Blockchain Uses: Supply Chain
Discover how blockchain is revolutionizing supply chain management, providing transparency, efficiency and cost savings across supply chain networks.
Important notes:
The supply chain is a complex process that involves transforming raw materials into products and delivering these products to customers.
Current supply management systems lack transparency, efficiency and integration.
Blockchain technology effectively overcomes these problems, but there are some challenges in implementing this technology in the supply chain.
Entrance
A supply chain is a network of people and institutions involved in the creation and distribution of a particular product or service, from initial suppliers to end users and customers. A simple supply chain system usually includes food or raw material suppliers, manufacturers (processing stage), logistics companies and finally retailers.
Today, supply chain management systems face issues of lack of transparency and inefficiency, with many networks facing difficulties trying to integrate all parties involved in the process. Ideally, products and raw materials, as well as money and data, should be able to move seamlessly between different stages of the chain.
But the current model makes it difficult for the supply chain system to be consistent and efficient. This negatively affects both the profitability and the final retail price of companies.
The COVID crisis in 2020 caused the problems to re-emerge more strongly. The average consumer has noticed the impact the “supply chain” can have when having to wait much longer than usual for products to arrive due to global restrictions.
Some of the supply chain's biggest pain points can be addressed through the use of blockchain technology, which offers new ways to record, transmit and share data.
Benefits of Using Blockchain for Supply Chain
In this way, blockchain systems offer a safe and reliable architecture for information transfer. While often used to record cryptocurrency transactions, blockchain technology can actually be extremely useful for securing all types of digital data, and implementing this technology in supply chain networks can offer many benefits.
Transparent and immutable records
Let's assume that several different companies and institutions work together. They can use a blockchain system to record location and ownership data of their materials and products. All members of the supply chain can follow the process as resources move from company to company. Since data records cannot be changed, there is no question as to who is responsible if something goes wrong.
Reducing costs
There is a lot of waste due to inefficiencies in the supply chain network. This problem is especially common in industries where products can easily break down. Better tracking and data transparency can enable companies to identify areas of waste and thus take measures to reduce costs.
Blockchain can also eliminate fees incurred in transferring funds through various bank accounts and payment processors. These fees reduce the profit margin. So, it's important to be able to keep fees out of the equation.
Creating interoperable data
One of the most important problems in the current supply chain is the inability to integrate the data of all business partners involved in the process. Blockchains are developed as distributed systems with a unique and transparent data store. Each of the nodes (parties) in the network contributes to adding new data and verifying the integrity of the data. This means that all interested parties can access all information held on the blockchain. Thus, what information is published by one company can be easily verified by another company.
Replacing Electronic Data Interchange
Many companies utilize Electronic Data Interchange (EDI) systems to send business-related information to each other. However, this data is often sent batch by batch rather than in real time. If a shipment is lost or the price changes rapidly, other participants in the supply chain can only access this information when the next EDI batch is sent. In Blockchain, information is updated regularly and can be quickly delivered to all relevant units.
Digital agreements and document sharing
Having a single version of the truth is important for all types of document sharing in the supply chain. Necessary documents and contracts can be linked to blockchain transactions and digital signatures. This way, all participants have access to the original version of agreements and documents.
Blockchain ensures that documents cannot be altered and agreements can only be changed if all parties involved agree. This way, companies can focus on developing new products or growing their business with less time spent going over paperwork or negotiating with lawyers.
Improving the quality of goods
Blockchain technology makes it possible to track the quality of products from the beginning to the end of the supply chain. This allows defective products to be detected and eliminated more quickly and efficiently. This facility benefits the consumer as it reduces the likelihood of receiving a damaged or spoiled product. The fact that defective products can always be detected and disposed of by other stakeholders in the supply chain encourages companies to create a high-quality inventory.
Challenges to Using Blockchain in Supply Chain Management
While blockchain technology has huge potential for the supply chain industry, there are also some challenges and limitations that need to be taken into consideration.
Commissioning of new systems
Systems built specifically for organizations' supply chains may not be able to adapt to a blockchain-based environment. Overhauling the company's infrastructure and business processes is an important initiative that may disrupt operations or require the use of resources from other projects. For this reason, senior management may be hesitant to approve this type of investment without seeing that this system is widely adopted by other important companies in the sector.
Business partners agree
Business partners in the supply chain must also be willing to use blockchain technology. Although organizations benefit from the use of blockchain in only part of the process, it will not be possible to achieve all the advantages that blockchain has to offer if all participants are not involved in the process. Moreover, transparency is not something that all companies want.
Change management
Once the blockchain-based system is implemented, businesses should encourage their employees to adopt this system. A change management plan should explain what blockchain is, how it supports employees in fulfilling their responsibilities, and how to work with new systems that include blockchain. New features and innovations in blockchain technology can be covered in a continuing education program, but this requires time and resources.
Last word
Some large companies in the supply chain industry are already adopting blockchain-based distributed systems and are raising funds to encourage the use of these systems. For example, IBM Food Trust uses blockchain technology to increase transparency in the food supply chain. We are likely to see global supply chain platforms leverage blockchain technology to make it easier for companies to share information about the movement of products and raw materials through the process.
Blockchain technology can revolutionize many different areas, from production and processing to logistics and accountability. Each activity can be recorded and verified, creating transparent and unalterable records. Therefore, the use of blockchain in supply chain networks has the potential to eliminate inefficiencies often encountered in traditional management models.
Additional Reading
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