Ever wondered where you get the clothes you wear in your everyday life? Or here the food you eat or phone you use comes from? Well, besides the retail stores you go to, there is a whole chain of different codependent and interlinked elements working on delivering these products to you. This interconnected chain is called a Supply chain.
A network of people and businesses involved in making a distributing a particular product or service is called a Supply chain. Everyone all the way from the initial supplier of raw material to the end-users and customers makes up the supply chain. The most basic supply chain is made up of the supplier of raw materials, the manufacturers, the logistics companies, and the final retailers. The estimated count of employees in this industry is approximately 60 million people globally. Due to this, the current supply chain is plagued by inefficiency and a lack of transparency. Networks also face difficulties when trying to integrate all the parties involved in the supply chain. In an ideal situation, all the products, materials as well as money and data needed should move seamlessly throughout the stages of the chain. Unfortunately, the current model impacts the profitability of the companies negatively as it is difficult to maintain an efficient and consistent supply chain system.
Supply Chain Management
Supply chain management is the integrated planning and the execution of different processes. This basically involves information, material, and financial capital flow. Supply chain management is the management of the flow of goods, services, and information involving the storage and movement of raw materials, building products as well as full-fledged finished goods from one point to another. Within the Supply Chain Management network, a supply chain is a network of individual organizations, entities, resources, businesses as well as technologies that combine together in the manufacturing of a product of service. Proper implementation of supply chain management can result in many benefits such as an increase in revenue and sales, quality improvisation as well as decreased frauds and overhead costs. This will also lead to an acceleration in the production and distribution of products and services. Even though in theory this seems easy, the implementation of a supply chain is a tedious task, and applying the blockchain technology to this process is a way of changing the overall system.
Blockchain and Supply Chain
Blockchains are highly resistant to modification since they are distributed and decentralized networks and thus can suit the supply chain industry very well. A blockchain is a chain of blocks that consists of data which are linked using cryptographic techniques. This technique known as hashing ensures that the data stored cannot be altered or tampered with unless the entire network is in consensus.
The blockchain network thus provides a secure and reliable structure for conveying information and even though it is generally used for recording cryptocurrency transactions, blockchain technology can be used for securing all kinds of digital data. Blockchain can be applied to many of the challenges that the Supply Chain industry faces such as tracking of products of complicated record keeping. It is a better automated and less corruptible alternative to centralized databases. Applying blockchain to the supply chain industry can have the following benefits
Companies have a lot of elements in their supply chains due to which it becomes almost impossible to record and keep track of the information even for multinational corporations. The brand name also gets affected by the lack of transparency which leads to cost and consumer relations issues.
The blockchain-based supply management helps with record keeping and provenance tracking becomes easier as the product information can be accessed through the help of RFID tags and embedded sensors. With the help of blockchain technology, the product can be traced from its origin to its position in the present time. It is easier to detect fraud using this type of provenance tracking in any part of the supply chain.
Transparent and immutable records
As there are several companies and institutions working together, they may use the blockchain technology to record data about the location and ownership of materials and products. All members of the supply chain can see what’s going on as the resources move from one company to another. As all the information is on a blockchain network, no data can be altered, which ensures immutability, and hence there would be no question as to who the responsible party is if something went wrong.
The inefficiencies cause a lot of waste within the supply chain network especially in industries that deal with perishable goods. The improved data transparency and tracking help companies identify these wasteful areas and find cost-effective alternatives to these.
Applying blockchain technology also helps eliminate fees associated with funds passing into and out of various payment processes and bank accounts which helps on saving as these fees cut into profit margins.
With the help of blockchain technology, tracking a product real-time in the supply chain reduces the overall cost of moving items.
APQC and the Digital Supply Chain Institute (DSCI) conducted a survey of supply chain workers, according to which more than one-third of the people cited the reduction of costs as the topmost benefit of the application of blockchain in supply chain management.
When supply chains use blockchain to speed up administrative processes in supply chains, the extra costs occurring in the system are automatically reduced. They also ensure the security of transactions. Eliminating the middlemen and intermediaries also saves companies from the risk of fraud and product duplicity among other things.
Creating interoperable data
Not being able to integrate data across every partner is one of the most prominent problems within the current supply chain. Blockchains being a distributed system maintain a transparent and unique data repository. New data is contributed and verified by the integrity of each peer of the network, which means that all the information stored on a blockchain is accessible to all the parties involved and so one company can validate and verify what information is being broadcasted by another.
Electronic Data Interchange (EDI) systems are used by many companies to send business information to each other. But this data tends to go out in batches instead of real-time. Participants only get information on things such as a shipment getting lost of prices changing when the next batch of EDI goes out. With the use of blockchain technology, this information can be regularly updated and quickly distributed to all entities involved.
Digital agreements and document sharing
In a supply chain, a single version of the truth is important for any type of document sharing. These documents and contracts are associated with blockchain transactions and digital signatures, and all participants have access to the original version of the documents and agreements. As blockchain technology ensures immutability, organizations can spend less time going over paperwork and more time developing new products and promoting their business growth.
A few other benefits of adopting blockchain technology in the supply chain industry are:
- Eliminating or reducing fraud and errors
- Inventory management is improved
- Courier costs are minimized
- Paperwork delays are reduced
- Issues are identified faster
- Trust between partner and consumer is increased
The blockchain technology has a huge potential for the supply chain industry, there are still some limitations and challenges worth considering
Deploying new systems
Many systems are purpose-built for a particular organization’s supply chain and it may not be capable of adapting to a blockchain-based environment. Upper management may be hesitant to sign off on a blockchain-based investment as overhauling a company’s infrastructure and business processes is a significant undertaking and it could disrupt operations and take away resources from other projects.
Getting partners on-board
It is essential to get everyone involved in the supply chain to get on board with the blockchain technology but many times partners aren’t willing to do so. Full advantage of the process covered by the blockchain cannot be taken by organizations if there are holdouts from other partners. Also, many companies do not desire transparency.
Businesses have to promote the adoption of the blockchain-based system to their employees once it’s in place. A change management plan addresses what blockchain is, how to work with the new systems that include it and ways that it improves their job duties. The new features or innovations in blockchain can be addressed by an ongoing training program, but that requires time and resources.
Blockchain Use Cases
Blockchain technology has taken the role to be the problem solver of many of the industry’s problems. The application of blockchain technology can make a difference in many use cases within the supply chain such as the coffee industry or the automobile industry. Supply chains are extremely populated with a single shipment of goods having at least 20-25 people or organizations in the process and approximately 200 interactions between them which leads to a lengthy process.
The blockchain technology can assure provenance tracking and traceability across the supply chain. This, in turn, leads to fewer counterfeiters and ensured safety in the processes. The collection of data, a study of trends, and application of predictive monitoring process for better product experience is made easier by blockchain technology. One of the most prominent use cases of blockchain in the supply chain is the Food Supply Chain.
Food Supply Chain
It has become difficult for food producers, suppliers and retailers to ensure the provenance of the products due to the complexity of the food supply chain.
Some food safety issues include cross-contamination and foodborne illnesses which is made difficult by the lack of data and traceability makes to find the source of cross-contamination and root cause of food-borne illnesses. It can take from days or months to find the cause which leads to loss of revenues, an increased number of sick people, and wasted food.
Currently, only 12% of consumers trust brands that they purchase food from whereas 94% of consumers state that it is important for them to learn all about the products they buy. Consumers are now becoming aware and demanding transparency for the food they buy and consume.
Blockchain provides neutrality on the platform thus resolving the issues of a complex supply chain. Both the users and the operators of the system have to follow a set of rules to keep the system running as in a blockchain there are no third parties involved in the transaction authorization and everything works on the basis of a consensus. It brings huge advantages for all the actors in the food supply chain; for instance, food producers can ensure the originality and quality of their supplies by tracking the attempts of tampering as the food item moves in the supply chain. Another example is in case of identification of fraud, where the supplier will be intimidated and this notification can be sent to the retailer even before the food product reaches its destination. In the case of retailers, they can identify and remove damaged products rather than having to check the whole batch of supplies. The blockchain treats consumers with transparency and openness and they are given assurance for the food products that they consume.
The blockchain technology has widespread applications in the supply chain platforms and can help in streamlining the information sharing and movement of materials, transforming not just the supply lines but also the warehouses and accounting systems.
The transparent and immutable nature of its ledgers along with automated functions governing the procurement and movement of products would reduce the amount of human capital needed to be employed in these supply chains and thus reduce the inefficiencies that come with them.
With proper implementation of blockchain technology, companies can centralize their databases and automate the preparation and procurement of products thus making the processing time and capital efficient. Further, this also helps in reducing the paperwork that a supply chain company would have to process as now the work would be executed on code instead of clipboards.
However, for all of this to be implemented, what is required is the optimal use of supply chains along with automation technology and AI to make the optimal use of blockchains.