How Blockchain is Changing Supply Chain

an aerial view of a supply chain

When people hear of blockchain, Bitcoin or Ethereum are probably the first things that pop to mind. This is because blockchain was first applied to cryptocurrencies’ transactions and is widely identified with them.

Aside from finance, blockchain technology has numerous other applications across several processes and industries, ranging from process security and ensuring compliance between parties to a contract to visibly tracking complex variables.

The latter forms the basis for blockchain application to supply chain management — a practice that is rapidly changing how businesses and people in supply chain networks distribute products or services. To understand how well blockchain does this, we first must look at the problems clogging supply chain networks today.

Supply Chain Challenges

A supply chain is made of several entities such as producers, vendors, warehouses, distribution centers, transportation companies, and retailers coming together to distribute products to end-users.

Each entity handled its transactions and inventory recordings of activities passing through the network. While these processes protected a supply chain network, they also delayed delivery time and hiked the product’s price to end-users.

As such, current supply chain management (SCM) systems lack the efficiency and transparency needed to operate at an optimal level. On top of that, many large networks found it challenging to integrate all parties involved in a chain.

To summarize, supply chains today are hampered by:

Documentation Rigors

Creating or maintaining a typical supply chain contract can be quite complex given the paperwork involved, say change of ownership, bills of lading, payment terms, letters of credit, et Cetra.

Slow Tracking And Reporting

Currently, materials passing through a typical supply chain are tracked manually or through Electronic Data Interchange (EDI) systems. However, these methods report data in batches, which are too slow for modern businesses to rely on.

Zero Traceability

A lot of data can get missing from a supply chain without a way to trace or recover them if the network is poorly secured. Such chains are also prone to data attacks and even theft of physical materials as products move down the line. 

No Transparency

Since every company in today’s supply chains manages its own system and databases, most can be tight-lipped about them. It then becomes difficult to trust the records of other parties in the network or tell what data a party is sharing at any time.

Problem Of Counterfeits

Counterfeiting persists in today’s supply chains due to the lack of transparency. Worst still, the origins and exit points of these illegal products can be impossible to trace given the lack of information and customers suffering from substandard products flooding the market.

High Costs

Supply chain processes are costly due to the multiple middlemen (lawyers, payout partners, banks, and more) involved and payments for their services. When you add these to the cost of combating counterfeits and maintaining records, product prices rise significantly by the time they get to end-users.

How critical are these supply chain challenges to a business? One might ask. A survey of 779 business leaders revealed that 60% believed supply chain challenges posed a massive risk to their businesses.

Blockchain promises to solve these challenges by promoting transaction transparency, improving data security through tracking, and facilitating direct interaction among entities in a supply chain which significantly reduces data frictions. 

Let’s see how.

How Blockchain Provides Solutions To Supply Chain Challenges

Understand that blockchain is essentially a decentralized ledger used to record and protect transaction data among parties without the need for an intermediary 

In a supply chain blockchain, participants tokenized a variety of transaction-related data passed down the chain, such as price, date, location, quality, certification, and other relevant information. They do this using their unique digital signature. This creates unique and readily verifiable identifiers for any supply chain purchase orders, inventory units, bills of lading, etc. 

The physical materials or products involved in the supply chain are linked to bar codes, serial numbers, or radio-frequency identification (RFID) tags and stored on the blockchain. Their quantities, conditions, and transfer are tracked and recorded as they pass through the chain.

Details of every transaction happening within the chain are recorded in cryptographically secure computer files called “blocks”. Every participant maintains a copy of the records, which are automatically updated when a new block is added. Since new blocks must be verified consensually among parties and blocks are linked together, the supply chain records cannot be tampered with.

If a company wants to manipulate its own records, it would have to make the same changes to its previous records and those of the other companies in the supply chain. These procedures guarantee supply chain security, ensure compliance among different parties, aid traceability of materials from source to final delivery, lower the risk of counterfeits, and reduce overall costs.

Benefits Of Blockchain To Supply Chains

The many parties and rigorous processes involved in global supply chain networks make them less trustworthy, slow, and behind market expectations. Blockchain improves these and many more aspects of a traditional supply chain:

Replacing Manual Processes

Many supply chains are operated manually, thereby slowing down processes. While Electronic Data Interchange (EDI) systems are employed to digitize things, data is usually sent in batches rather than in real-time. Blockchain not only provides an end-to-end digital flow that delivers new levels of efficiency and transparency to the supply chain, but it also enables the sharing of data in real-time for immediate actions.

Data Immutability And Transparency

Supply chain data stored on a blockchain cannot be altered, and any entity in the network can view the origin of any record. This makes it easy to pinpoint the responsible entity if something goes wrong during the movement of materials or during payments. Such data security and supply chain visibility also protect the network from malicious intents by either internal or external parties.

Cost Reduction

Blockchain reduces the cost of moving items by tracking materials in real-time within the supply chain and encouraging direct crypto payments between parties without the involvement of middlemen. Through improved tracking and data transparency, blockchain helps prevent wastage, especially within supply chains for perishable goods. 

Data Interoperability And Trust-Building

Since parties in a blockchain-powered supply chain contribute to adding new data and have access to stored information, they can easily verify what information is being shared by other parties at any time. This creates trust among parties in a supply chain and can improve business relationships.

Access To Other Blockchain-Related Functionalities 

Once a supply chain integrates blockchain, the parties involved automatically gain access to integrate other blockchain-compatible technologies such as cryptocurrency, process automation, radio-frequency identification (RFID), the internet of things (IoT), and others. These help businesses stay innovative and improve efficiency.

Use Cases Of Blockchain Supply Chain

While businesses using blockchain in supply chains are still few, there is a growing number of adoption by companies across several sectors:

Food Supply Chain Traceability

Food companies are faced with many food safety issues that can be difficult to trace or contain within their supply chain. These usually result in food companies taking slow action against a food safety threat which can damage their reputation or lead to wastage. 

Blockchain within a food supply chain ensures data is tracked efficiently for transparency and prompt actions. Companies like Unilever, Nestle, and Walmart rely on blockchain to reduce the time it takes to identify and remove food poisons from their supply chains.

Walmart, in particular, uses IBM’s blockchain-based Food Trust to track its materials and product at every step of the chain. An early example of this is how they could track the provenance and condition of pork products coming from China by allying blockchain to the Internet of Things (IoT) sensors on these pork products. Through the IoT sensors, Walmart’s blockchain database recorded the temperature, humidity, and other environmental metrics of pork products while they were in transit.

Facilitating Supply Chain Payments

Blockchain around the supply chains of financial solutions can increase the efficiency of processing payments, secure transactions, and provide accounting transparency. 

For instance, invoice payment terms within supply chains are usually 30 days or longer, given the size of the chain. But with blockchain-based smart contracts, payments can be configured to be made as soon as materials or products are delivered at each stage of the chain – simplifying and shortening the process.

This is exactly what Project Proton — a blockchain pilot by PepsiCo — did to boost the company’s supply chain payments efficiency by 28%.

The project used smart contracts to automate elements of PepsiCo’s programmatic ads supply chain, allowing rapid reconciliation of ad impressions from numerous data sources and facilitating payments to participants within the chain faster and in real-time through digital tokens.

Logistics Tracking

Logistics supply chains are usually plagued with go-betweens existing among partners within the network. By making it possible for logistics transactions to be coordinated, verified, and recorded autonomously, blockchain removes the need for third parties, making it easy for partners to interact directly with little to no data friction.

This is seen in the case of Walmart and DL Freight, where the formal uses DL Freight supply chain invoice and payment platform to automate transactions for over 500,000 shipments annually. Because both companies rely on blockchain, it is easy to track shipment transactions with an audit trail to backup data—this reduced shipment discrepancies between both parties by 97 percent.

Mining Security

Businesses engaged in material mining, especially diamond supply chain networks, are fast adopting blockchain technology because it guarantees strong material and data security within their supply chains. 

De Beers, a London-based diamond giant, uses blockchain technology to track stones from where they’re mined up to when they are sold to customers. With this, the company avoids product counterfeiting, distribution, and ownership conflicts and reassures their customers of their purchases.

Also, Australian-British mining giant BHP uses the technology to verify suppliers in their supply chain. Through this, they ensure strict adherence to the social, environmental, and governance conditions required of their business.

In Manufacturing 

Blockchain has a variety of uses in product manufacturing — from tracking materials to facilitating payments and more.

GreenTrack is a blockchain platform created by South African paper company Sappi and Indian fabric producer Birla Cellulose to track fabric products from sustainable forests through production. Since its launch, the platform has drastically reduced data frictions in manufacturing and even retail supply chains and has been adopted by more than 250 supply chain partners worldwide.

The American software company, Bext360 uses blockchain technology to better track all elements of the coffee trade — from cocoa farmers to coffee consumers. The company’s blockchain application also powers cryptocurrency payments which are used to make payments directly and promptly to partners within any coffee supply chain.

Barriers To Mass Adoption Of Blockchain In Supply Chain Management

Despite the benefits and successful implementations of blockchain in many businesses’ supply chains, several barriers hinder the technology from being fully adopted the globally:

Technology Barriers

Blockchain is still an evolving technology and can be difficult to scale because of continuous data updates. Not all parties to a supply chain might have the resources to incorporate or maintain blockchain technology within their systems.

Getting All Parties Involved

It’s one thing for one entity in a supply chain to adopt blockchain and another thing to get all other entities in the chain to follow suit. Not all companies are comfortable sharing data or are willing to be transparent about their transactions. As such, full-scale blockchain adoption in an entire supply chain might not be achievable.

Difficulty Integrating New Systems

An organization may find it impossible to fit new systems that are purpose-built for its supply chain into an already existing blockchain environment. In most cases, overhauling the company’s entire infrastructure may be the only viable solution which might be an impossible task. Hence, some organizations may be unwilling to agree to a blockchain-based supply chain with business partners. 

Collusion Between Partners

While blockchain data is irrefutable and visible to all, it’s all digital. When physical reality conflicts with digital records (for example, records showing that materials were delivered in good shape while, in reality, it was damaged at the last minute), partners might disagree over reconciliations or payments. 

What Next For Blockchain Supply Chains?

Blockchain can transform any supply chain system in many ways, from sourcing raw materials to production, logistics, accounting, and delivery to final consumers — irrespective of industry.

Therefore, it’s no surprise why several prominent players in the supply chain industry are integrating blockchain into their systems and setting up resources to use them. More supply chain platforms would likely adopt this distributed system to further streamline the way businesses move products and materials.

Beyond supply chain benefits, blockchain itself is still an evolving technology, with newer ways of utilizing it emerging every day. That alone makes it an incredible asset to any business investing in it today as they stand to gain more than their intended supply chain advantages in the long run. 

Blockchain prepares and opens up a world of opportunities for businesses in the coming age of decentralized finance (DeFi) and Web 3 by exploring other related technologies such as cryptocurrencies, smart contracts, and more.

A world where global supply chains are backed by blockchain is not far-fetched. When that happens, businesses can share information faster and more efficiently than ever before. The result would simply be superior products, enhanced by data-sharing, and better quality of life for everyday consumers.

ReSource Network, Supply Chains, and The Blockchain

Blockchain can greatly improve supply chains by enabling faster and more cost-efficient delivery of products, enhancing products’ traceability, improving coordination between partners, and aiding access to financing.

One company utilizing that is ReSource. It has built a system that allows businesses to obtain credit for their social reputation by over-drafting their account on the platform. That credit provided can then be used to purchase products or services from another business on the platform. That aids procurement and the supply chain because such a business could use the credit to purchase raw materials and other needed products or services from another business on the platform with the transaction being recorded on the blockchain.

What more? The credit provided is interest-free. To pay back, the business only has to sell their service or product to other users until their account is rebalanced to zero.

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