Blockchain Use Cases: Supply Chains

Learn how blockchain brings transparency, increases efficiency, and reduces costs throughout the supply chain.

Key points

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

  • The current supply management system suffers from a lack of transparency, efficiency and integration.

  • Blockchain can solve these problems, but its implementation in supply chains poses some challenges.

Introduction

A supply chain is a network of people and organizations involved in the creation and distribution of a particular product or service, and managing its movement from original suppliers to customers. The basic supply chain system includes food or raw material suppliers, manufacturers (processing stage), logistics companies and retailers.

Currently, the supply chain management system lacks efficiency and transparency, and most chains face difficulties in integrating all parties involved. Ideally, products and materials, as well as money and data, should flow smoothly from one stage of the chain to the next.

However, the current model has problems maintaining consistent and efficient operations, which ultimately reduces companies' revenues and increases the retail price.

These problems have become particularly acute during the 2020 pandemic crisis. The average consumer has realized the importance of supply chains when delivery times have increased significantly due to global restrictions.

Blockchain can solve some of the problems in supply chains through new ways of recording, transmitting and sharing data.

Benefits of Blockchain in Supply Chains

Because blockchains operate as distributed systems, they are resistant to modification and are great for supply chains. A blockchain consists of a chain of data blocks that are linked using cryptography. It ensures that data cannot be changed or tampered with (unless the entire network agrees to the change).

Thus, blockchain systems provide a secure and reliable architecture for the transfer of information. Although blockchain is typically used to carry out cryptocurrency transactions, it is suitable for protecting all types of digital data and has the potential to improve supply chains.

Transparent and immutable records

Imagine several companies and institutions working together. They can use blockchain to record the location and ownership of their materials and products. Anyone in the supply chain can track the movement of resources from one company to another. Since data records cannot be changed, if any problems arise, it will be easy to identify the person responsible.

Cost reduction

Due to inefficiencies in the supply chain, a large number of products become unusable. This problem affects perishable products the most. Improved data tracking and visibility helps companies identify areas with the highest costs and take action to reduce costs.
Blockchain also eliminates fees for transferring funds to bank accounts and payment systems. The fewer commissions, the higher the final profit.

Creating Compatible Data

One of the main problems in the current supply chain is that it is impossible to integrate data for each partner into the process. Blockchains operate as distributed systems that maintain a unique and transparent data repository. Each node in the network (each side) adds new data and checks its integrity. This means that all information on the blockchain is available to all parties involved, and the company will be able to easily verify what information the other party is transmitting.

EDI replacement

Many companies use Electronic Data Interchange (EDI) systems to transmit operational information to each other. However, usually this data is not sent immediately, but waits until it is formed into a larger batch. If a shipment is lost or prices change quickly, others in the supply chain will only find out after the next EDI shipment is released. At the same time, the blockchain guarantees regular updating of information and its timely dissemination among all participating organizations.

Digital agreements and document exchange

When exchanging documents throughout the supply chain, it is important to have a single source of truth. Therefore, the necessary documents and contracts can be linked to blockchain transactions and digital signatures so that all participants have access to the original version of the agreements and documents.

Blockchain ensures the immutability of documents: information can only be changed with the consent of all parties involved. This allows organizations to spend less time negotiating and reviewing documents with lawyers and focusing more on developing new products and growing their business.

Improving the quality of goods

Blockchain allows you to track product quality throughout the supply chain. As a result, the organization can identify and eliminate defective products faster and more efficiently. This is also beneficial for consumers, because they will be less likely to come across low-quality goods. Companies will have an incentive to produce quality products because defective units will be visible to other parties.

Challenges of implementing blockchain in supply chains

Although blockchain has enormous potential in supply chains, it is not easy to implement in this area.

Deployment of new systems

Supply chain systems may not adapt to a blockchain-based structure. The company's infrastructure and business processes will need to be modernized, which can disrupt workflow and take resources away from other projects. Because of this, management may delay adoption of blockchain until it sees widespread adoption by major industry participants.

Partner involvement

Partners involved in the supply chain must agree to work with the blockchain. If there is a disagreement between the parties on this topic, the initiator will not be able to use the blockchain to its fullest potential. In addition, not all organizations strive for transparency.

Change management

After implementing blockchain, companies will have to train employees to use this system. It will be necessary to consider what blockchain is, how it will improve work processes and how to work with new systems based on it. Immersion in function and innovation will require a training program that takes resources and time to create and deliver.

In conclusion

Several large organizations in the supply chain industry are already using blockchain-based distributed systems and are offering resources to implement this technology. For example, IBM Food Trust is using blockchain to increase transparency in the food chain. It is likely that in the future, global supply chain platforms will move to blockchain to improve the exchange of information about the movement of goods and materials.

Blockchain has the potential to transform a wide variety of organizational processes: from production and processing of goods to logistics and reporting. Every event can be recorded in transparent, immutable records that are easy to verify. Due to this, blockchain can eliminate the problems that are inherent in traditional governance models.

  • Supply chains

  • Blockchain Use Cases

  • How does blockchain work?

Disclaimer: The following materials are provided “as is” without warranty of any kind for general reference and educational purposes only. This information should not be considered financial advice, legal advice, or a recommendation to purchase any specific product or service. You should seek your own advice from appropriate professional advisers. Since this article was written by a third party author, please note that the opinions expressed are those of the third party author and do not necessarily reflect the views of Binance Academy. For more detailed information please follow the link. The value of digital assets can be volatile. The value of the funds invested may go up and down. You may not get your invested funds back. You are solely responsible for your investment decisions. Binance Academy is not responsible for your possible losses. This information does not constitute financial, legal or professional advice. To learn more, please read our Terms of Use and Risk Disclosure.