1.
Why should businesses adopt non-fungible tokens in their supply chains?
NFTs can be used in supply chains to make them more transparent and efficient, saving billions of dollars. This is another space where Web3 technology can be applied in the real world.
The supply chain is an integral part of any business. From pharmaceutical giants and fast-moving consumer goods (FMCG) giants to local direct-to-customer brands, most businesses rely on efficient and resilient supply chains to deliver products and services efficiently. Despite being an important cog for organizations, supply chain networks are still inefficient on a global scale.
One of the key applications of blockchain technology is traceability in supply chains. This feature of the technology is already being trialled in trade finance use cases at banks such as HSBC. This is a use case that relies more on smart contracts and blockchain infrastructure layers such as the Ethereum and Solana blockchains.
While non-fungible tokens (NFTs) as a technology paradigm won’t necessarily disrupt supply chains, they can bring about a huge shift in pain points in this space. NFTs can act as “digital twins” of real-world goods and facilitate traceability within supply chains.
Here are some numbers, statistics and narratives to put things into perspective.
Due to a lack of visibility, 49% of businesses have little idea of what is happening at key touchpoints in their supply chain.
In 2018, counterfeit goods cost global brands more than $232 billion.
In industries such as pharmaceuticals, the counterfeiting market alone may approach $200 billion annually.
The magnitude of the problem can be seen from the numbers above, and NFTs can provide solutions to these inefficiencies. Beyond this, there are other interesting use cases for the convergence of blockchain and supply chain, which will be discussed later in this article.
2.
What role do NFTs play in the supply chain?
Real-time tracking, settlement and documentation of supply chains not only creates greater efficiencies for businesses, but also helps them obtain better financial products to rely on for their working capital.
NFTs create an immutable and transparent digital record. This provides the supply chain industry with a transparent path that everyone in the ecosystem can fully understand. Therefore, from producing raw materials for goods to displaying goods on websites or physical stores, the use of NFTs will provide traceability and aid in supply chain management.
Physical NFTs have proven to be a great utility when they are tagged onto real-world goods. Using NFTs to trace the provenance of goods or manufactured goods can add credibility to the product. It can also provide consumers with a way to understand the origin of the product they are looking at and choose a product based on its purpose.
In addition to traceability, NFT gated procurement and NFT gated warehousing will help data scientists gain valuable insights into the product journey on a personal level. Such granular data will help analysts, business owners and investors assess inefficiencies in supply chains. This will help develop new service level agreements (SLAs) with service providers along the supply chain and monitor their achievement of these SLAs.
Additionally, incorporating NFT and digital twin technology into the supply chain will enable companies to automate payments through the system and settle the goods immediately upon delivery. Once real-time traceability is enabled, multiple checks and balances by finance teams before transferring payments will be a thing of the past.
Real-time tracking will also help finance products such as trade finance, where stakeholders along the supply chain can leverage the status of goods to borrow working capital. Supply chain managers with a better vantage point can intervene at the right checkpoint when congestion or bottlenecks occur. This makes the supply chain more efficient, leading to better revenue and lower costs.
3.
From a customer perspective, what are the advantages of using NFTs in the supply chain?
Customers can see where products come from and the various routes taken before arriving at the supermarket.
Last but not least, the end consumer will be able to understand the evolution of the product. They have transparency about where their raw materials are produced and the companies involved in their production. This provides another dimension from a customer experience perspective, bringing the creators of the product closer to the end user.
In industries such as FMCG, pharmaceuticals and where expiration and counterfeiting are a major issue with potentially disastrous consequences, NFTs can be a lifesaver. At the same time, customer trust in the brand is also increasing. In addition to their primary benefits, NFTs can also help make supply chains more sustainable, which in turn contributes to a business’s environmental, social and governance (ESG) narrative.
As nation-states, central banks and markets demand more sustainable practices from global businesses, ensuring transparent and efficient supply chains can help companies with their ESG narrative. If a company wants to integrate sustainable practices into its supply chain, the carbon efficiencies achieved through the use of NFTs could be a huge added value. For new, contemporary consumers, this means sustainable products, and for the world, it means lower emissions.
4.
Which companies are using blockchain for supply chain management?
Some luxury and logistics brands are using blockchain technology and NFTs to track their products and create digital twins to aid community-building initiatives.
Major brands in the automotive, luxury, and retail industries have begun integrating NFTs into their supply chains to reap the myriad benefits they offer.
Walmart uses digital twin technology to track the food supply chain ecosystem and increase trust. Automotive giant Ford uses digital ledger technology to ensure it gets ethical minerals used in production.
Diamond giant De Beers is also using blockchain to verify whether diamonds come from war-free zones. Meanwhile, shipping companies such as FedEx and Maersk are also using the technology for their operations.
Luxury brands such as DeBeers, Louis Vuitton, Dolce and Gabbana and Gucci have turned to NFTs for customer integration and loyalty. Because non-fungible tokens act as digital twins of real-world goods, they not only provide transparent supply chains but also increase community retention through customer experience.
5.
What are the practical challenges of implementing NFTs at scale across supply chains?
Technology is often just a means to an end, rarely a panacea. There are several real-world issues that could hinder progress in promoting NFTs and blockchains in global supply chains.
The benefits of digital twins for real-world goods cannot be underestimated. However, today’s global supply chains are highly intermediated and run on trust. For years, a farmer in Africa sold their produce to middlemen. This creates a level of trust between both parties.
So even if farmers realize they will better accrue value in a more transparent supply chain, resistance to change will be high. Intermediaries, on the other hand, don't want the new system because their livelihoods depend on the profits they make using farmers' products.
As a result, supply chains are vulnerable to resistance from various stakeholders to such implementations. Using non-fungible tokens and blockchain, pharmaceutical supply chains can become extremely efficient. However, the industry is booming in countries such as India and Nigeria, and corrupt stakeholders in the supply chain will face opposition if a new system is proposed.
Therefore, any technology introduced into these supply chains requires a top-down and bottom-up approach. A top-down approach would involve governments and regulators demanding better traceability; a bottom-up approach would see companies address the issue by working with stakeholders on the ground and spreading awareness of the technology’s benefits
