How Blockchain Will Radically Improve the Supply Chain
Historically, innovation has often disrupted supply chains in several significant ways. For example, the introduction of computers in the 80s led to drastic changes in supply chain management. Organizations increasingly embraced computers for word processing, day-to-day operations, and accounting, while map-based interfaces and flexible spreadsheets enabled more efficient logistics and supply chain planning. Now, supply chain improvement is possible through the blockchain.
Today, companies must be agile, flexible and responsive to survive. Those who drive continuous innovation throughout their businesses and supply chains, and differentiate themselves in a highly competitive market by remaining dynamic and relevant, are the ones who succeed.
As the pace of change accelerates, improving the efficiency and transparency of your organization’s supply chain becomes critical. Fortunately, blockchain technology can help simplify the process.
Blockchain: the missing link in effective supply chain management
Major companies such as Maersk and IBM, which partnered to create the TradeLens platform, are already developing systems to leverage the end-to-end visibility and transparency that blockchain technology provides.
The technology could also help other companies save billions and reduce inefficiencies by integrating and complementing electronic data interchange (EDI) systems. This represents another evolutionary step in the supply chain, following the replacement of paper-based systems by the digital transfer of documents between trading partners.
How does the blockchain work?
Blockchain is a form of distributed ledger technology that maintains records of digital data or “exchanges” in a way that makes them resistant to manipulation. When a transaction is requested in the system, it is transmitted to a peer-to-peer network comprising several interconnected computers called nodes. Each of these solves equations to verify and validate the transaction so that it is consistent throughout the network. Once validated, the transaction is grouped with other transactions to create a block of data for the ledger.
- Businesses can use blockchain technology to track any transaction, allowing documents, personal information, and cryptocurrencies to be shared. Because the ledger is completely distributed on the network, it is very difficult to corrupt. To make a change to the ledger, you must log the change to all nodes in the entire network simultaneously. If this is not done, the network recognizes that one record does not match the rest and marks the transaction as corrupt.
- Think of the technology as resembling a Google document, where many people can view and edit the same document simultaneously, rather than a Word document that is locked and owned by a single person. All nodes in the network can access and make changes to the system simultaneously, with “Change Tracking” always activated.
What is the supply chain?
Virtually every product that reaches an end user represents the cumulative effort of many organizations and stakeholders. These are collectively known as the supply chain.
Organizations within a supply chain are linked through physical and information flows:
- Physical flows involve the transformation, movement, and storage of goods and materials.
- Information flows involve coordination between partners to control the daily flow of goods and materials up and down the supply chain; it also involves long-term planning.
Managing product development, sourcing, procurement, production, and logistics of raw materials, products, and finished products from one point to another is called supply chain management. Effective supply chain management can reduce costs, accelerate production cycles, and mitigate risk.
Supply Chain Challenges
The lack of transparency in the supply chain is one of the biggest challenges facing organizations today.
A survey of 779 business leaders found that 60 percent believed this posed a risk to their businesses.
There are two dimensions to supply chain transparency:
- Visibility: Accurately identify and collect data from all links in the supply chain.
- Disclosure: Communicate this information, internally and externally, with the appropriate level of detail
To determine the right level of supply chain transparency, organizations must consider their industries, relevant regulations, their code of ethics, suppliers, customers, and historical supply chain issues, and their acceptable level of risk.
Inefficiencies in systems, for example, where vendors and suppliers try in vain to connect the dots about who needs what, when and how, are another common challenge. Some more examples of inefficiencies are poor upstream inventory management, poor allocation of products to stores, fluctuating demand, and even slow shelf turnover. In addition, product recalls are costly and inconvenient, and companies need to trace products and suppliers back to their source to address the issues.
How do you provide blockchain, supply chain solutions?
Blockchain technology allows companies to track all types of transactions more securely and transparently. The potential impact on the function of the supply chain is immense.
With blockchain, companies can track the history of a product from its point of origin to where it is currently located. Every time a product changes hands, the transaction is documented securely, creating a permanent history, from manufacturing to sale.
With the help of this powerful technology, parties collaborating on a shared platform could drastically reduce the delays, additional costs, and human errors frequently associated with transactions. Reducing intermediaries in the supply chain also reduces fraud risks. Finally, where fraud occurs, comprehensive registries allow organizations to identify their source.
A shared blockchain ledger provides a reliable, tamper-proof audit trail of the flow of information, inventory, and finance within a supply chain. Using a shared blockchain, companies can synchronize logistics data, track shipments, and automate payments. In addition, they can do so without significantly altering their legacy systems while sharing only the most relevant data.
Blockchain and Supply Chain: The Perfect Union Between Efficiency and Transparency
The fundamentals of reliability and integrity in supply chains (efficiency and transparency) are provided by blockchain technology.
Blockchain makes global supply chains more efficient by allowing companies to complete transactions directly and without third parties. It also facilitates greater integration of financial and logistics services, enabling greater data collaboration between stakeholders.
Integrated payment solutions reduce the time between ordering and payment processing, ensuring proper and timely movement of products. In addition, blockchain and smart contracts help businesses improve compliance, reduce legal fees and fines for late payment of taxes, and curb counterfeiting and fraud.
Organizations can integrate blockchain with radio frequency identification (RFID) tags, which use electromagnetic fields to identify and track items, or any other identification and tracking technology. These are frequently used to store product-related information and verify when ownership or possession is transferred, increasing supply chain automation. A smart contract is fulfilled when a shipment tagged with RFID codes, which are automatically scanned, arrives at its destination.
Since records on the blockchain cannot be erased, it becomes a transparent supply chain. In addition, every step of the supply chain is recorded securely, meaning logistics issues can be easily traced back to their source. The same goes for sourcing components or raw materials, which can be traced back to their origin, increasing accountability and transparency, and mitigating illegal activity.
A study estimates that blockchain’s ability to help prove the provenance of the product could boost global GDP by 800 billion Euros. Providing more information about the manufacturer, origin, transfer, and use of a product can build trust in the supply chain.
Blockchain in Supply Chain Use Cases
The use cases listed below demonstrate the huge impact blockchain technology already has on global supply chains:
- Project Proton, a blockchain pilot implemented by PepsiCo, automated elements of the company’s programmatic ad supply chain through smart contracts. The project used these contracts to reconcile ad impressions from numerous data sources, which facilitated payments via digital tokens in real time and resulted in a 28% increase in efficiency.
- Australian automaker Tomcar uses Bitcoin to pay some of its suppliers and accepts the cryptocurrency for payments from three customers in Israel and Taiwan. This process eliminates the need for international payment fees.
- In the food industry, having strong records to trace products back to their origins is becoming non-negotiable. For example, Walmart uses IBM’s blockchain-based Food Trust to track its products at every step of the chain. Nestlé, Tyson Foods, Carrefour and Raw Seafoods, among others, also use food trust for this purpose.
- Mining giant BHP is digitizing its operations via blockchain, using the technology to verify its suppliers and ensure that environmental, social and governance requirements are met throughout the supply chain. Last year, the company completed its first blockchain iron ore trade, worth around 12 million Euros, with China Baowu Steel. Trading was facilitated through the MineHub23 platform.
- South African paper company Sappi and Indian fabric producer Birla Cellulose partnered to create GreenTrack, which tracks textile products from sustainable forests to production. The platform has been adopted by more than 250 supply chain partners, including Walmart and Marks & Spencer24.
- Walmart Canada used DL Freight’s supply chain payments and invoice platform to automate transactions and data points for more than 500,000 shipments annually, tracking them through IoT- and GPS-enabled devices. This resulted in shipping discrepancies being reduced by 97%.