Blockchain use cases: supply chains
Learn how blockchain is revolutionizing supply chain management, bringing transparency, efficiency and cost savings across the entire supply chain network.
Key points:
The supply chain is a 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 effectively solves these problems, but faces difficulties 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. The basic supply chain system often includes suppliers of food or raw materials, manufacturers (processing stage), logistics companies and final 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 various stages of the chain.
However, the current model makes it difficult to maintain a consistent and efficient supply chain system, which negatively affects not only the profitability of companies, but also the final retail price.
The 2020 COVID crisis forced these issues to emerge with renewed force. That's when the average consumer saw the meaning of the term "supply chain" when they had to wait much longer than usual for goods to arrive due to global restrictions.
Some of the most pressing supply chain problems can be solved with blockchain technology, as it provides new ways to record, transfer and share data.
Benefits of using blockchain for supply chain
Because blockchains are designed as distributed systems, they are highly resistant to modification and can fit very well into supply chain networks. Blockchain consists of a chain of data blocks that are linked together using cryptographic methods that ensure that stored data cannot be altered or fake unless the entire network agrees.
Thus, blockchain systems provide a secure and reliable architecture for information transfer. Although blockchain technology is often used to record cryptocurrency transactions, it can be extremely useful for protecting all types of digital data, and its application in the supply chain can bring many benefits.
Transparent and immutable records
Imagine that we have several companies and institutions working together. They can use the blockchain system to record the location and ownership of their materials and products. Anyone in the supply chain can see what happens as resources move from company to company. Since data records cannot be changed, there is no question of who is responsible if something goes wrong.
Cost reduction
A large amount of waste is caused by inefficiencies in the supply chain. This problem is especially common in industries with perishable goods. Improved tracking and data transparency help companies identify these wasteful areas so they can take action to save money.
Blockchain can also eliminate the fees associated with transferring funds to various bank accounts and payment systems. These fees reduce profits, so being able to take them out of the equation is important.
Creating compatible data
One of the most significant challenges in the current supply chain is the inability to integrate data from all partners in the process. Blockchains are built as distributed systems that support a unique and transparent data store. Each network node (each side) contributes to adding new data and checking its integrity. This means that all information stored on the blockchain is available to all parties involved, so one company can easily verify what information another is transmitting.
EDI replacement
Many companies rely on Electronic Data Interchange (EDI) systems to send business information to each other. However, this data is often sent in batches rather than in real time. If a shipment is lost or the price changes rapidly, the rest of the supply chain will only receive this information after the next EDI batch goes out. With blockchain, information is regularly updated and can be quickly shared among all involved organizations.
Digital agreements and exchange of documents
A single version of the truth is important for any type of supply chain document exchange. Necessary documentation and contracts can be associated with blockchain transactions and digital signatures, so 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. In this way, organizations can spend less time with their lawyers reviewing documents or at the negotiating table and focus on new product development or business development.
Improving the quality of goods
Blockchain technology allows the quality of products to be tracked as they move through the entire supply chain. This allows faster and more effective detection and elimination of a defective product. This is beneficial to the consumer, as he will be less likely to receive a damaged product. Firms will have an interest in focusing on producing high-quality products, as low-quality products can always be spotted by competitors and scrapped.
Challenges of Blockchain Adoption in Supply Chain Management
While blockchain technology has great potential for the supply chain industry, there are some challenges and limitations to consider.
Deployment of new systems
Systems that are purpose-built for an organization's supply chain may not be able to adapt to a blockchain-based environment. Reconstruction of the company's infrastructure and business processes is a serious task that can disrupt work and take resources away from other projects. As such, senior management may be hesitant to agree to this type of investment before it is widely adopted by other major players in their industry.
Involvement of partners
Partners involved in the supply chain must also be ready to join blockchain technology. While organizations still benefit from blockchain covering only part of the process, they cannot take full advantage of it when blockchains are in place. Also, transparency is something that not all companies want.
Change management
Once a blockchain-based system is implemented, companies must promote its adoption among their employees. A change management plan should define what blockchain is, how it improves their job responsibilities, and how to work with new systems that incorporate it. An ongoing training program can be about new features or innovations in blockchain technology, but this takes time and resources.
Results
Several major players in the supply chain industry are already using blockchain-based distributed systems and creating 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 use blockchain technology to streamline the way companies share information as products and materials move.
Blockchain technology can transform organizations in many ways, from manufacturing and processing to logistics and accountability. Each event can be logged and audited to create transparent and immutable records. As such, the use of blockchain in supply chain networks certainly has the potential to address the areas of inefficiency so often found in traditional governance models.
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