India unbound

In its simplest form, a blockchain is an accounting ledger — one that can store data on any real-world transaction of any kind. What’s unique is that this ledger is decentralised and its data are encrypted, and highly resistant to tampering.

This enables the blockchain to act as a trustworthy third party in applications ranging from property ownership and financial services to identity verification. And it can do so either on public basis, such as Bitcoin, or private, with a single entity operating a closed blockchain system.

In India, blockchain can generate three tiers of impact across the supply chain.

Improving transparency. India’s supply chain suffers from low transparency and high process inefficiency due to excessive paperwork. Consequently, Indian businesses are often slow to respond to market demand, and end up overspending on logistics.

There are two reasons why large logistics players haven’t deployed a centralised platform — the enormous onboarding effort required, and data-privacy concerns.

Blockchain could address both issues. First, blockchain’s plug-and-play capability makes onboarding less onerous: Large players could start by creating their own private blockchains with their suppliers, with the resulting automation of paperwork and due diligence. These networks could then be repeatedly connected to each other to create exponentially larger networks, amplifying the benefits.

But why would companies be willing to link their blockchains up? Blockchain’s structure, combining encryption and distribution, makes data far more secure and gives each blockchain participant far more control over its data. These capabilities increase the upside of joining a blockchain while dramatically reducing the downsides.

Dispute resolution Today’s supply-chain structure makes litigation for faulty or defective supply tedious and expensive, fraught with unreliable data. In a blockchain-enabled supply chain, each movement of the shipment can be tracked and logged in a way that all of the parties can trust, but with the data open only to them. “Smart” contracts could then penalise parties automatically from amounts held in escrow.

Opportunities for SMEs : Estimates show that last-mile delivery accounts for 40-50 per cent of all logistics costs. SME vendors have repeatedly proven their cost effectiveness in this domain, but the question keeping large customers from choosing SMEs has been: which ones can we trust? Blockchain provides a novel solution. Once SME vendors are onboarded onto a blockchain platform, they can be assigned reputation ratings tracking their performance. As in other applications, blockchain’s resistance to tampering makes the performance records easy to trust. In short order, customers could have dozens of high-quality logistics options to choose from, all with the assurance that comes with performance track records that have been verified by blockchain.

The potential impact is twofold, not only enabling SMEs to take home a larger slice of the pie by competing against established players, but increasing the size of the pie itself, by increasing demand as the addition of new players reduces prices.

It’s a world where a local trucker could beat out the world’s largest logistics companies and the neighborhood Kirana store can send shivers down the spines of even the most sophisticated global retailers.

Mundra is a partner in McKinsey’s Mumbai office, and Kulkarni is a Business Analyst in the Bangalore office.

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