Blockchain Use Cases: Supply Chain

Learn how blockchain will revolutionize supply chain management systems, ensuring the transparency and efficiency of the entire supply chain network while saving costs.

Key Points

• The supply chain involves the complex process of transforming raw materials into goods and delivering them to customers.

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

• Blockchain technology can effectively solve these problems, but it faces many difficulties in practical applications.

Introduction

A supply chain is a network of people and businesses involved in the production and distribution of a specific product or service, extending from the source supplier to the end user and customer. A basic supply chain system typically includes a food or raw material supplier, a manufacturer (processing stage), a logistics company, and a final retailer.

Currently, supply chain management systems generally lack efficiency and transparency, and most networks have difficulties when trying to integrate all parties involved. Ideally, products, materials, funds and data can flow freely and unhindered at all stages of the supply chain.

However, the current model makes it difficult to maintain the efficiency and stability of the system, which will not only weaken the profitability of the enterprise, but also affect the final retail price.

In 2020, the COVID-19 outbreak brought these problems to the fore again, and the situation became even more serious. Due to restrictions in various countries, the shipping time of goods has been significantly extended. While ordinary consumers are waiting, they have also noticed the problems in the "supply chain".

Blockchain technology offers new ways to record, transfer and share data, solving some of the most pressing problems in the supply chain.

Benefits of applying blockchain technology in supply chain

Blockchain uses a distributed system, and the data entered is difficult to tamper with or forge, making it very suitable for building a supply chain network. A blockchain consists of a series of connected data blocks. These data blocks are connected through encryption technology. The stored data cannot be changed without the consent of each node in the network.

Blockchain systems provide a secure and reliable architecture for transferring information. The technology is often used to record cryptocurrency transactions, but its role is not limited to this. It can ensure the security of various digital data, and its application in supply chain networks can also bring many benefits.

Transparent and unalterable records

Imagine that several companies and institutions are working together. They can use a blockchain system to record location and ownership data related to materials and products. As resources flow between companies, all supply chain members can view the relevant information. Because the data record cannot be changed, when problems occur, it is clear who is responsible.

Cost reduction

Inefficiencies in supply chain networks create a lot of waste. This problem is particularly prevalent in industries that deal with perishable goods. Improving logistics tracking capabilities and data transparency can help companies find the source of waste and take measures to save costs.
Using blockchain also eliminates the fees that are incurred when money is moved in and out of bank accounts and payment service platforms. These fees reduce profit margins, so saving costs in this area is also very important.

Creating interoperable data

The most prominent problem of the current supply chain is the inability to integrate the data of each partner in the process. Blockchain adopts the architecture of a distributed system with a unique and transparent data repository. Each node (each party) of the network can add new data and verify its integrity. This means that all relevant parties can access all information stored on the blockchain. In other words, one company can easily verify the information published by another company.

Replacement of Electronic Data Interchange

Many companies rely on electronic data interchange (EDI) systems to send business information, but usually in batches rather than in real time. If goods are lost or prices change dramatically, other participants in the supply chain will not know until the next electronic data exchange. With blockchain, information can be updated in real time to quickly inform all relevant entities.

Digital protocols and file sharing

Regardless of how documents are shared in the supply chain, it is critical to ensure the uniqueness of authentic documents. Necessary documents and contracts can be associated with blockchain transactions and digital signatures, allowing all parties to access the original versions of agreements and documents.

Blockchain can ensure that documents cannot be easily tampered with, and the agreement can only be changed when all parties reach a consensus. In this way, business leaders can spend less time dealing with paperwork with lawyers or negotiating at the negotiation table, and focus on developing new products or promoting business growth.

Improve product quality

With blockchain technology, companies can track product quality throughout the process and detect and destroy defective products faster and more efficiently. Consumers will benefit from this because the probability of receiving defective products will be reduced. Since partners will detect and deal with them in a timely manner, companies will be more motivated to focus on producing high-quality products.

Challenges of applying blockchain technology in supply chain management

Although blockchain technology has great application potential in the supply chain industry, there are still some challenges and limitations that cannot be ignored.

Deployment of new system

Systems built for corporate supply chains may not be compatible with a blockchain-based environment. Overhauling a company’s infrastructure and business processes is a major undertaking that could disrupt operations and take resources away from other projects. As a result, upper management may be hesitant to approve such investments until blockchain is widely adopted by other major companies in the industry.

Convincing partners

When applying blockchain technology, it is also necessary to obtain the support of supply chain partners. When blockchain only covers part of the process in the supply chain, companies can benefit from it. However, due to the refusal of other participants to cooperate, the advantages of this technology cannot be fully utilized when it is applied. In addition, not all companies want to improve transparency.

Change Management

Once a blockchain-based system is in place, the company must promote it among employees. Change management programs should educate employees on what blockchain is, how it affects job responsibilities, and how to work with the new blockchain-based system. Subsequent training programs can introduce new features and innovations in blockchain technology, but this requires an investment of time and resources.

Conclusion

Several large companies in the supply chain industry have already begun to adopt blockchain-based distributed systems and have deployed corresponding resources to promote them. For example, the IBM Food Trust platform uses blockchain technology to increase transparency in the food supply chain. In the future, global supply chain platforms are likely to use blockchain technology to simplify the information sharing process of companies in the flow of products and materials.

From production and processing to logistics and accountability, blockchain technology can change the way companies operate in many ways. Every event can be recorded and verified, becoming a transparent and tamper-proof record. Therefore, the use of blockchain in supply chain networks is expected to solve the inefficiencies common in traditional management models.

Further reading

• supply chain

• Use cases for blockchain

• How blockchain works

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