The supply chain, a series of product transfers between manufacturers, distribution centers, and retail locations, is a complex network of transactions. From raw material to finished product, every transfer throughout the chain requires documentation to ensure that product quality is not compromised, items are en route to their correct destination, and a number of other parameters that require monitoring to guarantee successful delivery. Despite widespread digitization of supply chain management, notable problems exist with current solutions. Many systems simply do not have enough information recorded in each transaction, leaving companies in the dark. These limitations are begging for a more robust solution, one that can address the most important challenges facing supply chain managers.
In comes blockchain. Blockchain is typically associated with cryptocurrencies, with one of the first significant implementations in bitcoin. Put simply, blockchain is a trusted decentralized electronic ledger of data transactions. New transactions can only be added to the block of data (the list of transactions) if every node (a participant in the blockchain) agrees on the information contained within that block of data. This reduces the chance of manipulating the data, leading to more secure methods of transferring goods throughout the supply chain.
There are many benefits that blockchain will bring to supply chain monitoring, but 4 stand out from the rest.
Shipping goods involves multiple parties, all of which have different priorities for the information that they capture related to these goods. This can lead to data discrepancies, and in some cases a lack of data entirely, which causes issues for logistics management. Having a standard set of data makes auditing distribution events far easier, and can happen in real-time.
Each transfer of product can be considered a contract between relevant parties. If the underlying foundation of transfers in the supply chain were based on blockchain, these contracts would have pre-determined terms: volume of product, temperature requirements, original destination, and more.
Standardization brings far greater insight into the entire supply chain, enabling companies to spend less time and effort on each transfer of product.
Each transfer requires documentation, validation, and monitoring before it can be added to the blockchain. A transfer cannot occur if the specified terms are not included in the transaction, simplifying regulatory compliance and ensuring that the contractual terms are met. As outlined by BCG, this ensures that all the “required information and approvals are at the right place at the right time.” Blockchain eases the burden of record-keeping for every step of the supply chain.
Blockchain’s foundation functions as a means to guarantee that reliable, tamper-proof information is permanently stored in the blockchain. This is a huge improvement over paper-based processes of reviewing supply chain transactions. In order for product to move down the supply chain, parties must agree to contractual terms, such as the volume of product or the original destination. This agreement helps to maintain data integrity from origin to destination.
Tracking information is stored in a secure ledger, ensuring reliable data. Different implementations can be built to be selectively accessible, allowing for involved parties to share trusted data they are authorized to share.
Traceability and tracking of specific assets throughout the supply chain is far simpler through digitized systems. Rummaging through stacks of paper wastes time and effort. By implementing blockchain in every step of the supply chain, tasks like finding the origin of certain products can take seconds, in addition to replacing paper processes with a digital system.
In order for blockchain to become a reality, a few major steps need to be taken.
First, data standardization is required to leverage the value of blockchain. A common set of industry-wide protocols are necessary to make the switch to complete digitized record-keeping. This standardization would need to be adopted by everyone involved in the supply chain, making it important for coordination to span across competitors and vendors. Consortiums, like the Blockchain in Transport Alliance (BiTA), are forming to help develop these standards.
Second, large scale adoption is needed for blockchain technology to be a feasible means of handling transactions in the supply chain. Blockchain does not make economic sense on smaller scales, and does not provide value when used in isolation. A large number of users is needed to leverage the inherent benefits of the blockchain model.
Finally, the actual framework to support blockchain technology is required prior to adoption. The standards that determine how blocks can be added to the chain need to be created in order for it to function.
Blockchain technology would have many benefits to the supply chain, from simplified record-keeping to more secure and transparent methods of transactional reporting. Its tamper-proof framework allows for reliable data storage, in addition to saving time and money on each and every transaction throughout the supply chain.
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