Blockchain is one of the key innovative technologies revolutionizing digital supply chain management. As supply chains grow more complex in nature, involve diverse stakeholders, and mainly rely on a number of external intermediaries, blockchain emerged as a strong contender for de-tangling all the data/documents/communication exchanges happening within the supply chain ecosystem.
In the following blog post, we’ll discuss Top 5 most important areas of supply chain management that can be improved with blockchain.
Viability of Blockchain for Supply Chain
Before moving on to the core topic of our discussion, let us recall the four most distinctive features of blockchain that make it highly applicable for the supply chain managers:
Transparent and controlled transactions. Blockchain has no intermediary (e.g., a bank). It results in faster and more transparent settlements, as the ledger is updated automatically. Payment conditions can be pre-programmed automatically, including the visibility of a transaction, so that it can only be visible to the authorized participants.
Preapproved transaction fees. When making cross-border payments with Swift, the commission for the transaction is deducted only after the transaction completion — or, to be more exact, upon running through a whole number of the intermediary banks, which have been executing this transaction. In case of blockchain, you know the fees beforehand.
Auditability. All the transactions are immediately visible to authorized parties, meaning no one can tamper, delete or conceal any information added to the blockchain.
Reliable. Due to its distributed nature, blockchain does not have a single point of failure. Besides, all the transactions processed on the blockchain are immutable and irrevocable, further eliminating the risks of fraud.
While blockchain supply chain use cases are still emerging, a number of successful pilots suggest that managers can realize big benefits from blockchain, ranging from cost-savings and increased efficiencies to new operational models, specifically in the following areas of supply chain management:
Provenance and traceability
Digital payments and contracts
Blockchain can act as a “single source of truth” for all the entities (subsidiaries, partners, etc.) doing purchases on your behalf and negotiating different terms with suppliers. A blockchain-based database can store relevant data from all your partners, giving your company a 360-view of the total volume of purchases, regardless of who managed the purchase activity. There will be no need for individual users to constantly share operational data and someone else to crosscheck it — the audits will be conducted automatically, eliminating the resource-heavy processes such as extra price verification.
Here’s a quick example to illustrate this further. Your organization wants to negotiate a procurement deal based on total ecosystem volume — a figure that includes purchase data from both you and your partners. Storing data in a blockchain-based system means that you can effortlessly calculate the exact volume discount based on total purchasing and mathematically prove that it is correct. The best part? You can do so without disclosing each company’s individual volumes.
Furthermore, blockchain technology can have a major impact at nearly every element of the complex Procure-to-Pay (PTP) process as the diagram below illustrates:
The food supply chain will likely be the first one to undergo major blockchainization, especially when it comes to the distribution of fresh produce. Recalls have been a major and costly industry issue for years. Thus, several major food-borne bacteria outbreaks, which have recently happened in the US, are encouraging more and more companies to look into blockchain as a new method for increasing visibility and traceability of the goods.
Consumers, as well, are putting pressure on businesses to provide more insights about the goods’ provenance, authenticity and “life before reaching the shelves”. Most consumers are ready to pay a premium for sustainable and ethically made goods. According to Nielsen, 49% of shoppers will pay extra for products that have top high quality/safety standards.
Walmart is a pioneer in this domain, partnering with IBM since 2016 on a blockchain-based traceability solution that would be applied across the company’s food supply chain. The tested system allowed the retailer to track incoming food supplies from “farm to store” in near real-time. Aside from increased visibility, the company also explores how blockchain technology can be extended towards monitoring and controlling the spread of foodborne illnesses and help minimize costly recalls. In 2019, the food chain giant plans to roll out their blockchain-backed traceability program, mandatory for all lettuce growers.
Other businesses are exploring how blockchain can be used to certify the origin and paths of goods sold and provide data on the authenticity of those. For instance, OriginTrail in partnership with TagItSmart has recently tested the IoT and blockchain combo to prevent wine fraud. In China, nearly 30,000 counterfeit wine bottles are sold every hour. Some of them contain hazardous additives that can cause serious health problems among consumers. The companies’ blockchain-based protocol allows tracking every wine bottle from the vineyard to the stores. Its anti-counterfeit technology that utilizes photochromic ink together with unique QR codes helps to verify the provenance and authenticity of every bottle.
As early pilots prove, blockchain and supply chain management can be a powerful combination. So much so, that in the next six years, 20% of the top 10 global grocers will adopt blockchain for food safety and traceability to ramp up their visibility into production, quality, and freshness.
Beyond the food industry, other traceability-based blockchain projects are catching up too:
IBM has ongoing collaborations with a number of gold and diamond industry leaders (Asahi Refining, Helzberg Diamonds, and others), helping them create new solutions for tracking and authenticating their products with blockchain throughout the supply chain. Everledger startup is attempting to do the same.