Supply Chains all set to undergo a Massive Transformation, thanks to Blockchain
Supply Chains are getting all the more Complicated
Today’s supply chains are so massive, transcending continents and involving hundreds and thousands of entities that managing it is becoming more and more complicated. With globalization and worldwide markets, it’s difficult to trace a particular product back to the supplier, making it extremely difficult and in many cases impossible to eliminate defects.
With the manufacturer in one corner of the world and the supplier in the other, processing payments take days or even months in the worst case. Additionally, there are plenty of intermediate agents. There are just too many third-party entities between the manufacturer and the end user. This leads to the rise in uncertainty and plenty of variables come into play. Simple transactions turn into lengthy procedures that eat up time and effort.
Supply chains have transformed into a beast that’s difficult to tame, irrespective of whether it handles consumer goods, food products, or even digital offerings.
This is where blockchain comes into the picture. And, industry experts have begun recognizing the potentials of this revolutionary technology in Supply Chain Management and Logistics.
2018 – The Year of the Blockchain Technology in Business
2017 could be defined as the year when cryptocurrencies became mainstream. From being an obscure term used by geeks and tech wizards, digital currencies dynamically entered the limelight, with several Fortune 500 companies and even national governments getting into the act.
And, experts predict that 2018 will be the year, when “blockchain technology,” the foundation on which bitcoins and all other digital currencies are built will make a tremendous impact on other sectors, apart from finance.
Bitcoins are just the Beginning
There’s more to blockchain than digital currencies. Frequently, termed as a “game changer” and “disruptive,” this revolutionary technology is all set to impact different verticals. And, today in this article, we take a closer look at how blockchain is shaking up Supply Chain Management dramatically.
Before, we look at the role of this technology in shaping the future of logistics, here’s a quick primer on what it is.
Why the hype around Blockchain Technology?
Simply put, the blockchain is a decentralized database (storage space) of transactional data. The data is stored in the form of blocks, and these blocks are connected to form the blockchain.
What makes it secure and trustworthy is that it’s decentralized. No single repository or vault is the home space for the chain. Instead, the entire chain is stored on all the drives and computers that are a part of the blockchain network.
Every transaction entered in the chain is authenticated based on the principle of consensus. Meaning, the operations can be verified by any member of the network at any time. To tamper with the entries, one would have to modify all the nodes in the chain at the same moment. This makes it secure, without the need for any central third-party authorizing entity.
Now, let’s see why these features of the blockchain make it highly attractive to supply chain management.
- Consensus – All the entities that are part of the blockchain network agree on the validity and authenticity of any particular transaction. In a supply chain that runs on blockchain technology, this ensures that all entities involved in the process like warehousing, transportation, and delivery are all on the same page.
- Provenance – All the entities of the network are aware of where each asset in the chain comes from. They can easily trace the original owner when the transaction occurred and so on. In a supply chain, assets can be anything from wheat, iron ore, frozen foods, machines, money, copyrights and so on.
- Immutability – No single entity can tamper with the ledger. No transactions can be erased. Only a new operation can reverse the effect of the old one. Similarly, supply chain payments, inventory, delivery time and date, warehousing conditions cannot be falsified.
- Finality – At any time, all copies of the shared ledger are in sync. This is a critical advantage in all fields including supply chain.
Enter Smart Contracts
Unless you’ve been living under a rock for the last few years, you would be aware that blockchains used for digital currencies use “mining.” However, when the same technology is used for business applications like supply chain management; it can do away with mining. Instead, it makes use of something called as “Smart Contracts.”
It’s a software program that’s stored on the blockchain and functions a particular task when a pre-defined trigger occurs. Since, its part of the blockchain, there’s no possibility of tampering with it.
For instance, a Smart Contract could be designed to initiate a payment automatically, when the product is delivered. Similarly, it can trigger a penalty when a particular condition isn’t met (say a delayed delivery and so on).
Smart Contracts eliminate the need for third-party authorization. This avoids manual checking, thereby reducing saving both time and money.
Applications in Supply Chain Management
Here are a few examples of how this technology can be used to improve the functioning of Supply Chains.
- Automated Supplier Payments
With blockchain, you can transfer money to any person anywhere in the world. There’s no need for an intermediary like a traditional bank. The transaction occurs directly between the sender and the receiver.
Moreover, it’s secure and rapid. Instead of waiting for days before you could receive the payment immediately. This is highly valuable in supply chains where immediate payments mean quick dispatch, thereby reducing the overall time involved.
- Traceability to the Source
The status of a product at every stage can be entered into the blockchain. This provides an easy way to trace a particular product to its source. As an end-customer, you could easily see where your product comes from and all the stages involved in its production.
- Contract Bids using RFID
RFID tags aren’t new to supply chains. They are currently used to store information about products. With blockchain, you can extend their use to handle smart contracts.
RFID tags could be programmed to store information about product delivery location and date. Logistics partners could set up smart contracts that read these labels. When a particular product delivery matches their capability, they could bid for it. The logistics partner who offers the best price and service get the business. The entire process could be automated without manual interference.
The possibilities are endless. Blockchain technology for supply chain management isn’t something for the future. In fact, several companies are experimenting with it to optimize their supply process.
Five Industry Leaders utilizing Blockchain for Supply Chain Management
Currently, Walmart employees can now track the source of a few products just by scanning the produce. For instance, mangoes on the shelves of a Walmart store can be traced to the farm it came from. The company believes that this could be of massive help in streamlining restocking.
The world’s biggest shipping company, Maersk successfully ran its first test of a blockchain-based supply chain in March 2017. During the test run, Dutch customs officers, a team at US Homeland Security could remotely access data about a particular shipment of cargo. This demonstrated the potential of the technology in streamlining international cargo monitoring.
- British Airways
This was another company that successfully tested this technology in 2017. The airline was able to eliminate conflicting information on its website, flight monitoring apps and gate monitors during the test run.
The courier giant joined the BiTA (Blockchain in Trucking Alliance) in November 2017. With this move, UPS aims to increase transparency among all the entities of the supply chain. Currently, UPS is working on how to use this technology for customs brokerage.
FedEx became a part of the BiTA recently and is working on a program to solve customer disputes using blockchain.
Blockchain to Revolutionize Supply Chains
As more and more businesses realize the potential of blockchain s, you can expect it to make a massive impact in all spheres, including supply chains. That doesn’t mean the road ahead is smooth. A nascent ecosystem and not much of technical know-how are some of the challenges ahead.
But, what can be said with certainty is “Blockchain technology has the potential to transform supply chains dramatically, and that’s sure to happen sooner than you anticipate.”
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