Blockchain use cases: supply chain

Discover how blockchain revolutionizes supply chain management, ensuring transparency, efficiency and cost savings across the network.

Key aspects

• A supply chain is a complex process of converting raw materials into goods, and delivering them to customers.

• The current supply management system lacks transparency, efficiency and integration.

• Blockchain technology addresses those problems effectively, but faces difficulties in its implementation in the supply chain.

Introduction

A supply chain is a network of people and companies engaged in the creation and distribution of a particular product or service, ranging from initial suppliers to end users and customers. A basic supply chain system often involves food or raw material suppliers, manufacturers (processing phase), logistics companies and retailers.

Currently, the supply chain management system is plagued by a lack of efficiency and transparency, and most networks face difficulties when trying to integrate all parties involved. Ideally, products and materials, as well as money and data, need to move smoothly through the different stages of the chain.

However, the current model makes it difficult to maintain a consistent and efficient supply chain system, which negatively impacts not only the profitability of companies, but also the final sales price.

The COVID crisis of 2020 has caused problems to resurface with new forces. The average consumer noticed the implications of the term "supply chain" when they had to wait much longer than usual for their products to arrive, due to global restrictions.

Some of the most pressing supply chain problems can be solved through the use of blockchain technology, as it provides new ways of recording and transmitting data, as well as sharing it.

Benefits of using blockchain technology for supply chains

Since blockchains are designed as distributed systems, they are very resistant to modifications and can adapt very well to supply chain networks. A blockchain consists of a chain of data blocks, which are linked through cryptographic techniques that guarantee that the stored data cannot be altered or manipulated, unless the entire network agrees.

Therefore, blockchain systems provide a stable and reliable architecture for transmitting information. Although it is often used to record cryptocurrency transactions, blockchain technology can be extremely useful for protecting all types of digital data, and applying it to a supply chain network can provide many benefits.

Transparent and immutable records

Let's imagine a group of various companies and institutions working together. These could use a blockchain system to record data on the location and ownership of their materials and products. Anyone in the supply chain will be able to monitor everything that happens as resources move from one company to another. Since data records cannot be altered, there will be no question as to which party will be responsible if something goes wrong.

Cost cutting

A large amount of products are lost due to inefficiencies within the supply chain network. This problem is especially common in industries that have perishable products. Improved tracking and data transparency helps companies identify these areas of waste so they can implement cost-saving measures.
Blockchain can also eliminate fees associated with funds moving in and out of various bank accounts and payment processors. These commissions reduce profit margins, so being able to take them out of the equation is significant.

Creating interoperable data

One of the most significant problems in today's supply chain is not being able to integrate data from all partners in the process. Blockchains are built as distributed systems that maintain a single, transparent repository of data. Each node in the network (each interested party) contributes to adding new data and verifying its integrity. This means that all information stored on a blockchain is accessible to all parties involved, so one company can easily verify what information is being transmitted by the other.

EDI Replacement

Many companies rely on electronic data interchange (EDI) systems to send each other business information. However, this data is often released in batches, rather than in real time. If a shipment goes missing or prices change rapidly, other participants in the supply chain would only get this information after the next EDI batch goes out. With blockchain, information is updated regularly and can be quickly distributed to all entities involved.

Digital agreements and shared documents

Having a single version of the truth is important for any type of supply chain document sharing process. The necessary contracts and documents can be associated with blockchain transactions and digital signatures, so that all participants have access to the original version of the agreements.

The blockchain guarantees the immutability of documents. Agreements can only be modified if all parties involved reach a consensus. This way, organizations can spend less time with their lawyers going over paperwork or at the negotiating table, and focus on developing new products or promoting business growth.

Increase product quality

Blockchain technology makes it possible to track the quality of products as they pass through the entire supply chain. This allows for faster and more efficient detection and removal of defective products, which benefits the consumer as they would have a lower chance of receiving a damaged good. Companies would be incentivized to focus on producing high-quality inventory, since defective merchandise can always be detected by peers and discarded.

The challenges of blockchain adoption in supply chain management

Although blockchain technology presents enormous potential for the supply chain industry, there are some challenges and limitations worth considering.

Implementation of new systems

Systems built specifically for an organization's supply chain may not be able to adapt to an environment based on blockchain technology. Overhauling enterprise infrastructure and business processes is a significant task that can disrupt operations and take resources away from other projects. Consequently, senior management may have serious doubts about approving these types of investments before seeing widespread adoption by other large players in their sector.

Get associates to join the initiative

Partners involved in the supply chain must also be willing to get on board with blockchain technology. While organizations still gain benefits from having only part of the process covered by blockchain, they cannot take full advantage of this when there are non-participating parties with resistance. Furthermore, transparency is not something that all companies want.

Change management

Once the blockchain-based system is implemented, companies must promote its adoption among their employees. A change management plan should address what blockchain is, the ways it improves your job functions, and how to work with new systems that include it. An ongoing training program can address new features or innovations in blockchain technology, but that takes time and resources.

Conclusions

Several large players in the supply chain industry are already adopting blockchain-based distributed systems, as well as setting up resources to encourage their use. For example, IBM Food Trust uses blockchain technology to increase transparency in the food supply chain. Global supply chain platforms are likely to leverage blockchain technology to streamline how companies share information as products and materials move.

Blockchain technology can transform organizations in many different ways, from production and processing to logistics and accountability. Any event can be recorded and verified, creating transparent and immutable records. Consequently, the use of blockchain in supply chain networks has the potential to eliminate areas of inefficiency very common in traditional management models.

Further reading

• Supply chain

• Blockchain use cases

• How does blockchain work?

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