How Blockchain Technology Could Bring About a New Age of the Supply Chain Industry

Over the last fifty years or so, supply chain management gradually evolved into one of the most elaborate industries in existence. This, however, should not come off as too surprising – after all, as supply chains became more global and demand for most products went through the roof, the surge in supply chain complexity was an inevitable side effect.

The problem is that, while expectations and business models have transformed, the technologies employed in supply chains did not keep up with the times. Instead, they haven’t changed one bit, which gave birth to a notoriously inefficient sector too prone to hemredging money.

Fortunately, the rise of blockchain technologies promises to provide solutions that could bring severely needed improvements to the most problematic fronts of current supply chains. By integrating sourcing, procurement, manufacturing, distribution and logistics into a single cohesive system, blockchain could completely revolutionize how supply chains operate.

Why Current Supply Chain Logistics Are in Dire Need of Revamping

Once a simple matter of moving products from A to B, today’s supply chains represent complex environments in which various products and materials go through hundreds of different stages, all managed by completely autonomous parties and depended on geographically distinct processes.

Here’s a quick rundown of the key problems currently afflicting the way supply chains operate:

  • A plethora of cracks in the system waste both time and money at an alarming rate
  • There’s high inefficiency as both vendors and suppliers are forced to constantly connect the dots on who needs what, when and how
  • All manufacturers, suppliers and procurement officers function as independent silos of information, which is particularly problematic for global supply chain operations
  • It’s incredibly difficult, if not utterly impossible, for buyers to truly know the history and quality of products they are buying
  • There’s no way to be sure of the true value of products due to a significant lack of transparency
  • It’s extremely challenging to investigate supply chains when there’s a suspicion of illegal or unethical practices
  • Endless arrays of significant yet highly repetitive tasks further hinder how supply chains are run

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(via Solistica)

What Makes Blockchain Technology a (Potentially) Perfect Fix

Distributed ledgers of transactions and events shared between peer participants would positively impact nearly all facets and processes of supply chains.

Like with most other blockchain use cases, deployment of this emerging technology across the supply chain industry would primarily lead to enhanced efficiency and transparency. It would also instill an additional layer of reliability and integrity to everything between manufacturing and warehousing to deliveries and payments.

Here’s the list of the most impactful effects introducing blockchain solutions would have on supply chain management:

  • Bullet-proof overview of all the supply chain processes
  • Precise recordings of the number of materials, parts and products
  • Precise verifications of the validity and quality of products
  • Linking of various physical items to serial numbers, barcode, and tags, which would be particularly useful for more complex products (car manufacturing is a great example here)
  • Easy tracking of all purchase orders, receipts, trade-related details, cancelations, etc.
  • Enhanced licensing of services and products
  • Lower expenses due to simplified administrative tasks and automation of various repetitive processes

Other then these impactful benefits, blockchain deployment across the supply chain sector would also pave the way for implementing other up-and-coming technologies. Various integrations with Artificial Intelligence and Machine Learning could soon follow, which would allow us to make even bigger leaps forward in improving how goods are manufactured, stored and delivered.

Four Main Impacts Blockchain Deployment Can Have on Supply Chain Management

While blockchain solutions could improve supply chain management on nearly all fronts, we’ve rounded it up to a total of four key areas of improvement that make us believe blockchains are bound to cause total disruption within the supply chain industry:

Decentralization paves the way to efficiency

Data stored within a blockchain is not owned by any participant in the network, nor does it fall under the jurisdiction of a centralized entity of some sort. Instead, ownership over the information is shared by every node taking part in the network.

As stated previously, one of the most alarming causes of concern within current supply chain systems is that most suppliers and procurement officers function as independent silos of their own information. This means that there’s absolutely no way to prove or dispute whether the data presented by each individual organization is accurate or not, which is both problematic for other parties in the manufacturing chain and customers.

Blockchain logistics break down the walls between different entities in the same supply chain. With it in place, an entire supply chain becomes a unified operation without instances of data isolation, allowing processes to seep seamlessly into one another.

Cost savings across the board

As with any business, at the end of the day, profits are what keep supply chains running. Well, as it happens, blockchain implementation would have an incredible effect on the bottom line.

As things currently stand, there’s a lot of waste created due to the inefficiencies of supply chains. This holds particularly true in sectors that have perishable goods, like the food industry, but instances of waste can be found across all business models. The improved performance brought about by blockchain-based solutions can help pinpoint wasteful inefficiencies to a T, allowing operators to start implementing cost-saving measures.

Furthermore, the use of blockchain eliminates numerous fees associated with funds passing in and out of various bank accounts and payment processors. Since most businesses have to rely on global supply chains for transporting goods, they all fall subject to freight brokers who charge an arm and a leg for assisting in the transactions of loads through shippers. Blockchain solves this issue through the use of smart contracts – when specific actions occur as products move through the supply pipeline, smart contracts are automatically triggered, removing the need for intermediaries and saving money across the chain.

Other than cutting out redundant administrative expenses, blockchains can also improve inventory management, reduce costly data errors and delays, and shorten resolution times when disputes transpire. Finally, distributed peer-to-peer ledgers would allow producers to accurately track capacities and costs, as well as comfortably calculate delivery times.

All of that would empower those with supply chain management jobs to make smarter business decisions both on short and long-term basis, which would have an incredible effect on the overall profitability of supply chains.

Data immutability limits exploitative behaviors

Any piece of data uploaded to a blockchain cannot be tampered with in any way, shape or form, which is among the technology’s most prominent calling cards.

In the context of supply chain management, this immutability of data would make it impossible for anyone to manipulate materials, “misplace” products, fake orders, tamper with financial records or embezzle payments. And even if an incident was to occur outside of the blockchain network, a shared infrastructure would provide auditors with total visibility into participants’ activities, making cases a lot easier to solve than what they are now.

So, besides improving efficiency and profits, blockchain deployment would also rid supply chains of corruption, bringing forth impressive levels of security.

Drastically improved transparency

Every operation that takes place within a blockchain-based supply chain would be completely transparent to everyone in the network. This enables those tasked with supply chain management jobs to carefully and precisely document a product’s journey from its point of origin all the way to consumers.

This level of transparency never before existed within a supply chain environment, especially not from a consumer’s end. It could add a much-needed level of all-around accountability which is so sorely missed at the moment, even among transactions conducted by the world’s leading businesses.

Of course, customers are not the only ones impacted by this change. The rise in transparency and answerability would also increase trust among partners in the same supply chain, leading to smoother processes and operations throughout.

blockchain-for-supply-chain
(via Datex Corporation)

Examples of Blockchain Deployment Across Supply Chain Logistics

While some blockchain use cases are still limited to mere theorizing, the sheer compatibility between supply chain needs and blockchain features initiated a lot of early experimentation. In fact, several large players in the supply chain industry are already embracing blockchain-based systems and devoting resources to further encourage its use.

Here’s a list of the most prominent examples of companies currently testing out blockchain applications with goals of improving their supply chains:

  • Walmart relies on a blockchain network to keep a record of all the pork being imported from China. This provides the company with records that clearly state where each piece of meat was processed, who and where stored it, and who and when bought it.
  • Another example of a food supply chain being enhanced through blockchain comes from ConsenSys, a company that decided to bring traceability and transparency to the fishing industry in Fiji. They offer a verifiable proof to customers that their tuna was caught in sustainable waters, shipped in cold storage and delivered in a safe window to consume the food.
  • Australian vehicle manufacturer Tomcar pays some of its overseas suppliers of parts through Bitcoin, which allows them to maneuver around hefty charges associated with international FIAT exchanges. They also accept BitCoin as a form of payment for some of their off-road cars.
  • BHP Billiton, the world’s largest mining company, intends to use blockchain to better track data throughout the mining processes with its vendors.
  • The Provenance blockchain project helps brands and retailers improve customer trust through enhanced transparency. They use blockchain logistics to provide consumers with proof of environmental stewardship and sustainable manufacturing.
  • Diamond-giant De Beers employs blockchain logistics to track precious stones from the point they are minded to when they are sold. This is their way of fighting the notorious “blood diamond” reputation as it assures consumers that they are investing in diamonds coming from completely legitimate sources.

Blockchain Technology Is About to Shape the Future of Supply Chain Management

It’s obvious that the benefits of blockchain technology and the needs of supply chain management systems make for a hand-in-glove fit. All the crucial flaws associated with current supply chains can almost instantly be mitigated by implementing blockchain-powered solutions.

Sure, some potential pitfalls will have to be ironed out as we’re dealing with a fairly young technology, but we strongly believe that supply chains are among the foremost industries blockchain can change for the better. It’s a sector in desperate need of betterment, and blockchain seems to have the answer to most, if not all of its shortcomings.

Hopefully, it won’t be long before blockchain-powered supply chains become the norm. When that moment comes, both consumers and manufacturers alike will be introduced to a smarter way of managing supply chains and all the deficiencies of how we currently handle these processes will seem like an ugly, distant memory.