The value of integrating blockchain in the automotive supply chain

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The value of integrating blockchain in the

automotive supply chain

Kevin Bood s2491095

MSc. Technology and Operations Management Faculty of Economics and Business

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ABSTRACT

Purpose – The goal of this research is to explore the opportunities blockchain can offer to create

value within supply chains by enhancing supply chain visibility. Thereby, the focus is on valuable application opportunities within the (automotive) supply chain, comparisons with currently used technologies and issues regarding the implementation raised by stakeholders during the data collection.

Design/methodology/approach – An exploratory embedded single case study is conducted

within an automotive supply chain in The Netherlands. First, a literature review was conducted. After that, following an inductive empirical approach, data was gathered by having interviews, observations, meetings and by reviewing (academic) papers.

Findings – Blockchain can provide value within supply chains by digitalizing the process,

increasing the speed of processes and involving third parties. This can be done by providing data integrity and improving supply chain integration among others.

Research limitations and future work – Car manufacturers, dealers and lease companies have

not been interviewed in this study. Future research could focus on their view concerning changes that blockchain implies, such as the new role of the carrier within the supply chain and the distinctive value compared to currently used technologies.

Practical implications – This research suggests that organizations considering integrating

blockchain within their supply chain are now provided with the value and most important issues regarding this new technology, backed up by empirical evidence.

Originality/value – This study is among the first that gathers empirical evidence at a business

blockchain application that is meant to support actual supply chain operations. New insights regarding the need of data integrity, the role of third party involvement and enhancing supply chain integration are given.

Keywords – supply chain visibility, blockchain technology, data integrity, private blockchain,

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1 INTRODUCTION

Consumers as well as businesses along the supply chain want to have information about the journey of their products more than ever before. Therefore, transparency and visibility within supply chains is highly valued nowadays (Maghsoudi & Pazirandeh, 2016). Lots of papers are written about Supply Chain Visibility (SCV) and how important it is within supply chain management (Francis, 2008; Maghsoudi & Pazirandeh, 2016). Achieving higher SCV is likely to result in a higher organizational and/or supply chain performance (Bartlett et al., 2007). Today, companies make increasingly use of technologies regarding information gathering and sharing with their supply chain. The Internet of Things (IoT) and Radio Frequency Identification (RFID) technologies improved traceability and supported knowing the provenance of products (Attaran, 2007; Delen et al., 2007; Francisco & Swanson, 2018; Zhou, 2009). Also, on the subject of information sharing, studies have been done on technologies such as Electronic Data Interchange (EDI) (Barratt & Oke, 2007). Clearly, new technologies are constantly introduced to achieve higher SCV (Attaran, 2007; Delen et al., 2007), and recently, blockchain technology is gaining more and more attention by both scientists and practitioners. Blockchain is a technology that is based on a distributed ledger (Nakamoto, 2008). It is mainly known as its application through cryptocurrencies like Bitcoin. The benefits within the financial sector are widely researched and argued in literature (Risius & Spohrer, 2017; Yli-Huumo et al., 2016). Research in other possible application domains is quite scarce, however, blockchain potentially has strong fits in the area of supply chain management (Bünger, 2017). It is argued that blockchain differs from prior technologies in a way that it is able to provide transparency to all supply chain stakeholders, by offering immutable and highly secure access to supply chain data (Kim & Laskowski, 2016). Despite the fact that the potential value of blockchain in supply chains is argued (Abeyratne & Monfared, 2016; Loop, 2016), until today, there are just few real-life implementations happening. Therefore, blockchain implementation remains a challenge and under investigated in scientific literature.

The goal of this research is to provide an empirical analysis on how blockchain can offer value for supply chains, in order to achieve higher SCV and thereby resolving the supply chain and logistical issues companies have. Therefore, the following research question is conducted:

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An empirical study into a blockchain application is done on the value it can offer to improve supply chain and logistical performance of companies. To determine the distinctive value of the blockchain application, a comparison is made with existing technologies companies currently use. Taking into account the limited scientific literature of the application of blockchain in supply chains an exploratory single case study is done within an automotive supply chain in The Netherlands. The focal company is a logistics service provider which is implementing a blockchain application within its supply chain. During the case study, different stakeholder views are taken into account in order to provide a comprehensive overview of the implementation and its value and issues.

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2 THEORETICAL BACKGROUND

2.1 S

UPPLY

C

HAIN

V

ISIBILITY

Supply Chain Visibility (SCV) has gained much interest from both practitioners and researchers in supply chain management (Bartlett et al., 2007; Francis, 2008; Yu & Goh, 2014). SCV helps different parties within a complex supply chain to achieve an enhanced overview of material flows (Christopher & Lee, 2004). SCV is a result of information sharing between supply chain actors and can enhance the performance of the overall supply chain (Bartlett et

al., 2007; Jonsson & Mattson, 2013).

Many different definitions exist on SCV. These definitions have a focus either on the information content and information sharing or on seeing SCV as a capability to improve decision making and performance (Klueber & O’Keefe, 2013). This evolved over time, starting with definitions based on information sharing and content by Swaminathan & Tayur (2003), who define SCV as the ‘ability to access/share information across the supply chain’. After that, definitions emphasized more on the goal of that shared information, rather than just sharing information with each other. The focus shifted towards having the capability to get useful information and being able to use that information for a company’s key operation. Considering this shift, Caridi et al. (2010) define SCV as ‘the capability to have access to useful information’. The definition we will use in this study, which goes even one step further, is from Barratt & Oke (2007) who define SCV as ‘the extent to which actors within a supply chain have access to or share information which they consider as key or useful to their operations and which they consider will be of mutual benefit’.

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2.2 C

URRENTLY USED TECHNOLOGIES

Information technologies aimed at facilitating the sharing of information among supply chain actors and other stakeholders are crucial for achieving SCV. Interorganizational Information System (IOS), initiated in the 1960s, were originally designed to keep track of transactions between companies. Over time, this has been extended by facilitating the sharing of a broader type of information, due to the rise of computer power and innovations regarding telecommunication (Lee & Whang, 2000).

2.2.1 Electronic Data Interchange (EDI)

EDI is an instance of an IOS and can be defined as ‘the transmission of standard business documents in a standard format between industrial trading partners from computer application to computer application’ (Walton & Marucheck, 1997). EDI is widely used within supply chains. However, the current application has some drawbacks. While using EDI, third parties are often involved that control the system of information sharing, causing data integrity, confidentiality and security to be among the major issues of this technology (H. L. Lee & Whang, 2000; Ratnasingham, 1997). Moreover, human involvement in the system is often necessary to send information or even to put information in the system, which means there is a lack of real-time information sharing (Lee & Whang, 2000). Also, there are problems of inadequacy and low quality of information being shared, partly as a result of the human involvement (Barratt & Oke, 2007).

2.2.2 Radio Frequency Identification (RFID) technology

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2.2.3 Internet of Things (IoT)

Ben-Daya, Hassini, & Bahroun (2017) define the IoT as ‘a network of physical objects that are digitally connected to sense, monitor and interact within a company and between the company and its supply chain enabling agility, visibility, tracking and information sharing to facilitate timely planning, control and coordination of the supply chain processes’. The main body of an IoT network has four essential layers: a sensing layer, which includes technologies to identify objects such as RFID tags and sensors, a networking layer that supports information transfer by means of a wireless network, a service layer that integrates applications and services and an interface layer that allows interaction and can show information to the user (L. Da Xu

et al., 2014). Lee & Lee (2015) defined five key technologies that have to be part of an IoT

solution, which include RFID & Cloud Computing.

Based on the IoT design described above, blockchain may be a technology that can complement IoT solutions, by simplifying integration between businesses and enabling micro level IoT integration (Korpela et al., 2017). In this way, IoT can deliver the inputs of the system, where blockchain could provide the outputs. This integration requires less human intervention (Francisco & Swanson, 2018).

2.3 B

LOCKCHAIN

T

ECHNOLOGY

Despite the fact that current technologies described provide opportunities to enhance visibility and transparency within supply chains, blockchain technology is able to provide immutable and secure access to supply chain data, accessible by all stakeholders involved, but without single-party ownership over all the data (Kim and Laskowski, 2016).

Blockchain was first introduced by the application of the digital currency Bitcoin (Nakamoto, 2008). The interest in blockchain was increasing after this new cryptocurrency gained more success and many more cryptocurrencies were established. Still today, Bitcoin remains the most popular and commonly used application of Blockchain (“Cryptocurrency market capitalizations - Bitcoin Markets,” 2018). That is why until today, also most research is focused on financial applications (Risius & Spohrer, 2017; Seebacher & Schüritz, 2017; Tama

et al., 2017).

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that no single party controls the data or information (Drescher, 2017; Iansiti & Lakhani, 2017). Moreover, all nodes within the blockchain have a copy of the same ledger. This creates transparency for all users, since every transaction and its associated value is visible to anyone with access to the system (Iansiti & Lakhani, 2017). Before data can be added to the ledger, all nodes have to reach consensus about the legitimacy of the data. There are several consensus mechanisms to confirm input data (Risius & Spohrer, 2017), how they are being structured is beyond the scope of this research. Once the data is validated, it is put into the ledger. Data in the blockchain ledger is immutable and thus cannot be changed (Nakamoto, 2008). All in all, blockchain can be summarized by the following definition of Seebacher & Schüritz (2017):

“A blockchain is a distributed database, which is shared among and agreed upon a peer-to-peer network. It consists of a linked sequence of blocks, holding timestamped transactions that are secured by public-key cryptography and verified by the network community. Once an element is appended to the blockchain, it cannot be altered, turning a blockchain into an immutable record of past activity.”

These features make it possible that there is no trusted third party necessary to control transactions, since trust is created among all nodes in the blockchain. In this way, third parties can be bypassed. This can reduce costs, risk, and the need for information and control (Abeyratne & Monfared, 2016; Nakamoto, 2008).

2.3.1 Smart contracts

Smart contracts are an essential element for blockchain applications for business. The idea of smart contracts originate already from the 1990s. Szabo (1996) defined smart contracts as ‘a computerized transaction protocol that executes the terms of a contract’. For blockchain applications, these contracts can execute the business logic. For instance, a smart contract is able to execute a transfer automatically when a certain event has happened. Although the idea of smart contracts is quite old, these contracts are not yet widely used in real life business implementations. Due to the rise of blockchain, smart contracts now have a technology on which they can run. Moreover, its correct execution is enforced by the consensus mechanisms (Luu et al., 2016). According to Korpela et al. (2017), satisfying common contractual conditions, minimizing exceptions and minimizing the need for trusted intermediaries are the main goals of smart contracts.

2.3.2 Strengths and weaknesses

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potential benefits in terms of strategic, organizational, economical, informational and technological aspects. Among the most important strengths are traceability and avoiding fraud; increase trust, auditability and increased control; reduced costs; data quality and integrity, reducing human errors, access to information, privacy and reliability; resilience, security and reduced energy consumption. These strengths are described in literature, but it has never been investigated what these strengths mean in case blockchain is actually implemented in a supply chain setting. In this research, the most important value that can be reached with these blockchain strengths within supply chains will be the focus. Weaknesses of blockchain are not extensively described in literature yet. Some important weaknesses are mentioned by Yli-Huumo et al. (2016) who argued that security, wasted resources, usability and privacy are the most important potential weaknesses. The security and privacy issue mentioned is in contradiction with Ølnes et al. (2017).

2.4 B

LOCKCHAIN AS A

S

UPPLY

C

HAIN

M

ANAGEMENT TOOL

The potential fit of blockchain in supply chain management is recognized by many (Iansiti & Lakhani, 2017; Loop, 2016; Lund & Nielsen, 2016). Despite the fact that not much research has been done in this area, in a few recent studies, researchers started to focus more on the application of blockchain considering a supply chain management perspective. However, none of these papers followed an actual blockchain implementation by gathering data from primary sources within a supply chain.

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performing what actions, as well as determining the time and location of those actions. This could help achieving key supply chain management objectives such as cost, quality, speed, dependability, risk reduction, sustainability and flexibility.

Despite the fact that literature is now starting to focus on blockchain applications in a supply chain, there is still a huge lack of knowledge due to the recent rise of blockchain. As stated in literature, there is a need for empirical analysis of the application of blockchain in other sectors than the financial sector (Seebacher & Schüritz, 2017; Yli-Huumo et al., 2016). None of the studies described above followed an actual blockchain implementation within a supply chain for a certain period of time. Conceptual papers are discussing strengths and weaknesses of blockchain technology, but more knowledge is necessary to identify issues in real life applications, especially in the supply chain sector (Risius & Spohrer, 2017; Yli-Huumo

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3 METHODOLOGY

In this research, an embedded single case study is conducted at Koopman Logistics Group B.V located in The Netherlands. The core business of Koopman is transporting finished vehicles across Europe, but mostly in The Netherlands, Germany and Belgium. In cooperation with IBM, Koopman created a blockchain platform. At the time of this study, Koopman was testing and implementing this new technology. Koopman is the first medium-sized logistics firm to actually implement the blockchain technology, and therefore an ideal case for studying the value and issues of implementing blockchain within a supply chain.

Koopman has two main flows of cars that they transport. The first main flow consists of newly build cars by big Original Equipment Manufacturers (OEM’s) (Figure 1). These cars are transported to a compound of Koopman or another company by boat, train or truck. After that, the cars stay at the compound until the end customer is known. After the transport order is given to Koopman, they transport the car to the end customer which often is represented by a dealer. The second main flow consists of cars in the second-hand market (Figure 2). Typically, these cars have been used by the leasing market. Koopman transports these cars to their compound. At the compound they can perform some remarketing activities, in accordance with the customer. After these activities are finished, the car is transported to its new owner.

Figure 1 – Process of transporting new cars.

Figure 2 – Process of transporting second-hand cars.

Typical stakeholders in this process are the OEM’s, leasing companies, fleetowners, logistics companies, dealers, the Customs Authority and the Vehicle Authority.

3.1 J

USTIFICATION FOR RESEARCH APPROACH

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blockchain technology within a supply chain and specifically, the logistics sector. Also, blockchain technology is an emerging technology and much is still unknown about specific applications. A case study lends itself to early, exploratory investigations where variables are still unknown and the phenomenon is not at all understood (Meredith, 1998). Since no empirical studies are conducted on blockchain as a SCM application yet, this study has an exploratory purpose. With this purpose, areas for research can be uncovered (Ketokivi & Choi, 2014). It is a necessary first step, since the real value blockchain may offer and the issues that come with it are never mentioned in literature. This study follows an inductive approach, which implies that propositions or frameworks are the outcomes of the analysis (Kovács & Spens, 2005).

A single case is chosen since this way of doing research offers a greater depth for a thorough exploration of the recent rise of the blockchain phenomenon and the implications this has on supply chains. An embedded single case enables this research to illuminate the implementation of blockchain in supply chains from multiple contexts and stakeholder views. Since the study is embedded instead of holistic, multiple processes and stakeholder views are discussed within the case (Mukherjee et al., 2000; Yin, 2014). This way of doing research allows us to make comparisons, see similarities and differences. The key limitation of a single case study is its generalizability of the conclusions drawn (Voss et al., 2002). Therefore, generalization is not the goal of this study. The goal of this study is to provide insights into a unique case (Yin, 2014). The current case at Koopman is a unique opportunity to conduct this research. The business they are in is pretty straightforward; transporting finished vehicles. And more important, they are actually working on implementing a blockchain tool and offered this study full access to gather data during this implementation. Based on the phase they are in, it is very interesting to see if and how it would work for the supply chain and its stakeholders. This case is a good example for future cases on implementing blockchain in a supply chain.

3.2 D

ATA COLLECTION

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Data collection method Organization Position Non-recorded interviews,

meetings and observations

Koopman Application manager of the current ERP Koopman Most departments: IT, administrative,

ride creators, planning, claims, customer service, financial, accounts receivable Several companies,

authorities, universities and municipalities

Several meetings with business and blockchain experts

Koopman Operations Manager of the Compound in Amsterdam

Koopman Account Manager at the compound in Amsterdam

Customs Authority Meeting with the Customer and Project Manager about possible cooperation Koopman Meeting with the Project Manager of the

blockchain project Koopman A day with a truck driver

Koopman & Dekra Visit to the remarketing processes at the compound in Amsterdam

Koopman & National Vehicle Crime Information Centre

Meeting about possible cooperation

Koopman Weekly meetings with the CEO

Recorded interviews Koopman The blockchain expert

IBM Practice lead and blockchain expert Koopman Account manager at the compound in

Amsterdam

Corporate/governmental documents

Koopman Presentation of the blockchain demo Several companies and

authorities

Documents on blockchain in the automotive supply chain

Non-scientific articles and websites

- Articles, websites, opinions on the implementation of blockchain in supply chains.

Table 1 – Overview of the data collection sources.

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collection. Three recorded interviews were conducted. Two of which were with blockchain experts both from Koopman as well as from IBM. The other interview was done with a manager which is an expert of the operations at the Koopman compound in Amsterdam. Also, governmental and corporate documents were used, as well as non-scientific articles and websites, in order to verify findings and to come up with interesting new ideas.

In order to achieve internal validity in this study, a draft of the study is sent to the key informant of Koopman in order to receive feedback that can be taken into account while finalizing the research. Considering multiple perspectives is also a way of achieving internal validity, due to creating the ability to verify the findings (Yin, 2014). The data collected by interviews is done mostly through semi-structured interviews. Before every recorded interview, a list of topics and/or questions was made of subjects that were important to discuss considering this research. A semi-structured interview allows the interviewer to set-up a framework of topics to be discussed, but next to that, the interviewer is also able to allow new ideas being brought up during the interview based of what the interviewee is saying.

3.3 D

ATA ANALYSIS

In order to conduct a transparent research, the documentation of information and research protocol will be discussed (Yin, 2014). First of all, all recorded interviews were transcribed. Second, during the non-recorded interviews, meetings and observations notes were made. These notes were extended either the same day or the day after, in order to be able to write down all important information. Also, all the data is kept together in a database where this information can easily be checked and used. By creating this database, the reliability of this study is enhanced, allowing subsequent researchers to replicate this study.

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4 FINDINGS

As stated before, Koopman is now implementing a blockchain platform within their supply chain. Their decision to make use of blockchain was a strategic one instead of a technological one. The focus of Koopman as a carrier is on service and quality instead of the lowest costs, since they are not able to compete with the prices of companies from the east of Europe. In their belief, they should be innovative in order to be competitive with the other transportation companies. In automotive logistics, consolidation is taking place in Europe. Carriers acquire other carries to become bigger and be able to guarantee customers European coverage. However, margins on transport are low. Transport is a commodity and customers see it as a cost item. Therefore, Koopman decided to aim for a network organization.

“We believe in a network organization, by cooperating with partners to be able to provide European coverage, without having the overhead of a multinational. Therefore, a framework for cooperation is needed, and that is what we use blockchain for.” (Blockchain expert of Koopman)

In this case, Koopman will not execute all transport orders themselves, but coordinate the orders. They believe that blockchain makes it possible to become a facilitating company instead of merely an executing one, by making secure and fast data communication possible. In order to do so, Koopman created a blockchain tool in cooperation with IBM. How this technology works will be explained now.

4.1 H

YPERLEDGER

F

ABRIC

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A public blockchain is not appropriate for businesses that want to make use of blockchain technology. The main difference between private and public blockchains exists due to the level of trust of the nodes in the system. In a private blockchain the nodes do know each other, whereas in a public blockchain they do not.

“What is really important in a business setting is that usually you know the people you are doing business with. You also want to know with whom you are doing business with. This implies there already is a little bit of trust, which means that not all trust has to be guaranteed by a consensus mechanism.” (Practice Lead and Blockchain Expert of IBM)

This enables a private blockchain to be much more efficient in terms of reaching consensus. In a public blockchain, a mining mechanism is used to reach consensus. Each node in the network must solve a complex calculation that requires a substantial amount of computational power and thereby uses a lot of resources such as energy. Also, while using this mining mechanism, there is no control over the transaction costs. In Hyperledger Fabric, no mining mechanism is necessary in order to reach consensus. Due to the level of trust between participants, the only consensus that has to be reached is about the sequence of the transactions. In case consensus is reached, the transaction is fixed. In the automotive supply chain, if two participants agree upon the transaction that has to be added to the ledger, the only thing the consensus mechanism has to check is whether the specific transaction fits in the sequence of transactions within this ledger. After this check is done, the transaction is considered as the truth and is added to the ledger.

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Figure 3 – Connections between peers in a public blockchain.

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4.2 A

PPLICATION AT

K

OOPMAN

The first aim of the blockchain application at Koopman and its supply chain is to digitalize the transportation process, which they are implementing now. After this implementation, more opportunities exist to increase the efficiency by increasing the speed of processes, focusing both on their own processes as well as involving third parties. These applications will be discussed now.

4.2.1 Digitalization

To date, a paper bill of loading (CMR) has to be accompanied with every transported good. CMR stands for ‘Convention Relative au Contrat de Transport International de Marchandises par Route’. This piece of paper has to be signed by every person/organization involved in the transportation process. In the automotive supply chain, parties involved in the process are the supplier (which initiates the transport order), the carrier and the end customer (often represented by a dealer or fleetowner). Blockchain technology is able to facilitate a paperless process as a first step. Blockchain makes it possible to keep track of these transactions digitally, with the certainty that the information within the blockchain application is the truth. This is done by accompanying an electronic bill of loading (eCMR) with every transported good (see Figure 5). During this process, there are several moments at which the ownership is changing. The first change occurs when the principal and carrier sign for picking up the vehicle. The second change occurs when the carrier and end customer sign for receiving the vehicle. These changes of ownership represent transactions in the blockchain. To be sure the vehicle is at the location that is put into the system, the locations are verified by GPS-coordinates.

“Companies are interested in less paperwork and more insights in where the is located within the chain and when the car is or will be delivered.” (Project Manager of Koopman)

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4.2.2 Speed of processes

By implementing blockchain and smart contracts, the speed of some processes and transactions can be increased and thereby the accompanying costs can be decreased. One example of such an application is the invoicing process as a part of supply chain finance. In the current process, the CMR is processed by the carrier the week after the actual transportation has been done. This CMR has to be checked on (human) errors before the invoice department can make an invoice. These invoices are all send to the customer at the end of the week or month. After the invoice is send, customers have a certain amount of time to check the invoice and pay the bill. By introducing invoicing as a part of the blockchain application, both the time to cash and the number of Full-Time Equivalents (FTE’s) working on this process could be reduced, since everyone knows that the data – where the invoice is based upon – is correct. After the delivery of the car is signed off by the end customer, a smart contract can immediately send an invoice to a customer according to the price agreements made between the carrier and customer.

For example, in this case at least two FTE’s are working on checking all the CMR’s and at least two FTE’s are working on checking the invoices – mostly automatically generated from the system – and sending them to customers. If you consider one FTE to be approximately €40.000,- a year, a reduction in costs of €120.000,- a year could roughly be achieved. Moreover, all these checks on the CMR and invoice take one or two weeks. Also, most big customers want an invoice only at the end of each month. On top of that, customers have a term of payment varying between 60 and 90 days. If you are transporting cars for over a million euros each month, the savings one can generate by increasing the speed of this process is enormous.

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4.2.3 Involving authorities

Within the automotive supply chain, several authorities are involved to ensure all companies are working according to the law, such as the Customs Authority and the Vehicle Authority. These authorities need specific information on the detailed whereabouts of vehicles. Instead of sending information to these authorities, the authorities could be given access to specific parts of data they need that are stored in the blockchain. Since these authorities can be sure the data is correct, less physical checks need to be done and the physical transportation processes can be faster and more smoothly.

With regard to the Customs Authority, an interesting development in Europe is the Brexit that is coming closer. Since quite some car manufacturers are producing their cars in England, customs documents are likely to become much more important in the near future. An expert of Koopman stated the following:

“In case the Brexit actually continues, I think big car manufacturers need to hire four to five times more employees on customs matters” (Account Manager of Koopman)

Also, carriers are likely to have an increased workload in order to handle all these documents. During an interview, on the other side, the Customs Authority indicated that they need to enter much more declarations. Companies can choose to have a customs representative working for them who will arrange all customs documents. Many companies in the automotive industry from Europe, both OEM’s and carriers, are in the possession of a customs warehouse. In these warehouses – often compounds in the automotive industry – goods can be stored without immediately paying import duties for goods that come from outside the European Union. This can be economically beneficial in case the destination of the importing good is not yet known. All goods that are handled within this customs warehouse need to be tracked in an administration for the Customs Authority. Moreover, the Customs Authority is using commodity codes in order to determine the import duties that have to be paid. However, many companies abuse this system by paying import duties for other (cheaper) commodity codes than the actual commodity that is imported. The Customs Authority is very interested in solving these issues.

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resale price of the vehicle, due to the impression that the motor has a lower mileage than it does have in reality. Moreover, there is a problem with seriously damaged vehicles that are imported, after which the vehicle’s chassis gets refurbished with (stolen) parts. These vehicles get sold, but are not safe and not worth the money.

By keeping track of customs documents, customs warehouse administration, codes of commodities, mileage readings on odometers and vehicle parts, blockchain can play a major role in preventing the appearance of fraud in the industry. This can result in an environment where less administrative and physical checks are needed, which reduces time and costs. These parties do not have to own the data, but they need access to specific parts in order to control the operations to prevent fraudulent businesses to exist.

4.3 B

LOCKCHAIN

’

S CHALLENGES

4.3.1 Defining the challenge

While speaking to many experts in the field of blockchain technology, as well as businesses and legal experts, opinions differ on whether blockchain technology itself is immature or businesses and the legal framework are the ones who need to catch up. On the one hand, blockchain technology is still in its infancy, which means many errors occur while implementing the technology. On the other hand, businesses as well as laws are not yet ready to handle this new technology in a smooth way. Actually, blockchain experts all argue that the technology is in such a phase now that it would work in actual business operations. So far, however, most applications are still in the phase of Proof-of-Concepts (PoC) and Minimal Viable Products (MVP’s). The application of Koopman is in the phase of a MVP as well. Additionally, all stakeholders that were spoken to in this study mutually agree that in most cases, regulations are not ready yet. In the case of Koopman, there are some regulative challenges as well. For example, while implementing the eCMR. A few years ago, this electric document was not a legal form of conducting transportation. The European Union decided to allow this electronic document, under the condition of the reliability of the system. However, after the European Union decided in favor of this document, all countries separately have to decide on this document too. Some countries already did that, some countries did not.

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It will take a while as well, since regulations have to be made by the government, and this process usually takes years. In short, experts in the field do not mutually agree on the biggest challenge of implementing blockchain at this moment in time.

4.3.2 Organizational challenge

Aiming for a network organization also creates some extra organizational challenges. First of all, Koopman is taking another role within the supply chain. Instead of just focusing on transporting cars for their own customers, they are now focusing on orchestrating the whole automotive supply chain. Due to the existence of many suppliers and customers, this is a complicated task. Also by initiating blockchain, big organizations such as OEM’s, carriers, fleetowners and dealers are not always willing to listen and to cooperate with each other. The main reason for this is that they still want to have the opportunity to execute their own business more efficient instead of the supply chain, resulting in more efficiency for all parties at the same time. The Customs Authority and Vehicle Authority are pleased with the initiative of Koopman. They follow this innovation with great interest, since they believe that a cooperation in this field can make their processes more efficient and makes it more difficult for companies to conduct fraudulent businesses.

Also, since Koopman is a company focusing on quality instead of costs, the partners and charters that will execute the transport orders also need to deliver a certain quality level. Truck drivers that do not speak the language, are lost in the system or do not stick to agreements made, are issues that need to be prevented for companies such as Koopman.

4.3.3 Supply chain integration

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observed level of supply chain integration regarding the way of working between different members of the supply chain is quite low.

4.4 D

ATA INTEGRITY

Both the companies along the supply chain, as well as other stakeholders require data integrity concerning the transportation of their assets. Since in this business the assets are highly costly, this issue is extremely important. Therefore, data integrity is an important prerequisite for companies to join the blockchain network. For example, in the second-hand market, lease companies see the opportunity to cut costs significantly, according to key informants of Koopman. These companies have showrooms and other real estate that is fairly costly. They see an opportunity to bypass their own assets and bring the cars straight from the remarketing compound of the carrier to the end customer, without any physical checks of the selling company, since these checks can be done based on the data in the blockchain ledger. If their own physical checks can be bypassed in the process, these companies can save huge amounts of money. In order to do so, data integrity is required. Data about all specifications and damages for example is data that is essential for both the selling company and the end customer of the car. Companies involved transporting the car can provide data that can be seen as the truth through the blockchain application. Key informants within Koopman argue that if this data integrity can be guaranteed, lease companies, for example, are more willing to cooperate. This is just one example of the need of data integrity. Not to mention the authorities involved, described in section 4.2.3.

All interviewees were highly concerned with this issue. They were not yet convinced that they can be sure that everything stated in the blockchain ledger is always the truth. A typical question that was asked multiple times is: How do we know that the data showed in the blockchain platform corresponds with the truth? The truth about locations, transactions, specifications and so on. Each stakeholder has its own interest in a specific part of the data, but they are all concerned with this issue. Despite the fact that blockchain is known for being able to provide data integrity, this is not widely recognized across authorities and companies in the automotive supply chain. In contrast, this is one of their biggest concerns.

4.5 EDI

CONNECTIONS

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5 DISCUSSION

5.1 R

EFLECTION BASED UPON PREVIOUS WORK

5.1.1 Data integrity

In many articles, data integrity is mentioned as one of the core strengths of blockchain (Francisco & Swanson, 2018; Ølnes et al., 2017; Seebacher & Schüritz, 2017; Tapscott & Tapscott, 2016; Yli-Huumo et al., 2016). They argue that blockchain can facilitate data integrity by ensuring all parties they are looking at data that is the truth, and everyone has the same data. As mentioned before, the consensus mechanism is the most important feature of blockchain ensuring data integrity (Ølnes et al., 2017). However, stakeholders within the automotive supply chain raise data integrity as one of their biggest concerns. They do not yet believe that blockchain can guarantee that the data kept in the blockchain always corresponds with the truth. It is an interesting observation, since the described strength of data integrity, due to the consensus mechanism among others, is not perceived as such while speaking to stakeholders. This issue of trust is often raised, especially in papers concerning blockchain technology (Yli-Huumo et al., 2016). But most of the times in a sense that trust between participants is not necessary anymore, since one cannot cheat with the blockchain system (Abeyratne & Monfared, 2016). So, instead of preventing that trust is necessary along the supply chain, apparently the focus should be on trust in adopting the new technology and trust in the benefits it is able to provide. This may be due to experiences with adopting other technologies that did not meet the expectations they had in advance, but also due to the fact that many innovations are going on nowadays and it is difficult to focus on the right technology.

5.1.2 Public vs. private blockchains

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between the nodes. The term ‘blockchain’ is used interchangeably with different meanings while the types differ significantly. Therefore, it is important to stress this difference in this research, in order for organizations and future research to take this into account.

5.1.3 Third party involvement

In almost any paper about blockchain and its applications, one part focuses on the fact that with blockchain a third party intermediary is no longer necessary in order to execute transactions. This is also one main reasons why blockchain technology and Bitcoin are being created (Nakamoto, 2008). Especially in the financial sector this is beneficial, since big organizations such as banks and insurance companies have a lot of power in controlling financial transactions (Seebacher & Schüritz, 2017). In short, the focus of blockchain in the financial sector is on bypassing these third parties. However, in many supply chains, third parties need to be involved in the process for various reasons. The Customs Authority and the Vehicle Authority are examples of the third parties that have to be involved in the automotive supply chain, as described earlier in this paper. In this case, blockchain could be used to smoothen the process by communicating with them in a fast, secure and reliable way. Instead of bypassing these third parties, they can be involved to make the process more efficient. Clearly, this is another approach compared to the focus of many articles so far. Therefore, this research wants to stress the different approaches used in implementing blockchain in financial sectors, compared to supply chain environments. However, this approach of involving third parties does not imply that the third parties control all information. It implies that third parties can have access to specific information stored in the blockchain on a need-to-know basis, based on agreements made in advance between participants.

5.1.4 Cross chain control towers

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horizontal collaboration remained unresolved, since customers were having visibility of one chain of companies, instead of having total visibility over several control towers. Moreover, industry articles state that by creating these towers, a central place to control the information was created (The Boston Consulting Group, 2018). The main difference with blockchain technology can be found in those two elements. First of all, a blockchain platform can be used by all supply chains performing the same services, without this information being stored at a central place. This allows customers to have end-to-end visibility at one platform, regardless of the supplier, carrier or end customer they are dealing with. Moreover, all data is private and stored decentralized. Participants only have access to their own information that is necessary for them to execute their businesses. The authorities that are spoken to in this study are only interested in specific parts of the data, and therefore like to cooperate in this way. This occurs on a need-to-know basis, where the read and write rights are agreed upon in advance, which is a common standard in private blockchains.

This actually has many common grounds with the Cross Chain Control Center (4C) concept, which is discussed in industry journals and websites extensively (Topsector Logistiek, 2018). The 4C concept is introduced in order to collaborate between several supply chains. Reason being the own supply chain has been optimized to a great extent already. Likewise, the original idea of the SCCT’s in the automotive industry was to make it cross channel as well, however, their focus now is on optimizing their own supply chain. As a consequence, companies nowadays facing lots of these control towers. One of the main limitations of SCCT’s consists of the central place of storing information. This central place becomes even bigger by introducing the 4C concept, since companies of multiple supply chains are now sharing data with one central organization. Some companies are willing to do this, in order for them to receive benefits of sharing transportation costs along the different chains. However, for many companies, it is a reason for to be reluctant in joining these kind of towers and centers.

5.1.5 Supply chain integration

As stated in the findings, a level of low integration of the automotive supply chain is perceived during this research. There is no standardization set on technologies and systems used across the industry, and cooperation on using each other’s systems is not actively done as well. However, when looking into literature on supply chain integration, many papers stated that a high level supply chain integration improves firm and supply chain performance (Leuschner et

al., 2013). Moreover, technologies that play an important role in the in the collaboration along

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der Vaart & van Donk, 2008). According to this paper, a better understanding should be gained between such supply chain practices and surrounding factors such as attitudes and patterns. Likewise, integrated IT-infrastructures are seen as an enabler of higher-level supply chain integration (Patnayakuni & Seth, 2016). According to them, significant performance gains can be achieved by IT-enabled supply chain integration, particularly in operational excellence and revenue growth. More specifically, blockchain is seen as an appropriate solution to this problem. X. Xu et al. (2016) consider blockchain as a software connector and describe important architectural considerations regarding performance and quality attributes. In this way, the systems used by actors in the supply chain can be connected to the blockchain.

Considering these papers, blockchain can play a major role in improving supply chain integration within this particular automotive supply chain. Blockchain enables this improvement by the ability to create a suitable IT-infrastructure to smoothen the data communications within the supply chain. By connecting the different systems of the different stakeholders, as described in the Chapter 4, major efficiency improvements can be made.

5.1.6 Cooperation

This study confirms that cooperation is necessary between both stakeholders within the supply chain as well as currently used technologies in order to achieve the greatest value of a blockchain implementation.

“The more companies are involved within the blockchain platform, the more valuable it becomes” (Project Manager of Koopman)

In a setting where many companies are involved, the value of blockchain will be higher, since more data exchange and communication is necessary and more transparency can be created (Iansiti & Lakhani, 2017; Ølnes et al., 2017; X. Xu et al., 2016). Also, as mentioned in the theoretical background, the greatest value comes into play when cooperation between blockchain and other technologies is going on (Korpela et al., 2017).

“Cars do not have to be called Tesla, all vehicles nowadays possess lots of connectivity technologies. We are now looking how we can connect these technologies with our systems to gather data, statuses, locations and so on.” (Blockchain expert of Koopman)

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5.2 L

IMITATIONS AND SUGGESTIONS FOR FUTURE RESEARCH

As in every research, there are some limitations to this research that have to be taken into account. Since a single case study is conducted, the generalizability of the conclusions drawn is limited. This study focused on one specific supply chain, whereas many differences may exist between different kind of supply chains. Also, there is a possibility that the findings and conclusions of this study are subject to the researcher’s bias, since this is one of the recognized limitations of a case study (Voss et al., 2002). To gain as many new insights as possible, no strict interview guide was created. Instead, a wide range of information was gathered at most stakeholders within the supply chain, allowing the findings to be based on the most important and most heard topics. As stated in the methodology, due to time and access constraints not all stakeholders are included in this research. Extra interviews, meetings and observations with OEM’s, lease companies and dealers for example would make this research even more grounded.

Due to the exploratory nature of this study, interesting opportunities for future research emerged while conducting this research. First of all, since not all stakeholders are spoken to in this study, future research should focus on these groups. In this study, it is stated that Koopman is taking a new role within the supply chain. Considering this new role, it would be interesting to study how other members of the supply chain face the new role of the carrier. Moreover, the potential benefits of blockchain compared to SCCT’s are discussed in this research. A more in-depth study of how the potential benefits of blockchain compared to SCCT’s are perceived by the other members of the supply chain would be useful for both scientists and practitioners.

Second, the automotive industry is characterized by a lot of technological features within the product. Cars nowadays all have many sensors, trackers and technologies. Moreover, all companies have their own technologies to keep track of their assets. However, most of them work differently, for example RFID, barcode scanning, automated tags and QR codes. A standardized way of working is not set across the industry. As a form of IoT, the technologies of cars and companies along the supply chain can be used as an input for a blockchain platform. Also, the port logistics is coming with initiatives to improve the reliability of logistics. Smart seal solutions, for example, ensure that the goods transported are also the goods known from the data, by making it impossible to open the seal without being noticed in the data. Collaborations regarding these innovations could be a focus point of future research as well.

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6 CONCLUSION

This research started by noticing that transparency and visibility within a supply chain are important topics nowadays and blockchain is seen as a potential solution for this issue. Blockchain is recognized by many to have a strong fit within supply chain management. This is one of the first empirical studies of a blockchain application within a supply chain. The goal of this research was to explore the opportunities blockchain can offer to create value within supply chains by enhancing supply chain visibility. Using a single case study approach, data was gathered at an automotive supply chain in The Netherlands by having interviews, meetings, observations and using corporate and governmental documents.

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The value of integrating blockchain in the automotive supply chain