“Supply Chain Blockchain – Gaining a real-time digital ledger of movements and transactions for all stakeholders in the supply chain network”
The management of the supply chain has become complicated today. It takes days and sometimes even weeks to process the payment between a customer and a vendor, or a supplier and a manufacturer. Also, the contracts are managed by bankers and lawyers, which add extra costs and lead to delays.
It is quite difficult to trace back to suppliers of products which can make it challenging to eliminate the defects in the system. The need for more transparency and traceability creates the interest in the application of blockchain to supply chains.
With the ability to offer transparency and traceability, the blockchain can tackle perennial issues which compromise the effectiveness of supply chain.
Let’s discuss what is broken in the supply chain industry and how attributes of blockchain can help to bring transformation.
Challenges in Supply Chain
Hundred years back, supply chain was not complicated as the commerce was simple, but now the businesses have widened globally.
In the past, the businesses were restricted to the local regions. People used to run a small business and sell homemade items locally to earn money. As a result, the commerce was quite transparent and fair.
But with the significant growth in businesses, it has become complicated to truly know the value of product due to lack of transparency in the system.
Have you ever thought that where did the clothes you wear in day-to-day life come from? Consider the case of the clothing supply chain for instance.
The textiles, apparel and clothing industries involve a lot of labors to meet the growing demands. The supply chain in the clothing industry works as a back end of the industry.
The supply chain in the clothing industry is defined by connecting
- Raw material origins
- Factories that use raw materials to create the end products
- Distribution network to deliver the clothes to customers
Since the clothing supply chain comprises millions of people from all over the world along with tonnes of chemicals, threads, oil and crops, it becomes difficult for manufacturers to explore where the different components of the products belong to. The demand for high volume and increased speed has compromised the ethics of supply chain.
Likewise, there are many other industries where the supply chain is affected regarding the tracking of products and complicated record keeping.
Here are some of the challenges that demand the significant transformation:
Lack of Traceability
Product’s traceability offers an accurate picture of where the products are at a particular time in the supply chain.
Presently, every stakeholder within the supply network maintains their own databases and systems, it becomes difficult to perform predictive monitoring and find what was done at different stages of the production.
Since supply chain management involves various stakeholders like regulators and lawyers, it adds high costs to the entire management system. Also, the stakeholders hold certain commission fees out of the total amount.
The Organization for Economic Cooperation and Development has found that the pirated and counterfeit imports account for approximately a half trillion dollars per year in the global economy.
The counterfeited products hardly meet the industrial quality standards and there is no validation of the country of manufacturing or origin. It could have an impact on the costs and even safety. For example, if the drugs or food items get counterfeited, it can affect several lives.
Regulatory Compliances and Documentation
The contracts in a supply chain process can be complicated due to change of ownership, bills of lading, complicated payment terms, pro-for-mas and letters of credit. Also, the cumbersome and lengthy documents are often written which are challenging to execute and modify.
Lack of trust
No doubt that the internet has transformed our daily lives, there are certain constraints and unnecessary costs in how and where the products are manufactured and delivered. People always have concern if the product they get is real or fake. The current supply chain process has trust issues as there is no information about the origin and parties involved.
How can Blockchain overcome the problems in the Supply Chain Industry?
Since blockchain allows to track all types of transactions in a secure and transparent way, it offers a lot of possibilities across the entire supply chain.
Every time a product changes hands in the supply chain, the transaction can be recorded on the blockchain to create the history of an item, from the manufacturing to sale. Implementing supply chain blockchain could reduce additional costs, human errors and time delays.
By enabling transparency across the involved parties in the supply chain blockchain, the blockchain establishes the trust level which has been challenging for the last many years.
With Supply Chain blockchain, you know who you are trading with, where the product has been originated from, who refined it and if the payment is fair or not.
The distributed ledger can provide the opportunity to change the way the industries and companies operate the supply chains.
Here’s how blockchain can be applied to some of the challenges in Supply Chain Management
- Tracking Provenance It sounds strange, but many multinational companies do not have the full backstories of the products in the supply chains.
The lack of traceability of products leads to high costs and public relations issues which can affect the brand’s reputation.
In a blockchain-based supply chain management, provenance tracking, record keeping and data sharing become quite easy because the transactions saved on the blockchain can neither be altered or deleted. Therefore, it is possible to trace the history of any product from its origination to where it is delivered through the blockchain supply chain.
Such type of traceability is beneficial in detecting and resolving frauds in the supply chain process.
- Building Trust
It is essential for the parties involved in the supply chain to trust each other. For instance, a manufacturer has to depend on the suppliers to adhere to the factory’s safety standards and tell everything about the utilization of raw materials or sources.
When blockchain is implemented in the supply chains, it becomes easier to build trust.
The immutable nature of the blockchain prevents the supply chain ecosystem from tampering while the consensus mechanism to validate every new transaction.
- Cost Reduction
Since blockchain enables real-time tracking of a product in the supply chain, the cost of moving items in the supply chain can be dramatically reduced. The survey of supply chain workers carried out by the Digital Supply Chain Institute and APQC said that more than one-third of individuals quoted the cost reduction as the most significant benefit of blockchain in supply chain management.
The elimination of intermediaries from the supply chain process reduces the extra costs, prevents frauds or counterfeits and eliminates the chances of product duplicacy.
Also, payments can be processed directly between the involved parties with cryptocurrencies rather than depending on the centralized systems.
- Reducing the complexities
Smart contracts are intended to fix issues related to complicated contracts. Every time a transaction occurs in the system, smart contracts automatically execute actions like payments, sending alerts, transfer of ownership, access to information or other actions that do not require an intermediary.
Because smart contracts are code-based, the rules can be changed easily by deploying a new mutually-agreed contract whenever required.
The smart contract approach to the supply chain ecosystem not only reduces the contract complications but also offers flexibility to support new business models.
Now, we shall discuss how supply chain blockchain can be implemented in the different industries.
Supply Chain Blockchain Use Cases
As the supply chain is one of the most populated industries, it holds certain use cases where blockchain technology can be applied efficiently. A shipment of goods can involve at least 15-20 individuals or organizations in the supply chain, which may lead to approximate 200 interactions between all the parties and hence, it is a lengthy process.
1. Food Verification
Whether it is a vegetable or any other food item, everyone wants to know if it is safe to eat or not. Currently, the food supply chain involves tedious processes such as manual recordkeeping which is prone to human errors.
Data recorded at every step on the supply chain blockchain can bring transparency by making it accessible to everyone within the network. Also, in the case of food investigation or recall, the blockchain-enabled food supply chain platform can be performed without hassles as it offers end-to-end traceability.
2. Drugs and Pharmaceuticals
Pharmaceuticals are to be kept in a specific temperature zone. Being shipped from manufacturer’s factory to warehouse, there is a need to store the drugs within a particular temperature range. Using the blockchain, it can be possible to trigger an alert if the temperature gets high or low.
Temperature sensors can send the collected information about the temperature to the blockchain where it is kept securely and permanently. Also, the Supply chain blockchain system can reduce the possibilities of frauds with its transparency feature. The immutability of the blockchain is a basis for traceability of pharmaceuticals and drugs from manufacturer to the consumer, making it possible to identify the issues in the supply chain.
Ensuring provenance across the entire supply chain can reduce the appearance of counterfeit automotive parts. By allowing all parties to trace the whole chain, blockchain ensures that the part delivered is actually the part that was shipped by the supplier.
Since the recall process for automotive parts is inefficient nowadays, blockchain can help it make seamless and efficient with the help of smart contracts. For example, if a supplier identifies a fault in any part, the contracts can be triggered to notify the involved stakeholders when a record of the flaw is recorded on the blockchain.
To add greater transparency and efficiency across the supply chain with the Blockchain, contact us and our blockchain experts are here to help you.