What is blockchain in the supply chain?
Blockchain technology significantly affects supply chains, providing a more secure and comprehensive way to track transactions. Through a distributed, cross-linked ledger, companies can monitor a product's history from its origin to its current location, securely documenting each iteration from manufacturing to sale.
With this disruptive technology, parties can operate on a shared platform, reducing delays, added costs, and human error associated with transactions. Organizations can quickly identify sources of fraud and prevent data breaches by eliminating intermediaries and maintaining thorough records. Overall, the blockchain's shared ledger ensures a reliable and tamper-proof audit trail of inventory data and financial information within a supply chain. In this way, organizations synchronize logistics, monitor shipments, and automate settlements by sharing only relevant data without significantly modifying their current systems.
Blockchain Use Cases in Supply Chain
In a blockchain network, supply chain transactions are initiated by authorized participants or smart contracts triggered by a predefined event. For supply chain security, permissioned blockchains are often used, which only allow members with special rights to validate data.
Blockchain data is stored chronologically in time-stamped blocks after validation and encryption using a hash function. As a result, a distributed ledger provides a trusted source of truth to monitor supply chain activities and authenticate inventory sources.
Supply chain traceability and transparency
Transparency and better control of supply chain operations can be achieved through end-to-end visibility of all supply-related data and transactions. In addition, traceability facilitates the quick and collaborative resolution of operational issues, such as supplier information, procurement, and delivery of goods. For example, a distributed ledger technology (DLT) is a decentralized database in which transactions and data are recorded across multiple nodes, ensuring data immutability and security.
Stock management
Blockchain makes it possible to record and track data related to the movement of inventory between multiple facilities and the monitoring of stock availability in different locations. This, in turn, encourages streamlined inventory control and ensures timely replenishment by identifying problems instantly and making appropriate adjustments accordingly. For example, blockchain oracles are third-party data providers that supply real-world information to blockchain networks, allowing smart contracts to interact with off-chain data sources and trigger their execution based on real-world events.
Risk Management
Thanks to blockchain capabilities, a supplier's interaction history, performance information, and documentation (including accreditations and certificates) are recorded and monitored to ensure responsible sourcing practices and mitigate legal and commercial risks. The result is strong and resilient supply chains, immune to fluctuations in stock levels and delivery conditions.
Financial management
Managing the movement of goods, prices, and payments between different contractors, suppliers, intermediaries, and third-party services in supply chains can be complicated. Traditional bill payment deadlines can take weeks or months, while with blockchain-based smart contracts, payments can be made instantly.
The transparent nature of blockchain technology can help create a payment system that can be accessed by all parties to blockchain traceability in the supply chain, eliminating digital fraud or human error. Additionally, blockchain-based cryptocurrencies allow supply chain players to make payments without relying on banks, reducing fees and speeding up transactions.
Document Management
Blockchain offers a similar guarantee for document flows within companies. All documents entering and leaving the organization can be validated and verified using distributed networks, either anonymously or on a delimited private network.
In a blockchain-based file system, each document is assigned a unique digital fingerprint (an identifier generated by algorithms) that allows users to identify and track its location, origin, and modification history. Only authorized members can access the information, which ensures maximum transparency in document processes and facilitates approvals in work processes. In addition, the blockchain-based system eliminates the classic problem of duplicate files by automatically recording any changes made to a document.
Logistics management
Using immutable documents as proof of the transfer of responsibility for goods, automated archiving of electronic documents, and tracking of location and storage conditions during transit, blockchain can streamline administrative procedures, improve transportation times, and meet logistics requirements.
Examples of Blockchain in the Supply Chain Industry
Blockchain technology has emerged as a promising solution to address challenges faced by the supply chain industry, such as transparency, traceability, and security. By using a decentralized, immutable, and transparent ledger, blockchain can create a network of shared and trusted information among all participants in the supply chain. This can enable better collaboration, real-time tracking, and efficient management of the entire supply chain process.
Blockchain in logistics
Blockchain technology makes it easier for all stakeholders in the supply chain to track goods, including the location of containers and the status of customs documents. This technology offers secure data exchange and tamper-proof storage of essential documentation, such as bills of lading. For example, Maersk, a leading Danish shipping company, and IBM have collaborated to develop a global blockchain-based system that digitizes logistics workflows and enables end-to-end shipment tracking, resulting in greater ocean freight efficiency.
Blockchain in retail
Walmart, an American multi-dimensional retail company, has improved supply chain transparency and provenance tracking using blockchain technology. Using a decentralized database, Walmart can identify the source of foodborne illness and contamination, ensuring optimal food control, traceability, and safety. With blockchain technology, Walmart can ensure product quality, save money, and promote accountability by quickly detecting and discarding affected foods before they reach the consumer.
In addition, Walmart allows customers to scan products in-store and get immediate information about their origin and logistics processes from source to point of sale.
Blockchain in Transportation
With the growing demand for fast delivery services, traditional tracking technologies may no longer be enough. With blockchain technology, transport and delivery companies can track and verify orders more efficiently, improving the quality of their services. Innovative blockchain-based platforms allow businesses to manage their documents and information on a distributed ledger, thereby reducing paperwork and improving data flow and communication. Additionally, in the transportation sector, blockchain serves as a reliable tool for verifying data and aiding in the tracking of truck routes, fleets, traffic incidents, and other associated operations.
Blockchain in manufacturing
The transparency inherent in blockchain builds trust among stakeholders throughout the entire manufacturing process, including purchasing, shop floor operations, distributors, and customers. Contract drafting and execution, supply chain tracking, counterfeit detection, intellectual property management, asset tracking and control, inventory management, regulatory compliance, and quality control can all be optimized thanks to decentralized technologies.
Blockchain can streamline various business processes, increasing a company's potential time to market. As a result, supplier order accuracy, product quality, and delivery rates can improve, ultimately leading to increased customer satisfaction and increased revenue.
Blockchain in agriculture
Blockchain technology makes it possible to monitor various aspects of plants, such as seed quality, crop growth, and post-farm journey. This information fosters supply chain transparency, mitigating issues of illegal or unethical production. In addition, it helps identify the source of contamination or problems during recalls, with an emphasis on sustainability and food safety. Providing consumers with access to this level of transparency allows them to make informed decisions when purchasing food.
An example of an initiative in this regard is AgriLedger, a social enterprise based in the United Kingdom. It aims to help farmers trace the origin of their food, obtain better financing and store data on transactions.
Blockchain in Energy
Although wholesale power distribution is a common application for many businesses, not all energy companies prioritize it. According to the Blockchain In Energy report published by Wood Mackenzie, 59% of blockchain-powered energy projects focus on creating peer-to-peer energy markets. These markets are made up of shared networks of people who trade excess energy with each other, thus reducing the influence of central authorities such as wholesale entities. Most energy companies employ enterprise versions of Ethereum to build their trading platforms, using Ethereum, Truffle tools, and Gnosis digital wallets. The costs of renewable energy will equal or exceed those of traditional retail energy as more countries reach energy parity. Consequently, power producers can exchange their energy with their peers and neighbours. For example, an Australian company, Power Ledger, has formed "microgrids" connecting communities, which act as interconnected loads and distributed energy resources. The national grid is currently layered with microgrids, but several blockchain energy companies envision a future with more extensive and fully decentralized peer-to-peer networks.
Blockchain in oil and gas
With blockchain capabilities, oil and gas companies can anticipate a reduction in the expenses associated with maintaining numerous trading systems. In addition, labor costs are minimized, data management and visibility are improved, settlement processes are streamlined, and communication between systems is improved.BTL Group, a notable blockchain company, recently conducted a pilot project with industrial giants such as ENI, BP, and Wien Energie, demonstrating the advantages of blockchain technology in facilitating and monitoring gas transactions and subsequently reducing overall costs by 30-40%. Instead of creating a system for each commodity, the novel solution allows new commodities to be seamlessly integrated by reprogramming the original smart contract.
How blockchain improves supply chain management
Blockchain technology has the potential to significantly improve supply chain management due to its disruptive capabilities. Its highly reliable, transparent, and tamper-proof features can improve connections between raw material suppliers, manufacturers, distributors, wholesalers, and retailers, resulting in various advantages described below.
Traceability
Due to its interconnectedness and the comprehensiveness of its actions, blockchain makes it easy to map and visualize supply chain steps. This improves the blockchain traceability platform of each element, such as monitoring supplier data, procurement, deliveries, etc.
Transparency
Blockchain helps establish trust among supply chain participants by providing transparent access to the critical data points it captures, thus instilling trust in business transactions without intermediaries.
Velocity
Smart contracts on the blockchain are sections of code in a single block that automatically update actions when specific conditions are met. This capability replaces slow, manual processes that require repetitive and time-consuming confirmations.
Immutability
A blockchain is a distributed ledger with multiple copies, so altering one copy at a time is nearly impossible. This makes the use of innovative technology highly reliable and resistant to fraud.
Consensus
Transactions in a supply chain management must succeed each other if all parties agree. Blockchain is advantageous in ensuring and maintaining consensus on the process, as all users understand that transactions are automated and verified.