Blockchain use case: supply chain

Discover how blockchain is revolutionizing supply chain management, ensuring transparency, efficiency and savings across the entire supply chain network.

Key takeaways

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

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

• Blockchain technology effectively addresses these issues, but faces challenges in its implementation in the supply chain.

Introduction

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

Currently, the supply chain management system suffers from 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, should flow seamlessly through the different stages of the chain.

However, the current model makes it difficult to maintain a consistent and efficient supply chain system, negatively impacting not only business profitability but also the final retail price.

The COVID crisis of 2020 has caused problems to resurface with new force. The average consumer then noticed the implications of the term “supply chain” when they had to wait for goods to arrive much longer than usual due to global restrictions.

Some of the most pressing supply chain problems can be solved through the use of blockchain technology, as it offers new ways to record, transmit and share data.

The benefits of using blockchain for the supply chain

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

Therefore, blockchain systems provide a secure and reliable architecture for transmitting information. Although often used to record cryptocurrency transactions, blockchain technology can be extremely useful for securing all kinds of digital data, and its application to the supply chain network can bring many benefits.

Transparent and immutable records

Imagine we have several companies and institutions working together. They could use a blockchain system to record data relating to the location and ownership of their materials and products. Anyone in the supply chain can see what's happening as resources move from one company to another. Since data records cannot be changed, there would be no doubt about who the responsible party is if something goes wrong.

Cost reduction

A lot of waste occurs due to inefficiencies within the supply chain network. This problem is particularly prevalent in industries that have perishable goods. Improving data tracking and transparency helps businesses identify these areas of waste so they can implement cost-saving measures.
Blockchain can also eliminate fees associated with funds flowing in and out of various bank accounts and payment processors. These fees cut into profit margins, so it’s important to be able to take them out of the equation.

Creation of interoperable data

One of the most important 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 data repository. Each node in the network (each part) 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 released by the other.

EDI replacement

Many businesses 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 quickly, other participants in the supply chain will only get this information after the next EDI batch is released. With blockchain, information is updated regularly and can be quickly distributed to all relevant entities.

Digital agreements and document sharing

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

Blockchain ensures the immutability of documents, and agreements can only be changed if all parties involved reach a consensus. This way, organizations can spend less time with their lawyers reviewing paperwork or negotiating around a table, and can focus on developing new products or promoting business growth.

Improved quality of goods

Blockchain technology makes it possible to track product quality throughout the supply chain. This allows for faster and more efficient detection and elimination of defective products. This benefits the consumer, as they would be less likely to receive damaged goods. Businesses would be incentivized to focus on producing high-quality inventory because defective merchandise can always be spotted by peers and disposed of.

The challenges of adopting blockchain in supply chain management

Although blockchain technology has a lot of potential for the supply chain industry, there are some challenges and limitations worth considering.

Deployment of new systems

Systems specifically designed for the organization's supply chain may not be able to adapt to a blockchain-based environment. Redesigning a company’s infrastructure and business processes is a significant undertaking that can disrupt operations and deprive other projects of resources. Thus, senior management may be hesitant to approve this type of investment before seeing widespread adoption by other major players in their industry.

Obtaining partner buy-in

Partners involved in the supply chain must also be ready to adopt blockchain technology. Although organizations still benefit from having only part of the process covered by blockchain, they cannot take full advantage of it when there are holdouts. Additionally, transparency is not something every business desires.

Change management

Once the blockchain-based system is in place, companies must promote its adoption among their employees. A change management plan should address what blockchain is, the ways it enhances their missions, and how to work with new systems that include it. A continuing education program can focus on new features or innovations in blockchain technology, but this requires time and resources.

Conclusion

Several major players in the supply chain industry are already adopting blockchain-based distributed systems and implementing resources to encourage their use. For example, IBM Food Trust uses blockchain technology to increase transparency in the food supply chain. We will likely see global supply chain platforms leveraging blockchain technology to streamline how companies share information as products and materials move.

Blockchain technology can transform organizations in many ways, from production and processing to logistics and accountability. Every event can be recorded and verified to create transparent and immutable records. Therefore, the use of blockchain in supply chain networks certainly has the potential to eliminate areas of inefficiency that are so common in traditional business models.

For more information

• Supply chain

• Blockchain use cases

• How does a blockchain work?

Disclaimer and Risk Warning: This content is presented to you “as is” for your general information and educational purposes only, without any representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, or as a means of recommending the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is written by a third party contributor, please note that the opinions expressed are those of the third party contributor and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here to find out more. The price of digital assets can be volatile. The value of your investment may fall as well as increase and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not responsible for any losses you may incur. This material should not be construed as financial, legal, or other professional advice. To learn more, see our Terms of Service and Risk Warning.