most highly sensitive data handling processes within government. The ByzGen Blockchain system’s security capabilities have been investigated and accredited during a consultation process with the Royal Holloway University. This was an activity recommended by the UK National Cyber Security Centre and is nearing successful completion at the time of writing. In order to effectively describe the practical capability of the technology within a supply chain, the Next Gen. ADPG have worked closely with ByzGen Ltd. to develop a Proof of Concept case study. The aim of the following case study is to demonstrate how the Blockchain technology can be realistically applied for sharing critical supply chain and/or engineering data effectively with other aerospace and defence partners, reducing the risks of putting IP at stake. In a report published by Accenture – Launchpad to relevance: Aerospace & Defence Technology Vision 2018, published in June 2018, the following statement is outlined: “The potential benefits of the Blockchain technology appeal to the aerospace/defence sector with 86% of them expecting to integrate Blockchain technology into their corporate systems within three years (Accenture, 2017)” The following case study will seek to demonstrate how Blockchain creates trust between supply chain partners, which in turn leads to major benefits for aerospace and defence organisations concerned with:

- Enhancing Data Sharing abilities to enable collaboration and future innovation with key suppliers and partners

- Improving efficiency of operations via cost effective streamlining of operational processes - Significantly enhancing data security and control, to assure our business practices


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8. Case Study – Infrastructure and Benefits of a Blockchain Solution

Following on from Case Study – “Collaborating with ByzGen to identify an ADPG Blockchain solution” the below questions were developed to gather further insight on both the infrastructure and benefits of Blockchain. The answers to these questions were the outcome of a workshop held at CapGeminis ASC facility between the Next Gen. ADPG, CapGemini, SAP and ByzGen.

Infrastructure

Q: What timescales are required to implement a Blockchain solution? What are key steps in an implementation?

Steps Explanation Proof of Concept (PoC) Timescale

Full Solution Timescale

Discovery Identifying current status, highlighting issues and potential

solutions

2-3 months – for full PoC

2-3 years

Realisation Developing a system and testing this meets the needs identified in the

discovery stage

4 months

Deployment System goes ‘live’ and any transfer between old and new system is

complete

2 months

Q: What upfront investment is required by organisations to support the development of Blockchain solution? Note: the companies who provide Blockchain give limited transparency on costs of solutions.

Each case will be different, we would begin with a business study to identify the Proof of Value (POV) Process, also known as the discovery stage. This includes identifying:

- What is the requirement? - Scope of the Blockchain? - How the solution will be implemented? - Who needs to be involved in the Blockchain? - Expected benefits

Q: How might solutions be contracted?

1. Identify SME’s and business users 2. POV - Supply Chain Transformation 3. Business Ownership - supply chain management - supplier onboarding - scale of supplier - one off? -

large strategic supplier 4. Implement with pareto of suppliers (i.e. top 20 high spend may account for 90% of the Blockchain)

Q: What are the security implications? How might integration and the Blockchain interface work with multiple secure IT systems?

- Provides clear access control - Gives greater auditability - Offers encryption and ‘partner’ only - Gateway and data classification


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Benefits

Q: When might an organisation in Aerospace and Defence choose to adopt Blockchain?

- When the business is in transformation - When the solution has been proven in other industries - When presented to address a new programme of work - When there is a compelling return on investment - As a response or improvement to something going wrong e.g. reputational issue - Competitive advantage

Q: What challenges might it help resolve?

- Data security - Collaboration - Relationship trust - Using knowledge, intelligent decision making (fast) - Supply chain transparency - process enforcement, accountability

Q: What are the key advantages of adopting Blockchain?

- Agnostic of core systems - “CCTV on data” - providing data integrity - Drives cultural and process change - Independent system of record - immutable - Drives collaboration

Q: What competitive advantage would this deliver to organisations in the Aerospace and Defence sector?

- Data transparency - Productivity - improved speed and agility - Reputation - ethics, quality, compliance, response, accountability - Reduced disruption - Reduced cost of change

Q: What are the high-level cost savings delivered by a Blockchain solution?

- Tangible - Intangible - Future proofing

9. Challenges and Limitations

Despite all of the above benefits and opportunities, the Blockchain technology has its downside. First of all, it is still experimental. Most implementations are pilots and most organisations are still testing the technology. That is because there are still some unanswered questions.

As mentioned earlier, one of them is scalability. The way records are processed and that make the Blockchain a secured repository has a price: speed. It can be too slow for real-time applications and even for good usability. On top of that, scalability relates to the scope of the data that is managed. If, as mentioned earlier, an organisation uses the Blockchain to track and monitor all movements in its supply chain from the extraction of raw materials to the end-user of its product, this can create an unmanageable mass of data. This amount of


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data is so large that it could actually hinder the process it is supposed to improve and that would quickly become unusable.

Except in the case of organisations running their own Blockchain network (which would go against impartiality, one of the advantages mentioned earlier), a third party operated Blockchain could become “a prison for data, that will come with hefty prison maintenance fees.” (Badzar, 2016). So until these questions of data ownership, portability, and interoperability are addressed, companies are continuing to limit their investments and implementations, which emphasises the need for small scale initial use cases, designed to demonstrate the concept.

Another aspect has to do with the fact that Blockchain is said to be un-hackable (Fitzpatrick, 2019). The Blockchain technology heavily relies on cryptography, which makes it very robust and resilient. However, history has proven that almost nothing is un-hackable, and this presented a significant risk to our organisations (Fitzpatrick, 2019). The Blockchain may be extremely difficult to hack, however someone with the right motivation, tools, and probably a lot of time, could potentially one day hack it. There are numerous reports of how the Blockchain system has now been hacked despite being hailed as un-hackable (Orcutt, 2019).

Systems and programs connected to the Blockchain may be vulnerable to attacks and/or bugs, which equally pose a significant risk and threat.

10. Recommendation and Summary

Blockchain is designed to provide highly secure, auditable and traceable data records across a distributed population. The aerospace and defence industry is a geographically distributed supply chain that serves an equally distributed set of customers globally, all of whom value data traceability, auditability and security. While Blockchain and aerospace and defence may appear to be a natural match to the industry, we recommend our organisations consider four principles as they begin their Blockchain journeys.

1. Blockchain is real, but is still maturing – Now is the time to learn and prepare.

2. Blockchain is like any other technology – The business case comes first.

3. Blockchain is a component of overall digital transformation, not the transformation itself.

Adoption of Blockchain will hinge not just on the technology, but on the systems and databases of participants that use it. A structured approach designed to demonstrate business value through rapid proofs of concept use cases, such as those presented in our collaborative case study scenario in this paper, can help our organisations align to these principles. It can also help us understand how Blockchain can scale to support continued growth and efficiency.


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11. About the Next-Generation ADPG

The Aerospace and Defence Procurement Group (ADPG) is an industry group consisting of senior Procurement and Supply Chain representatives from key original equipment manufacturer, Tier 1 and prime organisations from the UK aerospace and defence industry. Facilitated by the Chartered Institute of Procurement and Supply (CIPS), the ADPG seeks to drive excellence and professionalism within procurement and supply chain through industry wide initiatives designed to act as a catalyst for best practice sharing, skills development and growth in professional expertise. The Next Generation (Next Gen.) Group consists of a number of young procurement and supply chain professionals selected by each ADPG member from their respective organisations. The Next Gen. Group supports the development and implementation of ADPG initiatives and proactively looks to provide insights to the ADPG and the organisations they represent on topical issues affecting the future of the procurement and supply chain function. The Next Gen. ADPG members that have authored this Blockchain knowledge paper are:

Faye Treadwell (Rolls-Royce)

Michael Winders (Boeing)

Ciaran Large (BAE Systems)

Lara Mujico (QinetiQ)

Jack Grimwood (Thales)

Chloe Simpson (Raytheon)


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12. References

A new block is added to the blockchain, Infographic. [Online] Available at: https://blockgeeks.com/guides/what-is-blockchain-technology/ [Accessed 16 April 2019]. Accenture, 2017. Launchpad to relevance: Aerospace & Defence technology vision 2018. Accenture corporate reports. Anderson, M., 2019. Exploring Decentralization: Blockchain Technology and Complex Coordination. [Online] Available at: https://jods.mitpress.mit.edu/pub/7vxemtm3 [Accessed 02 December 2019]. Badzar, A., 2016. Blockchain - Amina Badzar. Blockchain for securing sustainable transport contracts and supply chain transparency - An explorative study of blockchain technology in logistics, 31 August.1(1). Cointelegraph, n.d. How Blockchain Technology Works- Guide for Beginners. [Online] Available at: https://cointelegraph.com/bitcoin-for-beginners/how-blockchain-technology-works-guide-for-beginners [Accessed 02 December 2019]. DHL Trend Research, 2018. Blockchain in Logistics. [Online] Available at: https://www.logistics.dhl/content/dam/dhl/global/core/documents/pdf/glo-core-blockchain-trend-report.pdf [Accessed 16 April 2019]. Fitzpatrick, L., 2019. A Hacker's Take on Blockchain Security. [Online] Available at: https://www.forbes.com/sites/lukefitzpatrick/2019/02/04/a-hackers-take-on-blockchain-security/#4ecf14504334 [Accessed 02 December 2019]. Graglia, M. J. & Mellon, C., 2018. Blockchain and Property in 2018: At the End of the Beginning. Innovations: Technology, Governance, Globilization, 12(1-2), pp. 90-116. Harford, T., 2019. How important will Blockchain be to the world's Economy. [Online] Available at: https://www.bbc.com/news/business-48526666 [Accessed 02 December 2019]. Migirov, R., 2016. The-Supplu-circle-how-blockchain-technology-disintermediates-the-supply-chain. [Online] Available at: https://media.consensys.net/the-supply-circle-how-blockchain-technology-disintermediates-the-supply-chain-6a19f61f8f35?gi=7a3beb094e95 Orcutt, M., 2019. Once hailed as unhackable, blockchains are now getting hacked. [Online] Available at: https://www.technologyreview.com/s/612974/once-hailed-as-unhackable-blockchains-are-now-getting-hacked/ [Accessed 02 December 2019]. Srivastav, K., 2019. A Guide to Blockchain Immutability and Challenges. [Online] Available at: https://dzone.com/articles/a-guide-to-blockchain-immutability-and-chief-chall [Accessed 02 December 2019].

https://blockgeeks.com/guides/what-is-blockchain-technology/

https://blockgeeks.com/guides/what-is-blockchain-technology/


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The Maritime Executive, 2017. Rotterdam-Launches-Blockchain-field-lab. [Online] Available at: https://www.maritime-executive.com/article/rotterdam-launches-blockchain-field-lab Warehouse Scanner, Infographic. [Online] Available at: https://www.boyum-solutions.com/solutions/logistics/produmex-scan/ [Accessed 02 December 2019].


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Blockchain ADPG Knowledge Paper Title - cips.org