Modern day supply chains are different from what we used to have a few years ago. This is because the modern supply chains are complex, global and often opaque. As we move from raw materials sourcing to the delivery of final products, there is too much handling of goods and some goods may even pass through continents. This makes tracing them difficult. And in this case accountability as well as efficiency become the major pain points for both businesses and consumers.
Now, the features of blockchain technology allow it to be deployable across industries. Blockchain technology was originally designed for cryptocurrencies like Bitcoin. Nowadays, it is being used to enhance transparency and efficiency in supply chain management. Let’s dig in and try to see how blockchain helps supply chain management processes.
Modern supply chains vs traditional in summary
Before we dive deeper, I believe that we need to understand the context of traditional supply chains and modern supply chains.
Modern supply chains are very complex. They usually have multiple tiers for different stakeholders and they cover large geographical areas. There are tiers for suppliers, global logistics, local logistics and even customers.
Traditional systems, however, rely on paper based processes, siloed databases and manual verification. While traditional systems may not be as complex as modern ones, they are still slow, time consuming and prone to a lot of errors. Lack of transparency in both traditional and modern systems has led to fraud, inefficiency and product recalls. Lack of transparency has also led to ethical concerns especially when sensitive goods and services are involved.
How does the block chain address supply chain challenges?
The blockchain has several core features that are very relevant to supply chain management.
Core blockchain features relevant to supply chain
The blockchain has an immutable ledger. With this public ledger, if you record data on the blockchain you cannot alter or delete it, no one can! This creates a permanent audit trail for products from origin to consumer. As a result, document fraud and data manipulation are eliminated. Once data is written it becomes a permanent part of the blockchain, therefore no one can temper with it.
Blockchain technology can help in enhancing transparency and traceability. Once data has been written, all authorised parties can view the same information in real time. This eliminates lack of transparency or lying about availability or arrival time of products. It provides end to end visibility of the product from raw materials up to the delivery of the finished product. This way, stakeholders can work together to identify bottlenecks or any issues that may affect processes.
Another core feature that makes blockchain relevant to supply chain management is decentralisation. Decentralisation means that in the blockchain there is no single point of control or failure. Decentralisation also reduces the dependency of processes on intermediaries. It also helps in the democratisation of access to supply chain data.
Blockchain technology is based on smart contracts which are self executing contracts that follow predefined rules. Smart contracts are a game changer as they automate payments, compliance checks and transfers. Smart contracts can also reduce paperwork and processing time. This is because data is stored, managed and edited on the blockchain.
What supply chain problems are solved by blockchain technology?
Blockchain technology can solve a lot of problems in the supply chain.
One of the biggest supply chain problems is the lack of provenance verification. Blockchain can solve this by creating digital passports for products. It can also record every transaction and transfer for the specified product with timestamps. This makes it easier for consumers and stakeholders to verify the authenticity of products through scanning QR codes.
Blockchain can also help the supply chain by helping in the identification of counterfeit products. Blockchain digital passports for products can act as digital identities for physical products. As it is impossible to duplicate blockchain records and this makes it easier to spot counterfeits with a simple QR code scan. This is very important for high value goods like pharmaceuticals and luxury goods.
One of the biggest problems in traditional blockchain is that of inefficient documentation. Blockchain technology is good for digitizing and automating paper work. This will reduce paperwork processing times from days to minutes and eliminate errors from manual data entry. And if any errors are made, they can be easily spotted by stakeholders on the immutable ledger. This means that there is no need for companies to wait until the paper reaches the customer before identifying issues or faults.
One of the biggest problems in the supply chain is limited precision in recalled products. Blockchain technology can pinpoint exactly on the affected products and even the exact affected batch or numbers. This is very useful for tracing defects or contamination. So, instead of you recalling everything from the market, you focus on specific batches. This reduces the cost of recall and the damage done.
With blockchain technology companies can also solve the problem of ethical sourcing concerns. This is because it provides verifiable proof of ethical practices. It can be used to track labor conditions, environmental impact and compliance to fair trade statutes. This is critical for building consumer trust by being transparent.
Real life examples
In 2018 Walmart and IBM Food trust partnered and launched a blockchain based food traceability system. In this system suppliers upload data at each step, from the farm, processing, distribution and to retail. This was shown to reduce produce origin tracking from 7 days to 2.2 seconds. The system is also mandatory for all leafy green vegetable suppliers. This supply chain system on the blockchain has allowed Walmart to identify contaminants sources quickly during foodborne illness outbreaks. It also helps in reducing food waste through better inventory management. This demonstrated the power of blockchain in transforming the traceability of perishable goods.
Also, there is another project, the MediLedger project run by a consortium of pharmaceutical companies that are addressing drug counterfeiting. The project was launched to comply with the FDA’s Drug Supply Chain Security Act. The system tracks prescription drugs from the manufacturer to the pharmacy, verifies their authenticity and safety. It also uses the blockchain to create interoperable systems across competitors. This system helps in combating the $200 billion counterfeit drug market, ensure that medication is authentic and streamlines returns and chargeback process. This shows that in the blockchain competitors can collaborate with competitors for mutual benefit.
Implementation challenges of blockchain technology in supply chain
Like any other innovation, there are challenges to the use of blockchain technologies in the supply chain.
- Blockchain technology has a lot of scalability issues, this means networks can be slower than centralised databases.
- Many companies use outdated technologies that cannot be integrated with blockchain technology, this makes it difficult to onboard them.
- There are no universal blockchain standards for supply chain, this means communication between platforms may be impossible.
- The cost of implementation can be very high, this covers technology and training as well as maintenance.
- Companies may face data quality challenges, where garbage is being inputted.
- Storing all supply chain data can be overwhelming for the blockchain network.
Final thoughts and conclusion
The truth is that blockchain is no longer experimental in supply chain management. It is now becoming essential and early adopters are gaining competitive advantages faster through faster operations, stronger customer trust and better risk management. For anyone considering blockchain in supply chain management, it's best to start small.
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References
- IBM Food Trust - Walmart Case Study
https://www.ibm.com/blockchain/solutions/food-trust - World Economic Forum: Inclusive Deployment of Blockchain for Supply Chains
https://www.weforum.org/reports/inclusive-deployment-of-blockchain-for-supply-chains-part-1-introduction - Gartner Supply Chain Research on Blockchain Technology
https://www.gartner.com/en/supply-chain/topics/blockchain - Deloitte: Blockchain in Supply Chain Management
https://www2.deloitte.com/us/en/pages/operations/articles/blockchain-supply-chain-innovation.html - Harvard Business Review: How Blockchain Can Help Fight Counterfeit Goods
https://hbr.org/2023/03/how-blockchain-can-finally-unlock-value-in-supply-chains
