Blockchain Use Cases: Supply Chain

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

Key Points

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

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

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

Introduction

A supply chain consists of a network of people and companies involved in the creation and distribution of a specific product or service - from initial producers and suppliers to end users and consumers. A basic supply chain system usually includes the food or raw material suppliers, the manufacturers (processing stage), the logistics companies and the final retailers.

Currently, the supply chain management system suffers from a lack of efficiency and transparency, and many networks encounter difficulties when trying to integrate all parties involved. Ideally, products and materials, as well as money and data, need to flow fluidly through all stages of the chain.

However, the current model makes it difficult to maintain a consistent and efficient supply chain system - which has negative impacts on both company profitability and the final retail price.

The Covid crisis in 2020 caused the problems to resurface with greater intensity. The average consumer has noticed the implications of the term "supply chain" by having to wait for products for a much longer period than usual due to global restrictions.

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

Benefits of using blockchain in the supply chain

Since blockchains are designed as distributed systems, they are highly resistant to modification and can fit very well into supply chain networks. A blockchain consists of a chain of data blocks, which are linked using cryptographic techniques that ensure that the data stored cannot be modified or tampered with - unless the entire network is in agreement.

Therefore, a blockchain system provides a secure and reliable architecture for transmitting information. Although these systems are often used to record cryptocurrency transactions, blockchain technology can be extremely useful for protecting all types of digital data, and its application in the supply chain network offers many benefits.

Immutable and transparent records

Imagine several companies and institutions working together. They can use blockchain technology to record data about the location and ownership of their materials and products. This means that any member of the supply chain can see what is happening as products are transported between companies. As data records are immutable, if something goes wrong or in the event of a failure, there would be no doubt about the responsible parties.

Cost reduction

Much waste occurs due to inefficiencies in the supply chain network. This problem is especially prevalent in industries that have perishable goods. Improved tracking and data transparency help companies identify these areas of waste so they can implement cost-saving measures.
Additionally, blockchain can eliminate fees associated with transferring funds between multiple bank accounts and payment processors. These fees reduce profit margins, so being able to take them out of the equation is significant.

Creating interoperable data

One of the most significant problems with the current supply chain model is the difficulty in integrating data between all participants in the process. Blockchains are built as distributed systems that maintain a single, transparent data repository. Each node in the network (each participant) contributes to adding new data and verifying its integrity. This means that all information stored on a blockchain is accessible to all parties involved, allowing one company to easily check what information is being transmitted by another.

Replacement of EDI systems

Many companies rely on Electronic Data Interchange (EDI) systems to send business information to one another. However, this data is often sent in batches rather than in real time. If a shipment goes missing or prices change quickly, other participants in the supply chain would only receive this information after the next batch shipped from EDI. With blockchain, information is regularly updated and can be quickly distributed to everyone involved.

Digital contracts and document sharing

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

Blockchain guarantees the immutability of the document and contracts can only be changed if all parties involved reach a consensus. This way, organizations spend less time with their lawyers sifting through paperwork or at the negotiating table and can focus on developing new products and growing the business.

Increased product quality

With blockchain technology, it is possible to track the quality of products as they pass through the entire supply chain. This allows for faster and more efficient detection and disposal of defective products. This benefits the consumer as they are less likely to receive a damaged product. Companies would be motivated to focus on producing high-quality inventory since defective goods can be identified by network participants and discarded.

Challenges of adopting blockchain in supply chain management

Although blockchain technology has enormous potential for the supply chain sector, there are some challenges and limitations that must be considered.

Implementation of new systems

Systems created specifically for an organization's supply chain may not be able to adapt to a system based on blockchain technology. Revamping a company's infrastructure and business processes is a difficult task that can disrupt operations and divert resources from other projects. Therefore, senior management may be hesitant to approve this type of investment before seeing broad adoption by other large companies in the sector.

Partner integration

Partners involved in the supply chain also need to be willing to embrace blockchain technology. While organizations still benefit from having only part of their processes covered by blockchain, they do not fully leverage the technology when there is resistance to adoption. Furthermore, transparency is not something all companies want.

Change management

After implementing the blockchain-based system, companies must encourage its adoption among their employees. A change management plan should address what blockchain is, how it improves people's work roles, and how to work with new systems that implement this technology. An ongoing training program can address new features or innovations in blockchain technology, but this requires time and resources.

Final considerations

Many large supply chain companies are already adopting blockchain-based distributed systems and allocating resources to promote their use. For example, IBM Food Trust uses blockchain technology to increase transparency in the food supply chain. We're likely to see global supply chain platforms using blockchain technology to streamline the way companies share information as products and materials circulate.

Blockchain technology can transform organizations in many ways. From production and processing to logistics and responsibility. Every event can be recorded and verified to create a transparent and immutable database. Therefore, the use of blockchain in supply chain networks certainly has the potential to eliminate areas of inefficiency common in traditional management models.

Further reading

• Supply Chain

• Blockchain Use Cases

• How Does Blockchain Work?

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