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Platforms and Blockchain Will Transform Logistics

Jul 04, 2019   |   by Sangeet Paul Choudary, Marshall W. Van Alstyne and Geoffrey G. Parker   |   Harvard Business Review

Major change is coming to the logistics and shipping industries – a transformation that promises to be even more dramatic than the move to third-party logistics a generation ago. With increasing digitization, platform-based business models will connect new players, wash away inefficient old ones, and harness the cloud.

Consumer-facing transportation and logistics have already seen the rise of platforms such as Uber and Deliveroo, yet business-to-business logistics pose different challenges. Where successful firms once coordinated just two parties’ assets — those of shippers and receivers –logistics hubs now coordinate multiple stakeholders, involving containers, finance, fuel, transport, regulatory approval, and more. Multi-party coordination of this asset-intensive industry adds to overall complexity.

At least three factors are driving the industry move to platforms: New infrastructure and technology, richer and more visible logistics data, and relentless pressure to reduce costs. Customers demand the increased functionality that platforms provide along with the cost reductions that come from better use of assets. Allocating spare capacity to its best use creates value, while platform business models allow value capture from links in a chain, without any one party having to own the whole chain.

Over the past decade, sensor-generated data from physical assets such as delivery vehicles, containers, and warehouses have vastly increased visibility across the logistics value chain. In addition to the benefits derived from such rich operational data, the emergence of blockchain and other distributed-ledger technologies enables public record-keeping and automatic coordination where digital and physical events can trigger one another. Data created by sensors, ERP systems, inventory palettes, and shipping events can automatically add records to the blockchain, which can launch cascading events farther along the value chain. Meanwhile, the blockchain’s open architecture allows multiple parties to contribute, share and co-govern their data at a single source, with an array of benefits: Public records increase transparency, with the result that all actors are held to high standards. Further, a blockchain’s ability to manage permissions, asset ownership, and accountability helps assure service quality. Trust improves because any individual performance lapses, which could be hidden among the complex systems in the past, become visible to all parties at every stage.

Facilitating this transformation, banks around the world are financing industry interoperability by partnering with logistics firms to leverage the blockchain. Greater transparency using the blockchain enables better investment decisions across a wider range of transactions.

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