How to Use Blockchain for the Supply Chain?

Basics

Inefficient and non-transparent, the current supply chain management system is struggling to integrate all its stakeholders, from initial suppliers to final retailers, and is therefore not operating at its optimal level. This model involves suppliers, manufacturers, logistics companies, and retailers, all of whom need to move goods, money, and data seamlessly throughout the chain. Unfortunately, inconsistencies and inefficiencies in the system negatively impact both the companies' profits and the final retail price.

However, blockchain technology offers a promising solution to address some of the supply chain's most pressing issues. With its innovative approach to recording, transmitting, and sharing data, blockchain can improve efficiency and transparency in the supply chain management system.

The Benefits of Using Blockchain for the Supply Chain

The distributed nature of blockchain technology makes it ideal for use in supply chain networks due to its strong resistance to modification. It comprises a series of data blocks that use cryptographic techniques to ensure the information stored within them cannot be altered or tampered with unless the entire network agrees.

Incorporating blockchain into the supply chain network provides a secure and dependable architecture for transferring information. While typically used to record cryptocurrency transactions, blockchain technology is also highly valuable for securing various forms of digital data. Implementing this technology within the supply chain network can bring many advantages.

Transparent and Immutable Records

In a collaborative effort, multiple companies and institutions may utilize a blockchain system to record the whereabouts and ownership of their materials and products. This allows all members of the supply chain to monitor the movement of resources as they pass from one company to another. As the data records within the blockchain are immutable, there is no room for manipulation or alteration, making it easy to determine who is accountable if any issues arise.

Cutting Costs

Inefficient supply chain networks result in significant amounts of waste, particularly in industries where goods have a limited shelf life. However, by introducing better tracking and data transparency, companies can identify areas of waste and take measures to reduce costs.

Furthermore, the use of blockchain technology can eliminate fees related to funds passing through various bank accounts and payment processors. These fees can significantly impact profit margins, making it advantageous to remove them from the equation.

Creating Interoperable Data

The inability to integrate data across every partner in the supply chain is a considerable challenge faced by the current system. Blockchains, on the other hand, operate as distributed systems that retain a transparent data repository. Every node within the network contributes to adding new data while ensuring its integrity.

As a result, all the data stored on the blockchain is available to every party involved, allowing companies to verify the information provided by one another with ease.

Replacing EDI

Electronic Data Interchange (EDI) systems are used by several companies to share business information. However, this data is often transmitted in batches instead of in real-time. In case of a missing shipment or rapid price changes, other participants in the supply chain would only be informed after the next EDI batch is sent out.

On the other hand, blockchain technology updates the information regularly and ensures swift distribution to all involved entities.

Digital Agreements and Document Sharing

A transparent and unambiguous record is crucial for supply chain document sharing. Blockchain transactions and digital signatures can be linked to the necessary documentation and contracts, providing all parties with access to the original version of the agreements and documents. The immutability of the blockchain guarantees that the agreements can only be changed if all involved parties reach a consensus. This approach minimizes the time companies spend on paperwork or negotiations and frees up time for new product development or business expansion.

The Problems of Such a Solution

The application of blockchain technology in the supply chain industry is promising, but some considerations present challenges and limitations.

Adapting Existing Systems

Many purpose-built systems that are currently used in the supply chain industry may not be compatible with blockchain technology. Therefore, implementing blockchain technology requires companies to overhaul their infrastructure and business processes, which can be a significant undertaking. This could cause operational disruptions and redirect resources from other projects. Consequently, senior management may hesitate to invest in this technology until they see widespread adoption by other major players in the industry.

Partner Participation

Incorporating blockchain technology in the supply chain also requires the participation of all parties involved. Although organizations can still benefit from the partial implementation of blockchain, they cannot fully leverage its advantages if there are holdouts. Furthermore, transparency may not be desirable to all companies.

Change Management

When implementing a blockchain-based system, businesses must promote its adoption to their employees. A comprehensive change management plan should educate employees on what the blockchain is, how it improves their job functions, and how to work with the new systems. An ongoing training program can help employees adjust to new features or innovations in blockchain technology, but this requires considerable time and resources.

What’s Next?

The application of blockchain technology in supply chain management is becoming increasingly popular among large players in the industry, who are investing in resources to promote its use. The potential benefits of this technology can be felt throughout the supply chain, from production and processing to logistics and accountability. With blockchain, each transaction can be registered and verified, creating transparent and immutable records. This could lead to a significant reduction in inefficiencies that plague traditional management models. It is expected that global supply chain platforms will increasingly rely on blockchain technology to streamline information sharing as products and materials move around.

Conclusion

The implementation of blockchain technology in the supply chain industry offers many advantages, including transparency, cost reduction, data interoperability, and secure document sharing. However, there are also challenges to overcome, such as system adaptation, partner participation, and change management. Despite these challenges, major players in the industry are investing in this technology, and it is expected to become increasingly popular in the future.