Supply Chain & Blockchain – Beyond the Hype

  • Blockchain is no snake oil when it comes to what it can do for the supply chain management. Many of the existing flaws in supply chains could be easily overcome through the use of this technology.
  • Blockchain is setting the foundations for the major changes in the industry. Some of the companies on the market already recognize its potential.
  • Blockchain is a gamechanger worthy of being mentioned alongside artificial intelligence, machine learning, and IoT.

Supply chain management has become extremely complex today. Creating stable links throughout the entire process can be extremely complicated. Part of the reason for this is that, depending on what products are involved, a supply chain can consist of any number of different stages. These potentially include several geographical locations, multitudes of invoices and other paperwork. And last but not least -the involvement of any number of different parties. Not only that, but timing is crucial during all these steps. It’s something that often gets mismanaged or outright wasted for a lot of different reasons. Next time you are at the supermarket, for example, just imagine the entire journey that the products took to get to you. How many different locations, actors, and complications were involved just to get those apples from the tree to those shelves?

Supply chain and blockchain

Simply put, the supply chain is an end-to-end system that creates products and services and delivers them to the customer. Every supply chain involves raw materials, the procurement of these resources, their transformation into a product to be sold, and finally their distribution to either retailers or individual customers. But even then the supply chain is not complete, because it does not only move in one direction—a customer can also return a product if he or she is not satisfied with it. A customer can also reintroduce a product back into the chain by reselling it or by recycling it.

If this all sounds simple, it very often is not. For example, so many factors are at play in the stages of order fulfillment and product distribution that it is hard for supply chain managers to keep close track of every little detail. Supply chain management, therefore, must include carefully integrated planning in order to successfully execute all the different processes within the supply chain. Without a supply chain that is well-organized and efficient, the flow of materials, information, and financial capital might be disturbed in a way that harms your business.

Potential problems

Another problem that plagues supply chain management today is that your company has to trust a variety of other companies involved in your supply chain, and it is not a given that all these actors are being as careful—or as honest—as they should be. Additionally, supply chain managers also face issues of ever-increasing and unanticipated costs. Finally, globalization might be the most complicating factor here. It has been slowly changing the complexion of the entire industry.

Many people are finding that it is possible for all the above problems to be solved through the smart use of blockchain technology. A blockchain is a time-stamped series of immutable records of data that is managed by a cluster of computers not owned by any single entity. Blockchain has three main advantages: decentralization, immutable data, and transparency. It can reduce unnecessary costs and the number of human mistakes, as well as improve trust between all parties involved. Time delays are also a thing of the past with blockchain because of immutable and real-time data. Blockchain can also help supply chain managers make full use of what is called smart contracts.

Decentralization

Data decentralization is the first postulate of blockchain technology. What this means is that all data stored in a blockchain is not owned by one centralized entity—it is shared by everyone in the blockchain network. Today the problem with supply chains is that all entities create their own silos of data. When this is the case, there is no way for the individual entities to confirm whether the data they have from other entities is accurate or authentic. With blockchain data decentralization, however, supply quantity records, purchase histories, and product certification and safety records can be tracked and trusted by all entities taking part in the supply chain.

Better transparency & Immutability

The reason that the decentralization of blockchain secures your data is that it makes your data immutable. Immutable data is data that can’t be tampered with or manipulated in any way, even if other parties in the supply chain have access to it. This means accurate recording of the entire product journey from beginning to end for everyone involved. It is the best of both worlds: protected yet transparent. This is a great tool for shielding your company from what were once inevitable errors. Even for protecting you from fraud or theft.

We live in an age where data breaches are a reality, after all. Blockchain technology can also make sure that a person’s identity is hidden via complex cryptography. It shows only their public address. For example, blockchain can ensure that a member of your supply chain never sees the personal identity of one of your customers. Yet, it is still allowing them access to that customer’s transaction data. So it is good for the customer as well.

Smart contracts and procurement

A supply chain is composed of different procurement processes which are often long, convoluted, and inefficient. Procurement begins with a procurement contract which enumerates any terms and limitations to which the parties involved will adhere. Afterward, potential contractors bid to provide or receive the goods or services stipulated in the contract. Once all this is settled and the procurement contract is executed, the supply chain is finally set in motion. Blockchain can revolutionize these complicated contract drafting and bidding processes by almost entirely automating them with smart contracts.

A smart contract is a digital contract that self-executes when predetermined conditions are met that is stored via blockchain technology. All in order to ensure security and transparency for all involved. By predefining all rules and penalties for everyone participating, it is automatically executed when the appropriate conditions are met. Most importantly – it is impermeable to data manipulation. Smart contracts guarantee more accuracy, trust, speed, and security.

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