Blockchain, the Supply Chain’s Efficiency Elixir?

Bryant Nielson | May 8, 2023

An article published on Spend Me Not clearly revealed that more than 50 percent of global businesses view blockchain as their strategic priority and that global spending on blockchain technology is expected to reach $11.7 billion by 2022. With blockchain penetrating almost every industry gradually, be it retail, healthcare, travel and tourism, legal, financial, insurance, etc., it is evident that the supply chain industry is not an exception to exploit the potential of blockchain. 

Blockchain is emerging as one of the most promising technologies for supply chain management. This digital record-keeping mechanism developed for cryptocurrency can significantly help supply chain stakeholders address their challenges by generating a transparent, complete, and immutable history of inventory flows, data flows, and financial flows. But to what extent is it true? Can supply chains resolve the supply chain businesses’ challenges and help them increase profitability? This article answers some of these practical questions.

About the Blockchain & its Relevance to Supply Chain

A blockchain is a decentralized or distributed digital ledger—a digital system that records transactions among various parties in a provable, tamperproof way. The digital ledger can also be programmed to activate transactions robotically. For cryptocurrency networks developed to replace traditional fiat currencies, the key feature of the blockchain is to enable an infinite number of unidentified parties to transact securely and privately with one another without any middleman or central intermediary. 

For supply chains, it is to permit a limited number of known parties to protect the business operations against malicious actors while enabling better performance. Successful blockchain solutions for supply chains will necessitate new permissioned blockchains, unique standards for representing the transactions on a block, and the best rules to administer the system.

Being a better-automated and less corruptible alternative to centralized databases, blockchain ensures more cost-efficient product delivery, product traceability, enhanced coordination among parties, and access to financing.  

Why Blockchain?

To exemplify the limitations of the existing ERP systems and financial-ledger entries, along with the possible benefits of blockchain, think of a hypothetical scenario: a simple transaction consisting of a retailer sourcing a product from a supplier, and the bank that gives a working capital the supplier requires to fill the order. The transaction is based on information flows, inventory flows, and financial flows. It is to be noted that the given flow does not lead to financial-ledger entries for all three parties involved. And ERP systems, manual inspections, and audits can’t reliably link the three flows, making it more difficult to avoid execution errors, improve decision-making, and successfully address the supply chain conflicts.

In this view, blockchain can add value to the following key supply chain areas:

  1. Replacing inefficient, slow, and prone to human-error processes for handling big and complex data sets. 
  2. Improving traceability to address quality challenges by avoiding reputational damages, recalls, and loss of revenue due to illegal markets.
  3. Saving IT transaction cost: The article published on Hackernoon, highlighted the survey of the supply chain workers carried out by APQC and the Digital Supply Chain Institute (DSCI), according to which over one-third of people cited IT cost reductions as the main benefit of Blockchain application in the supply chain management.

Data Visibility in Supply Chain

One of the most tempting advantages of using blockchain for data is that it lets data be more interoperable, making it easier for supply chain businesses to share information with manufacturers, vendors, and suppliers. Improved transparency helps decrease delays and disputes by preventing goods from being stuck in the supply chain since products can be tracked in real-time, lessening the possibility of misplacements.

Blockchain offers higher scalability through which big and complex databases are accessible from various locations remotely. It also gives higher security and the ability to modify the system according to the data feed. Furthermore, blockchains can be created isolated too, enabling data to be accessed openly between the authorized parties.

The value of blockchain technology is mainly because it can connect different ledgers and data points while preserving the data integrity among numerous participants. The immutability and transparency of blockchain make it useful for eradicating fraud in the supply chain and maintaining system integrity.

Considerations to Take Before Adopting Blockchain Technology

An article published by McKinsey signifies the scenarios to be considered by businesses before turning to blockchain as a supply chain solution. 

Businesses adopting blockchain to manage their supply chain must first know the kind of blockchain most suitable to be built for their business and rethink their privacy priorities. In most of supply chains, the parties are usually known and trusted, whereby open access is not accepted as users want to keep the proprietary details confidential, like demand, capacities, prices, orders, and margins. This implies that most of the supply-chain blockchains should be permissioned, with access controlled centrally and limited to known parties only who might further be restricted to limited data.

When all involved parties in the scaled supply chains are known and trusted and can be relied upon for a single, real-time truth, a blockchain application might not be needed. Rather, in such cases, centralized solutions such as cloud, or a decentralized P2P system would be enough. 

For supply chains having unknown and non-trusted parties, blockchain technology can bring trust, traceability, and transparency. Such kinds of supply chains are usually complex, multi-tiered, involving many parties, and function in a highly regulated environment that necessitates a higher degree of traceability. Blockchain is the best solution here.

The Final Words

Businesses are discovering ways to filter the way their supply chains presently work and adopt the transformation that the Blockchain has to offer. Once they see the bigger picture, they can finally go through the challenge of applying newer systems integrated with blockchain to reap bigger benefits. In conclusion, blockchain does seem to be the medicine for the supply chain’s current pain points.