Chemicals firms watch and wait on blockchain evolution

24 August 2018 13:04 Source:ICIS News

LONDON (ICIS)--The chemicals industry continues to observe the evolution of blockchain from a distance, although some players have started to work on proof of concepts with an eye to integrating the technology more closely into their operations, according to a director at consultancy Accenture.

- Technology still young, but applications in frictionless trade, precision tracking, and improved supply chain agility

- Ability to provide a checkable guarantee of provenance of a product could be a boon as supply chains become increasingly globalised

- Proofs of concept being explored; as much a cultural shift as a technological one

The potential of blockchain, the electronic ledger technology that underlies bitcoin, has been greeted with excitement by the global financial community, with a 2015 World Economic Forum survey projecting that 10% of global GDP will be stored on the system by 2027.

Early-stage innovation
However the technology remains in its nascent stages, and at present the chemicals industry – which tends to lag industries such as financial services and pharmaceuticals in new technology adoption – remains predominantly on the sidelines.

“If you think about the industry, they like to bleed the asset, run the business lean and invest only when they need to,” said Mark Pintar, managing director for technology consulting at Accenture.

“Blockchain is one of these technologies that, given how the platforms and consortiums are evolving, and the technology is evolving, there is a lot of wait and see among players,” he added.

The technology offers improvements for supply chain processes, product authentication, tracking and monitoring materials and international trade, but it does require a cultural readjustment among companies looking to put it to work, according to Pintar.

“I think that by its very definition blockchain does require a bit more trust,” he said. “If you really engage in a [blockchain] consortium, it’s like going back to the beginning days of e-commerce.”

“Back then, I had to trust putting my credit card online when I'm buying products, and now everyone does it, despite the risks. We’re kind of at the same point in terms of the trust factor from a b2b perspective,” he added.

While firms are fast developing new applications for blockchain technology and investment in the space is continuing to grow, the winning business applications for and the dominant consortia of platform operators are yet to emerge.

Analyst Gartner’s hype cycle (below), which tracks the progress of innovations from inception to inflated market expectations to productive growth, marks blockchain as in the trough as initial ebullience dies down and players assess the true potential of a technology.

Gartner hype cycle (source Gartner)At present, according to research by McKinsey, blockchain’s key short-term value is in reducing cost before it reaches the stage of transforming business models, but the benefits for early-adopters in the chemicals space could be great in terms of setting the agenda, according to Pintar.

Blockchain consortia, made up of financial entities, technology firms and other stakeholders, are working to develop applications for the technology and stake a claim in the field.

“The first movers into these consortiums where they’re developing the rules are at an advantage,” he said.

Supply chain potential
Where the technology has potential for the sector at present is for increased precision and tracking along the supply chain, and for players to be more responsive to consumer demand.

Just as the disruptive potential of blockchain in general is seen as the most powerful in Africa, Asia and eastern Europe, where the financial institutions and merchants may be seen with less trust than in the west, the capacity to offer an immutable audit trail can be a selling point.

Counterfeit bulk chemicals and pesticides are increasingly surfacing on e-commerce sites like Alibaba, and the ability to easily provide a checkable guarantee of the provenance of a product could be a boon as supply chains become increasingly globalised and interlinked.

“You’ll see that use case evolving with customer demands around companies saying that they want to be the Amazon of the chemical industry, the consumerisation of that experience,” Pintar said, adding that for chemicals that shift was likely to be more angled on track-and-trace services than online ordering.

Track and trace also has potential for hazardous products, allowing all parties involved with the transaction to know the location and state of the material at all stages of its journey from seller to buyer.

This precision also offers the potential for savings when things go wrong, in instances where product is suspect or needs to be recalled, such as when BASF issued a faulty batch of toluene di-isocyanate (TDI) last year, or when a safety issue arises.

For example, if a polymer compound used in a car bumper is proven to be defective, it may be possible to track the issue to a specific batch rather than staging a wider recall, Pintar said.

“If I could start to track that back, from the origination of that product to where it was blended, and where it was manufactured, I might be able to narrow the issue down from 100,000 cars down to 5,000,” he said.

Reducing roadblocks and man hours necessary for international trade to be transacted is another aspect of blockchain that is feasible for chemicals companies to explore, according to Pintar, with greater capacity for information-verification reducing trust issues along the supply chain.

“Blockchain is a big part of frictionless business in complex many-party transactions, where agreements are documentation-heavy and have many hand-offs and many disparate systems underlying it,” he said. “These relations tend to be arms-length, lots of trust issues around sharing data.”

Industry adjustment
While moving to a blockchain model requires a cultural adjustment by many players to that level of transparency, the technology would reduce the need for leaps of faith at any stage, as the data of the transaction would be available to everyone involved. This can also stand to reduce waiting time at customs points, Pintar added.

“I could take a bill of lading, where the process is complex with lots of mistrust between customs clearance and letters of credit, and start wrapping blockchain around that, sharing data across different parties in that consortium model to achieve efficiencies that you wouldn't get,” he said.

While there are few leaps in the industry to embrace blockchain on a larger scale, a great deal is happening with proof of concepts, according to Pintar.

“The entrance to leveraging blockchain can be small, and that's what we recommend, to be very targeted, before things move to enterprise scale… we recommend find a very specific industry-driven use case, where are your pain points in your processes, and look at how to leverage blockchain from that perspective,” he said.

However, the shift may be more of a cultural, systemic and mind-set adjustment among corporates than a simple adoption of a new technology solution.

“More of the effort may come in redesigning your internal processes and governance and retraining people than on the technology side,” Pintar added.

Interview article by Tom Brown.

By Tom Brown