The use of blockchain in the supply chain introduces efficiency in recording quality, prices, location, dates, certification, and other relevant components necessary for effective supply chain management.
Supply chain management (SCM) is the lifeline of companies as it comprises everything from planning, control, execution, and managing how resources flow into and out of the organization.
Since SCM also involves a company’s financial capital and data, it demands efficient resource management in sourcing raw materials, production, storage, and other related logistical components.
This complex inventory management process comprises stock-taking, returning defective products, and other order-related issues.
While new technology keeps transforming daily business procedures in SCM, the need for accurate delivery and real-time tracking systems makes supply chain management a field desirous of ongoing technological innovation.
The ever-changing technical aspects involving mobile, wireless, and handheld devices lead the way in the transport and logistics sectors, but staying abreast with the best practices and new capabilities is a never-ending process that becomes an arduous task for organizations already invested in older technologies.
Transitions may consume time and money, but leveraging emerging technologies remains the greatest secret of staying afloat in such a competitive sector.
A dynamic SCM system should generate value for the organization. While existing specialized software guarantees an operational supply chain, blockchain technology is the new kid on the block that encompasses effective, seamless, real-time communication and collaboration between all parties in the most cost-effective way.
This article explores how the rapid advancement of blockchain can lead to the immediate improvement of supply chain systems.
What is Blockchain Technology?
Also known as distributed ledger technology (DLT), blockchain refers to a decentralized, distributed ledger. This ledger keeps records of transactions in a sequence of blocks.
The records are kept in copies distributed over multiple machines, called nodes, in different geographical locations.
The blockchain ledger is decentralized, meaning it doesn’t depend on a single central authority to safeguard its integrity. All the ledger copies within the blockchain are the “truth” regarding every transaction made in the network.
Any attempt to counterfeit a transaction or an entry would require manipulating all the copies simultaneously.
Since all the nodes are linked to the blockchain network, all versions of the ledger get modified whenever a new transaction is made in one node within the network.
Blockchain networks are usually of useful sizes, making the possibility of manipulation next to impossible. Some important features of blockchain that make it a good fit for supply chain management include the following:
Consensus: All participants within the supply chain accept any transactions, whether it involves storage, transportation, warehousing, or distribution, made within the blockchain supply as authentic.
Provenance: The chain’s entities will know where every asset originates, including who handled it previously and when. These assets may be anything from copyrights to machines, jewelry, wheat, iron ore, etc.
Immutability: The entries inside a blockchain’s distributed ledger cannot be exploited. Consequently, no one can falsify any part of the supply chain inventory data, payment transactions, distribution dates and time or warehousing conditions, etc.
Finality: All copies of the shared ledger hold the same version of entries and transactions: this finality that works well for cryptocurrency networks also works with blockchain supply chain networks.
Understanding Supply Chain Management
Supply chain management refers to the processes involved in handling the entire flow of goods and services, from the raw components and going all the way to the final product delivered to the consumer.
Companies have a network of suppliers who act as links in the chain that moves products from those that supply the raw materials to those in direct contact with the consumer. The process involves:
Planning: Includes planning and managing all resources needed to address the demand for a company’s goods or services besides determining metrics used to measure the effectiveness of the supply chain.
Sourcing: Selecting suppliers and establishing processes for monitoring and managing relationships. They include ordering, receiving, managing inventory, and authorizing payments.
Manufacturing: Delivering raw materials, manufacturing the actual product, testing for quality, packaging for shipping, and scheduling delivery.
Delivery and Logistics: Coordinating customer orders, scheduling deliveries, dispatching loads, invoicing customers, and receiving payments.
Returning: The process involves returning defective, unwanted, or excessive products.
Problems Affecting Traditional Supply Chains
Some primary challenges ailing the normal SCM processes include: traditional supply chains aren’t agile enough as they don’t anticipate the rapid changes in the market, making them costly, data-intensive, and inefficient.
In most cases, they are characterized by excessive paperwork and conflicting records, causing delays due to manual reconciliation processes.
#1. Huge Growth in E-commerce
More than ever before, consumers are buying goods and services online because they find them flexible, convenient, and cost-effective. The increased demand for online products demands a similar response for fulfillment and shipping.
The effect has been that most manufacturers and shippers are handicapped as they can’t keep up with demands, causing bottlenecks like record backlogs at every stage of the supply chain.
#2. Centralized Inventory
Traditional supply chains depend on centralized inventories resembling the old-time internet servers that would easily lose data every time the server went down.
The greatest challenge with such inventories is that they are easy to manipulate, leading to the risk of fraud anywhere along the supply chain.
#3. Limited or Insufficient Visibility
B2B and B2C companies often depend on several platforms and partners to assist them in achieving, fulfilling, shipping, and delivering orders. This will usually involve working with manufacturing, trading, retail partners, and numerous freight and parcel carriers.
Add to this an enterprise resource planning system, and you have a situation where they have to deal with data from multiple sources. The result is the inability to make prompt decisions at different inventory levels based on customer demands.
#4. Piecemeal Logistics
Depending on multiple third-party logistic providers to fulfill different roles often leads to a disjointed supply chain that needs more insight into meeting specific needs that could arise.
Trying to connect separate pieces like warehouse management, order management systems, or retail partners makes it difficult for other parties to know what’s going on anywhere else.
How Blockchain in Supply Chain Provides a Solution to SCM
Blockchain technology offers efficiency and transparency, the two components required to provide integrity and reliability in supply chain management.
Blockchain makes supply chains more efficient by enabling companies to eliminate third parties from completing transactions and dealing directly with each other using smart contracts.
The technology fosters increased logistics and financial services integration, leading to greater data cooperation between involved parties.
Companies can incorporate radio-frequency identification (RFID) tags with blockchain to help trace items automatically.
Using integrated payment solutions will significantly reduce the time between placing an order and payment processing, guaranteeing proper and timely movement of completed products. The result is greater compliance, reduced fines and legal fees, and elimination of fraud and counterfeiting.
Benefits of Blockchain in Supply Chain
Blockchain technology has become disruptive in most industries because of its potential to make processes efficient, secure, and streamlined. It can become instrumental in supply chain management, where units moving from the source to the end-user must pass through several partners.
Blockchain collects and secures data from all involved parties within the supply chain, allowing the partners to share and synchronize important information so products can be delivered at maximum capacity.
By becoming the single point for accessing and sharing all information, blockchain streamlines communication processes in a way that hasn’t been experienced within the supply chain and procurement industries.
The following are some benefits of blockchain in the supply chain:
#1. Increased Security
Blockchain technology closes loopholes and eliminates the possibility of any player within the supply chain bypassing laid-down regulations.
Some tangible examples include the inability to tamper with data, such as the creation of ghost products or employees. Blockchain-enabled this by creating a transparent audit trail that’s open to all participants for every action that cannot be manipulated.
The security that underpins blockchain technology makes it impossible for anyone to forge an entry since a hacker must simultaneously alter hundreds, if not thousands, of copies, a practically impossible action.
Blockchain increases sustainability by helping supply chain managers to close down any form of unethical or illegal practices.
The distributed ledger facilitates unparalleled traceability, which helps reduce any form of shortcuts, unsound practices, and illegalities within the chain.
The use of blockchain ensures that managers make their decisions using objective and verifiable data, thereby reducing the chances of any form of input based on ulterior or uncorroborated information to maximize profits.
All data within the supply chain blockchain will be transmitted in real time between the participants, meaning that everyone within the network simultaneously has access to the current information.
This increases the possibility of accuracy as no party needs to email the other to ask about the position of an item within the supply chain. Once data is entered, it is trusted by everyone involved since it gets encrypted and cannot, therefore, be altered.
The immutability of records within the blockchain means that our records are reliable. Every process from manufacturing, warehousing, supplying, distribution, and retail can also be integrated within the blockchain to create a permanent shareable record for every transaction between them.
Consequently, the data is accessible to every supply chain actor and reduces the need for nerve-wracking paperwork, significantly improving efficiency throughout the network.
#6. Transparency and Traceability
Blockchain increases traceability and transparency for all procedures within that supply chain through its digitally traceable record. It becomes easier to trace any product as it traverses the supply chain since any participant can pinpoint where any incident occurs along the way.
Trackability and traceability are especially important in drug safety or food safety incidents, and blockchain could prevent them from happening in the first place.
This emerging technology promotes the security and sustainability of products as they can be examined from the first step of the chain to the finished product.
#7. Consumer Confidence
Since blockchain allows companies to verify everything from raw material to the end product, they can be sure their products don’t violate any guidelines or get tampered with along the way, thereby ensuring the business is protected from any reputational damages.
This could also include political compliance since many regional political bodies, such as the European Commission, are already beginning to create and develop territory-wide blockchain compliance to determine how business is conducted within their territories.
#8. Financial Security
Blockchain can speed up procedures, so all parties have more control, making the supply chain more dynamic and robust. Every participant can monitor every payment made within the blockchain.
As a result, the supplier will feel supported during the buying process and be forced to wait longer than necessary to receive payment.
Some Challenges for Blockchain in Supply Chain
Just because good technology is available doesn’t mean everyone is already using it. Some challenges facing the adoption of blockchain in the supply chain include the following:
Lack of Uniformity: While a few participants could have adopted technologies such as RFID chips, other players within the supply chain still operate using paper-based records at the most integral points, meaning complete adoption still needs to be improved.
Ignorance: Many existing leaders in the SCM don’t yet understand blockchain. Others still believe it’s merely a fad, and they’re still waiting for it to pass even as others continue cashing out on the “hype.”
Opportunity Cost: As much as there could be several interested parties, some are hesitant to invest their time and money in a technology that’s still developing. Such believe that investing in a nascent technology is too risky – at least until it eventually gains universal acceptance.
Legal Hurdles: There are still practical and legal challenges that blockchain is facing in several jurisdictions. As such, interested companies must hire experts to educate their legal departments on blockchain and how it does business.
Waiting Game: For most others, it’s simply a wait-and-see game for the software and its standards until they get convinced.
How to Implement Blockchain in Supply Chain
Unless you’re running a small business with simple logistics, you may need blockchain in SCM. If that’s the case, you could use our simple procedure for implementation.
Step 1: Determination of Use Case
Decide what goals you intend to achieve using blockchain by describing what among your existing SCM processes need to be improved by blockchain.
Step 2: Architecture Development
Next, you must determine the characteristics of the blockchain you will implement so you can achieve your goals. This will include data privacy, consensus mechanism, authentication methods, data inputs/outputs, and the DApps you will develop.
Step 3: Creating the Application
The next step will involve engaging a developer and implementing the blockchain. Consider hiring a development company to help create and integrate the technology into your sales chain management system.
Step 4: Deployment
Once you have the project finished by the development team, you need to run a pilot project so you can feel how it runs and what needs to be improved before full implementation.
Industries where Blockchain in the Supply Chain will be a Solution
The Walmart Food Traceability Initiative offers the best example of how blockchain can be implemented. The giant supermarket can trace and track products throughout the supply chain from the farm to the supermarket shelf using IBM’s blockchain solutions.
Walmart’s blockchain in SCM covers all the supply chain’s monetary, commodity, documentary, custom, and informational aspects.
Besides reducing the time taken to track the origin of all products, it has diminished logistical nightmares and costs while increasing customer confidence.
Other industries that could benefit from blockchain in supply chain implementation include jewelry, pharmaceuticals, and manufacturing.
The Future of Blockchain in Supply Chain
As the world changes and industries continue to grow at a lightning-speed pace, it’s becoming more apparent that companies running supply chains must become agile enough to reshape their thinking and marketplace proactively.
Blockchain’s ability to revolutionize supply chains by introducing a better flow of information and reducing waste, fraud, and mismanagement becomes a key cog in the future.
For manufacturers whose supply chains are dealing with slowing down or their consumers decrying increased prices due to logistics, blockchain offers a ready solution.
Since supply chains can significantly impact whose products reach the consumer safer, faster, and affordably, blockchain in the supply chain will play a leading role in business dealing with consumer products and other industrial materials.
The supply chain industry is facing its most challenging question of whether to embrace blockchain technology. Technology offers many advantages that could help businesses tackle their existing SCM challenges.
However, the more companies embrace blockchain, the more precise the path will become for everyone else sitting on the fence. Each company must consider whether it has any processes that the technology could impact significantly and whether there’s an actual need for implementation.
Tom is a blockchain, crypto and NFT freelance writer who believes that to make our world a better place, we must invest in incorruptible products and procedures, of which Bitcoin and other cryptocurrencies are leading examples.