Blockchain Technology Applications In The Business .

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DEGREE PROJECT IN INDUSTRIAL MANAGEMENT,SECOND CYCLE, 30 CREDITSSTOCKHOLM, SWEDEN 2019Blockchain TechnologyApplications in the BusinessProcesses of Logistics EnterprisesA study to explore improvements in LogisticsServices Quality (LSQ) with blockchaintechnologyPATRICIA ALVINAKTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

Blockchain Technology Applications in theBusiness Processes of Logistics EnterprisesA study to explore improvements of Logistics Services Quality(LSQ)byPatricia Alvina2019-10-17Master of Sciences ThesisKTH School of Industrial Engineering and ManagementTRITA-ITM-EX 2019:673SE-100 44 STOCKHOLM

AbstractBlockchain technology is an emerging technology that has attracted many enterprises’ interestin recent years. Enterprises are interested in improving business processes using blockchaintechnology.Blockchain technologycreatesan immutable record andeliminatesintermediaries in the many transaction processes. Logistics services are one of the businessprocesses that could benefit from blockchain technology. However, as an emergingtechnology, there is a lack of tools to analyse blockchain technology applications inenterprises. This research paper explores how can blockchain technology be utilised toimprove enterprises’ business process, what will be the model of blockchain technologyapplication, and how enterprise could utilise these models. There are three research methodselaborated in three parts of this report. The next paragraphs explain each part.The first part explores literature articles to research blockchain technology and logisticsservices quality parameters. It will identify the components of blockchain technology thatcreate immutable records and eliminates intermediaries. Furthermore, it expounds on thescope and quality of logistics services today. Finally, it identifies the advantages of blockchaintechnology to improve the quality of logistics service.The second part of this report researches on the current use cases utilising blockchaintechnology that improve logistics services. A three-step prioritisation process is applied todefine models of blockchain applications from the long list of use cases. The first step is tocreate a long list of use cases from the unstructured information on the worldwide web. In thesecond step, the findings from part one are utilised to cluster the long list of use cases intothree models of blockchain use case in logistics services: trackability, traceability and directtransaction. Finally, the maturity of each cluster is analysed. Three readiness level areinvestigated: technological, consumer and regulation readiness. The combinations define themost matured to the least matured use case cluster.The last part of this report analyses the implementation of models uses cases in variousscenarios for application in information technology enterprises. Research on a scenarioanalysis method and on the relevancy to the enterprises’ strategic decision-making process areexplained. A simplified method is proposed to analyse the three models of blockchaintechnology from part two. The use case clusters are evaluated in various scenarios. Thescenario analysis of the models of blockchain applications in logistics services will providelimited insight into how enterprises could implement the blockchain technology.Page 2 of 113

SammanfattningBlockchain-tekniken är en ny teknik som har fångat uppmärksamheten och intresset hos många företagde senaste åren. Företag är intresserade av att utveckla affärsprocesser med hjälp av blockchain-teknik.Blockchain-teknik skapar en oföränerlig post och eliminerar mellanhänder i de mångatransaktionsprocesserna. Logistik tjänster ä ren av de affärsprocesser som skulle kunna ha en fördel avblockchain-tekniken. Som en helt ny teknik är det och andra sidan brist på metoder att analyserablockchain-teknikens tillämpningar för företag. Denna uppsats efterforskar en metod för att analyserablockchain-tekniken i syfte att förbättra företags affärsprocesser. Tre forskningsmetoder är utveckladei tre delar av denna rapport. Nästa paragraf beskriver de olika delarna.Blockchain-tekniken är en ny teknik som har fångat uppmärksamheten och intresset hos många företagde senaste åren. Företag är intresserade av att utveckla affärsprocesser med hjälp av blockchain-teknik.Blockchain-teknik skapar en oföränerlig post och eliminerar mellanhänder i de mångatransaktionsprocesserna. Logistik tjänster ä ren av de affärsprocesser som skulle kunna ha en fördel avblockchain-tekniken. Som en helt ny teknik är det och andra sidan brist på metoder att analyserablockchain-teknikens tillämpningar för företag. Denna uppsats efterforskar en metod för att analyserablockchain-tekniken i syfte att förbättra företags affärsprocesser. Tre forskningsmetoder är utveckladei tre delar av denna rapport. Nästa paragraf beskriver de olika delarna.Första delen kommer belysa litteraturartiklar för att efterforska kvalitetsparametrar i blockchaintekniken och logistiska tjänsters. Den identifierar komponenter av Blockchain-tekniken somoföränderliga poster och eliminerar mellanhänder. Fortsättningsvis, kommer den att belysaomfattningen och kvalitén av logistiktjänster idag. Slutligen kommer den att identifiera fördelar medblockchain-tekniken för förbättring av logistiktjänster.Den andra delen av denna uppsats belyser aktuella användningsfall av blockchain-tekniken vidförbättring av logistiktjänster. En tre-stegs prioritetsprocess appliseras för att identifiera tillämpningarav blockchain modeller från en lång lista av användningsfall. Första steget är att skapa en lång lista avanvändningsfall från all ostrukturerad information på internet. Andra steget är att hitta, från steg ett,användningsfall och dela upp dem i tre modeller av blockchain användningsfall i logistiktjänster:lokaliseringgrad, spårbarhet och direkt transaktion. Slutligen, mognaden av varje kluster är analyseratdär tre olika mognadsgrader har undersökts: Teknologi, beställaren och regleringsberedskap.Kombinationen definerar klustren från den mest mogna till den minst mogna.Sista delen av rapporten analyserar genomförande-modeller av användningsfall i olika scenarier förtillämpning i företagstjänster för informationsteknologi. Efterforskning av metoder för scenarioanalyser och relevans för förtagens strategiska beslutfattningsprocess förklaras. En förenklad metodförslås för att analysera de tre modellerna av blockchain-teknologin från del två. Mognadsgraden avvarje kluster av användningsfall utvärderas i olika scenarios. Scenario-analysen av modellerna förblockchain-applikationer inom logistiktjänster kommer att ge begränsad insikt i hur företag kanimplementera blockchain-tekniken.Page 3 of 113

AcknowledgementWriting a thesis is harder than I thought and more rewarding than I could have ever imagined.None of this would have been possible without the help of some very special people, who i cannot begin to thank enough.First and foremost, my sincere acknowledgements go to Elena Malakhatka, my KTHsupervisor, who has provided invaluable insight and structure to this thesis. Her belief andguidance have been inspirational and have pushed this thesis to a higher level.Secondly, I would like to extend my gratitude to Ericsson and my supervisor Mirwary Ahmad,for the trust and consistent assurance. The guidance and support provided are invaluable anddeeply appreciated.I would like to thank Professor Per Lundqvist, my examiner, and Suresh Nair, Head of ITEricsson and the blockchain community in Ericsson, for their insight and feedback to allow thecompletion of this thesis topic.This acknowledgement would be incomplete without also thanking my fellow students for thestimulating discussions, the sleepless nights before deadlines, and for all the fun we hadexploring new countries and new cultures. These memories are unforgettable and everlasting.Lastly, my gratitude goes to all my family and friends for providing me with their unfailingsupport and continuous encouragement throughout these two years of study and through theprocess of researching and writing this thesis.This accomplishment would not have been possible without them. From the bottom of myheart, thank you.Page 4 of 113

Table of Content1.Introduction . 121.1Background . 121.2Research Structure, Questions and Objectives . 141.2.11.3Research Questions and Objectives. 15Types of Methodologies Employed in This Report and Limitation . 151.3.1Methodology and Limitation for Part One: Characteristics of BlockchainTechnology Influencing Improvements for Logistics Services . 161.3.2Methodology and Limitation for Part Two: Models of Blockchain Technology-Based Application for Logistics Services . 161.3.3Methodology and Limitation for Part Three: Information Technology EnteprisesImplementation of Blockchain Technology for Logistics Services. 17Part One: Characteristics of Blockchain Technology Influencing Improvements for LogisticsServices . 182.Blockchain Technology Platforms’ Categorisations and Characteristics . 192.12.1.1Categorisations Based on Accessibility of the Network Environment .202.1.2Categorisation Based on Application of Blockchain component . 222.1.3Categorisation Based on Application of Consensus Algorithm . 262.1.4Categorisation Based on Application of Smart Contract . 292.23.Categorisations of Blockchain Technology Platforms .20Summary: Comparison of Blockchain Technologies .30Logistics Services – Quality in the Consumers’ Perspective . 343.1The Evolution of Logistic Services . 353.2Defining Logistics Services Quality (LSQ): Parameters for customers satisfactions394.Analysis and Discussion Part One: Improving LSQ with Blockchain Technology . 425.Summary of Part One .48Part Two: Models of Blockchain Technology-Based Application for Logistic Services .506.Introduction: Blockchain Model Selection for Logistics Services Based on Use CaseAnalysis . 51Page 5 of 113

7.Methodology: Use Case Model Selection with Prioritisation Concept. 537.1Step One: Building an Inventory of Blockchain Use Cases . 547.2Step Two: Evaluating the relevancy with Logistics Services. 557.3Step Three: Selecting Blockchain Model. 578.7.3.1Technological Readiness . 587.3.2Consumer Readiness . 597.3.3Regulation Readiness . 59Analysis and Discussion . 618.1Step One: Building an Inventory of Blockchain Use Cases . 618.1.1 Use Cases Inventory . 618.1.28.2Step Two: Evaluating the relevancy with Logistics Services. 648.2.18.39.Grouping . 61Use Cases Evaluation on Logistics Services Relevancy . 65Step Three: Selecting Blockchain Model. 698.3.1Maturity of Use Cases Providing Trackability . 698.3.2Maturity of Use Cases Providing Traceability . 718.3.3Maturity of Use Cases Providing Direct Transactions . 74Summary of Part Two . 76Part Three: Information Technology Enterprises Implementation of Blockchain Technologyfor Logistics Services. 7810.Introduction: Analysis of Future Scenarios to Assist Enterprises’ Development Plan 7911.Methodology: Analysis of Future Scenarios for Information Technology Enterpriseswhen Implementing Blockchain Technology . 8011.1Scenario Analysis as an Enterprise’s Tool to Plan in Uncertain Futures Scenarios 8011.2Methodology: A Quick Tools to Analyse Technology Implementation Using ScenarioAnalyst .8411.312.Survey . 85Scenario Analysis and Discussion.8612.1Scenario one: diverse product selection (business as usual) .8612.2Scenarios two: preference for sustainable product . 88Page 6 of 113

12.3Scenario three: increase product diversity and focus on sustainable products . 9012.4Conclusion of Scenario Analysis for Blockchain Technology Model Application in anIT Enterprise . 9213.Summary of Part Three. 9514.Summary and Future Work: Blockchain Technology Application to Improve LogisticsService Quality and Scenarios of Adoption for Enterprise. . 96List of Literature .98Appendix I: Extended List of Use Cases . 107Appendix II: Survey Results .112Page 7 of 113

List of FigureFigure 1-1: Relationship between supply chain management, logistics services and informationtechnology (Dansomboon, et al., 2016). . 13Figure 1-2: Structure of this research . 15Figure 2-1: Types of access, network and data accessibility (Yaga, et al., 2018) . 22Figure 2-2: Components of Blockchain Technology (non-comprehensive) (Inspired by Yaga,et al., 2018; Laurence, 2017; Zheng, et al., 2017) . 22Figure 2-3: Illustration of asymmetric and symmetric keys (Inspired by (Esl, 2012; Yaga, etal., 2018)) . 24Figure 2-4: Example of cryptography hash function used in Bitcoin (Inspired by (Yaga, et al.,2018)) . 25Figure 2-5: Generic concept of blocks and chain (Inspired by (Yaga, et al., 2018) (Laurence,2017)) . 26Figure 2-6: Conceptualization of processes in the Blockchain Technology (Inspired by:(Laurence, 2017)) . 27Figure 2-7: Blockchain technology as a system . 33Figure 3-1: Comparison of various logistics services .38Figure 3-2: Various logistics services in the delivery, source, production and return flow(Inspired by Melkonyan & Krumme, 2019; Zijm, et al., 2019; Marasco, 2008). . 39Figure 3-3: The assumed relationship between LSQ parameters (Mentzer, et al., 2001). 41Figure 4-1: Value of Track-ability in LSQ . 45Figure 4-2: Trace-ability value for LSQ . 46Figure 4-3: Value of direct transaction in LSQ . 47Figure 4-4: Summary of blockchain value in LSQ (Inspired by Kawa & Maryniak, 2019;Hackius & Petersen, 2017) . 47Figure 7-1: Methodology to prioritise and select an application model of blockchain technologyfor logistics services (Inspired by Edeland & Mörk, 2018) . 53Figure 7-2: Steps to build an inventory of use cases. 54Figure 7-3: Assessing relevancy with logistics services . 55Figure 7-4: Steps to assess blockchain technology compatibility (Inspired by Yaga, et al., 2018). 56Figure 7-5: (Left) Factors contributing to the maturity level. (Right) Contribution of eachfactor to the level of maturity. 58Figure 8-1: Word mosaic resulted from the ideation of use cases . 62Figure 8-2: Use cases relevant to logistics services . 63Figure 8-3: Maturity Analysis for Trackability Use Cases . 69Page 8 of 113

Figure 8-4: Maturity analysis of traceability use cases . 71Figure 8-5: Maturity analysis of direct transaction use cases . 74Figure 8-6: Summary of maturity analysis for the three clusters of use cases relevant tologistics services . 75Figure 10-1: Enterprises’ holistic perspective of enterprise development planning tools(Inspired by (Fink, et al., 2010) . 79Figure 11-1: Scenario Development and Strategy for Enterprise (Fink, et al., 2010) . 81Figure 11-2: Scenario development process for strategic decision-making tool (Schwenker, etal., 2013).83Figure 11-3: Illustration of a quick scenario analyst tools for information technology enterprise.84Figure 11-4: Research method to develop a quick glance of emerging technologies impact onan enterprise . 85Figure 11-5: Survey respondent demography. (Left) The respondents’ demographic )Therespondents’demography from the type of enterprise where the respondent works at. .86Figure 12-1:Types of blockchain components. 92Figure 12-2: Types of blockchain component an IT enterprise should focus on. 92Figure 12-3: Impact of trackability, traceability and direct transaction in logistics services . 94Page 9 of 113

List of TableTable 2-1: Blockchain technologies comparison (Inspired by Ethereum, 2019; Hyperledger,2018; Nakamoto, 2008) . 32Table 3-1: Logistic Services Quality comparison (Thai, 2013) . 40Table 4-1: Blockchain technology benefits . 42Table 6-1: Tabulation of literature searched conducted on 17 September 2019 . 51Table 7-1: Areas and functionality can be addressed and improved with blockchain technology(Inspired by Yaga, et al., 2018; Gupta, 2017; Xu, et al., 2019; Wüst & Gervais, 2018). 56Table 7-2: Technology development level and effect to maturity level . 58Table 7-3: Consumer readiness effect on the technology maturity . 59Table 7-4: Stages of regulation which will impact the maturity of the technology . 60Table 8-1: Indicative activities of blockchain development in high-level supply chainmanagement industries. . 62Table 8-2: Blockchain use cases summary . 65Table 8-3: Industry partnerships or projects in traceability related in relation to traceabilitycharacteristics of logistics services . 66Table 8-4: Use cases with high technological readiness level . 70Table 8-5: Use cases with high technological readiness level . 72Table 8-6: use cases in traceability with a high maturity level . 72Table 8-7: Use cases of indirect transactions . 74Table 12-1: Attributes of scenarios one and impact to logistics services . 87Table 12-2: Attributes of scenarios two and impact to logistics services .89Table 12-3: Attributes of scenarios three and impact to logistics services . 90Page 10 of 113

Abbreviation and GlossaryEncryption is a process to convert information into a code that permits only the intended recipientwith assigned authorisation understands the message.Bill of Landing (sometimes abbreviated as B/L or BoL) is a document issued by a carrier (or theiragent) to acknowledge receipt of cargo for shipment.Bit string (in blockchain technology context) is a sequence of zero and one, typically use tomanipulate a set of data.Block (in blockchain technology context) is a virtual placeholder in a network whereby a set oftransactions are kept.Blockchain technology is a system which records transactions and maintain across severalcomputers within a network.Crypto currency is a digital currency which use encryption technique to maintain, regulate volumeand verify transaction, off the central bank.Custom is an authority or a country’s agency responsible for controlling the flow of goods in andout of a country.Decryption is a process to unveil encrypted message. TheHash function is a function utilises to create any data of arbitrary size to fixed-size values. Theresults can be called hashImmutable is inability to be changeKeys (in network security) are an instruction to encode or decode a (set) of dataLedger is a principle book/file recording all transactions with monetary values.Metadata is a set of data that describes and gives information about other data.Nodes (in computer networking context) are a device that connects between points, device thatredistributes between point or communication last point.Nonce is an arbitrary number use once in a cryptographic communication to ensure old data cannot be repeated.Peer to Peer (In computer network) is a network of computer, whereby all computers are in thesame level. Peer computer shared resources with the network without approval from a centralserver.Pellet is a portable platform whereby good can be staked on top of it normally to be move from oneplace to another.Trust (in business transaction) is a basis for two parties reaches an agreement. It is a belief thateach party is reliable and capable of performing or delivering the product/services as stated in thecontract.Turing complete is a machine that capable to solve beyond one purpose of calculation by usingloop function.Value chain is a process of activities whereby a person or companies add value to a productWarehouse is a building whereby products are stored before distributionPage 11 of 113

1. Introduction1.1 BackgroundThe reliability, availability and safekeeping of information are challenges of every databasesystem today (Tari, et al., 2015). Increased information stored in a digital form in recent timemade the role of database systems crucial. As explained by Jeff Garzik (2018) and TianaLaurence (2017), blockchain technology is a system to store information in a network ofdecentralised databases (Laurence, 2017; Jeff Garzik, 2018). A verification system and anencryption process are integral components of blockchain technology. The information storedin a blockchain technology network is immutable. It offers to improve the transparency oftransactions’ processes, to bring trust in the information shared to the unknown party and tosecure information with ease (Jeff Garzik, 2018; Laurence, 2017). The interest in blockchaintechnology has been gaining momentum in recent years; the first blockchain technology in acommercial form is a management tool for a cryptocurrency platform, named bitcoin(Verhelst, 2017). It has successfully managed the cryptocurrency in automatic authenticationaccess and lower administrative cost (Verhelst, 2017). The proven value of blockchaintechnology has motivated more applications in more industries. Implementation ofblockchain technology in logistics promises to bring significant change to the industry(Abeyratne, n.d.; O’Marah, 2017; Casey & Wong, 2017; Hackius & Petersen, 2017). Thereforein this paper, the focus is on logistics services.DHL Corporation and Accenture Consulting (2018) wrote the blockchain technology has thepotential to improve the product flow from the origin to the point of consumption (DHLCorporation and Accenture Consulting, 2018). They have further elaborated that the capabilityto create an immutable and a single trusted database system could potentially improve, forinstance, the time and precision of product delivery. Logistics service is defined traditionallyas a service to move products from one place to another. However, today, the definition oflogistics services has expanded. Lars Huemer wrote that logistics services, including theproduct flow improvements, are under the umbrella of logistics services (Huemer, 2012).Hence, logistics services today are a multi-party process, meaning: information transfersbetween multiple parties, and the authenticity of that information remains a challenge as it isbeing duplicated manually during transfers. As written by DHL Corporation, AccentureConsulting and Salman A. Baset, digitising this information in logistics services is achallenging and costly exercise (Baset, 2019; DHL Corporation and Accenture Consulting,2018). The multi-party collaboration process of logistics services requires the data to be storedby an unbiased third-party system. The third-party ensure equal access to the authenticPage 12 of 113

information and high availability of information for all parties. Logistics services are servingmultiple industries and require complex management. Improvements in logistics servicescould influence many industries’ efficiencies. Blockchain technology has the potential tochange the traditional practice of logistics services (DHL Corporation and AccentureConsulting, 2018).Figure 1-1: Relationship between supply chain management, logistics services and information technology (Dansomboon, etal., 2016).Logistics services today are a combination of several activities: from managing a fleet ofvehicles, transportation of products, strategising delivery alignment between sourcing andprocurements, managing information flow and supply network (Zijm, et al. 2019). Theactivities in logistics services are coordinated to support supply chain management (Huemer,2012). Figure 1-1 illustrates the relationship between logistics, supply chain manage

Blockchain technology is an emerging technology that has attracted many enterprises’ interest in recent years. Enterprises are interested in improving business processes using blockchain technology. Blockchain technology creates an immutable record and eli