Service level agreements (SLAs) can vary in scope, complexity, duration, and value. Managing supply chain SLAs have the added complication of geographic and cultural barriers. Contract details may vary by region, and individual locations may be subject to unique contractual stipulations that other locations never see. In response, supply chains have relied on a series on defined terms for use in international SLAs, Incoterms. The list of Incoterms is created and managed by the International Chamber of Commerce, and managing supply chain SLAs relies heavily on this decades-old list to ensure consistency and clear communications in contractual details for moving freight. Unfortunately, the complexity of e-commerce and global trade demands something more, an ability to understand more than what the ICC defines, and blockchain may be the answer.
Data Types and Quality Variances Complicate Managing Supply Chain SLAs
In the U.S., more than 500,000 trucking providers, major national carriers, local and regional distributors, countless vendors and suppliers, and third-party resellers exist. Each potential relationship represents the need for an SLA, and since the descriptors and terms vary, shippers and supply chain executives must thoroughly understand their responsibilities and expectations defined within each SLA. The complexity is extreme. Although Incoterms define common standards in the costs, ownership, liability, and transfer of goods from buyers to sellers, the broad nature of modern e-commerce may result in additional details that do not exist within the current set of Incoterms.
For example, EXW or “Ex Works” specifies when the seller delivers goods and places goods at the disposal of the buyer. In e-commerce, this may not be enough information to clearly define shipper and buyer responsibilities. Since only 11 Incoterms exist in the Incoterms 2010 ruleset, some companies, as well as purchasers and consumers, may need to know additional information about a product. Such information may be defined within individual SLAs. Therefore, having an indisputable source of information, such as blockchain technology, may be used to develop consistency and clarity in managing supply chain SLAs.
An Introduction to Blockchain and Its Potential Benefits and Drawbacks in Supply Chain Management
Blockchain Eliminates Uncertainty
Blockchain has great potential in eliminating counterfeit products and tracking freight, which costs upward of $250 billion annually, reports Share America, as well as manufacturing, processes. Traceability includes more than the product at the stage of manufacturing. For instance, procurement and reverse logistics processes, such as reclamation of raw materials and metals from old products, may be enhanced through blockchain technology to document the origin of a product prior to manufacturing. This eliminates uncertainty in the supply chain.
Blockchain’s secured network-style serves another purpose, preventing parties from altering past information after entry. The chain endures and provides a ledger of all processes and activities that led to a given point. As a result, supply chain managers can review supplier, vendor, partner, and consumer behaviors or actions, determining if all parties adhered to their obligations within the SLA.
Such capability holds additional value in preventing fraudulent returns, such as swapping out old for new merchandise before sending products back or returning counterfeit products. Since any purchase is technically an SLA between seller and buyer, even those at Walmart, blockchain provides an added level of traceability when Incoterms may be unavailable to define responsibilities and obligations for product use and returns management, if necessary.
Best Practices for Managing Supply Chain SLAs Through Blockchain Technology
The best means of managing supply chain SLAs focus on ensuring clarity and consensus on a contract prior to its execution, reports the Global Supply Chain Law Blog. Although these best practices are described for use in any contract’s creation, they possess additional use and applicability to blockchain technologies in the following ways:
- Adopt “blockchain” in existing operations to ensure comprehensive terms in contract negotiation and drafting. Adopting this policy also helps parties understand past behaviors and actions that may require consideration in contractual terms.
- Consider all possible perspectives when drafting SLAs. For blockchain use, this may include granting access to systems of record or network that houses the blockchain.
- Avoid mass-access, standardized forms. Standardized forms can be beneficial within a company, but the problem arises when forms from other contracts, such as those found with a simple Google Search, are used to create a new SLA. As a result, stipulations may go beyond or fall short of needed contractual terms. Blockchain provides a single source of information, which could be used in generating new SLAs for consideration and negotiation.
- Obtain approval for the SLA by all relevant parties. Blockchain technology has already been used in the process of capturing and documenting shareholder votes, reports CNBC, and the same concept can be applied when executing SLAs. Since the chain cannot be tampered with, this provides an incontestable resource for dispute resolution, which may include the compilation of historical records and contracts for use in legal proceedings.
- Share information regarding the SLA and activities with other parties. Since blockchain rests atop a foundation of secure information access, authorized parties can access and review the information at any time, and this information can be passed along to others, such as end-users, for greater transparency.
Put the Power of Tracking to Work by Gathering More, Quality Data Now
Blockchain will revolutionize the process and work of managing hundreds, if not thousands, of supply chain SLAs. Instead of relying on outdated, roundtable discussions, put the power of blockchain to work in managing supply chain SLAs today. However, blockchain implementation will require the collection of additional, quality data for use. So, it is time to think about upgrading existing, paper-based supply chain processes to digital systems now.