Introduction to blockchain for supply chain management
Pundits have made some extraordinary claims about blockchain: Blockchain will be bigger than the internet and the industrial revolution combined. Blockchain will end slavery. Blockchain will add $3.1tn to the global economy by 2030 .
Putting aside some of the more outrageous claims, it’s hard to deny the fact that blockchain technology is expected to revolutionise the logistics, supply chain and warehousing sectors in the next decade. The average supply chain has over 200 touchpoints from procurement, to warehousing, logistics and through to the end consumer. Blockchain technology will enable unprecedented efficiency, transparency and accuracy throughout each of these supply chain stages.
What is blockchain?
Blockchain is a distributed ledger. A ledger is simply a list of transactions. And distributed means that the ledger doesn’t just live in one place, it is stored in multiple places, among a broad network of participants.
Blockchain can store information about any transaction, exchange or agreement. In a future article, we’ll cover the ability of blockchain to trigger actions and administer smart contracts.
What are some characteristics and implications of blockchain?
Blockchain is immutable
Blockchain records are accurately maintained in perpetuity, without degrading or changing over time. This is because it is a digital record which is encrypted and stored in multiple places. If someone wanted to manipulate or falsify the blockchain, they would need to hack every computer in the network, simultaneously, which is widely acknowledged to be impossible.
Blockchain eliminates the middleman
Before the advent of blockchain technology, the best way to get disparate entities to agree on a source of truth for information was to rely on an “honest broker” or impartial intermediary. These intermediaries implement time-consuming safeguards such as checking balances, processing transactions and cross-referencing transactions. Blockchain is fundamentally different – it passes data directly between participants – creating an inalienable source of truth which doesn’t rely on third parties for verification.
Blockchain is instantaneous
By eliminating intermediaries and enabling participants to transact directly with one another, blockchain minimises time wastage. In addition, when new information is added to a blockchain, the blockchain is updated virtually immediately, for every participant. This means that activities such as payment of funds can be completed in seconds and information is accurate, in real time. In the context of supply chain management, warehousing and logistics this has potential to make lag times, such as waiting for an inventory system to update, or waiting for a supplier payment to a be processed a thing of the past.
Blockchain is transparent
Every participant in the blockchain can see every transaction in it. This results in complete visibility and transparency, which in turn drives accountability and honesty. In the supply chain and logistics context, it means buyers can confidently verify the origin of their purchase, which will help lift compliance and quality.
What does this mean for supply chain management?
Any form of exchange, agreement or tracking can be managed on blockchain, without reliance on third party intermediaries. This means that partners within supply chain can transact directly with one another, with unprecedented speed, trust and security.
Payments and transactions
Blockchain enables fast, secure, low cost payments. At present, when parties in a supply chain send or receive a payment, the funds typically move through banks, credit card processing networks, and other intermediaries. Each step adds time and complexity, and every service provider expects to earn a fee for the part they play in the payment. In contrast, blockchain enables the parties (for example logistics operators and warehouses) to transact directly with one another, saving time, money and complexity.
Because blockchain is almost impossible to tamper with, it can be an effective tool to track ownership. Each transfer of ownership can go in the ledger, resulting in a trustworthy source of information about almost any type of asset in the supply chain or warehouse.
Greater insight and business intelligence
Blockchain technology can unite vast and disparate sources of data in a cohesive manner, enabling organisations to gain greater visibility into their supply chain and logistics operations. This business intelligence can be used to drive efficiencies, for example, it may enable companies to identify value leakages in their supply chain and logistics operations.
Traceability drives quality and ethical supply chains
Blockchain enables supply chain managers and logistics operators to accurately trace goods from their point of origin, right through to the consumer, in real time. This level of visibility will expose unethical labour practices and any other activity which is not in accordance with contractual agreements, such as non-compliant quality or delayed deliveries. This will hold parties responsible for their actions reduce instances of counterfeits, fraud, non-compliant quality and unethical labour practices.
Procurement strategy and negotiation
The transparency afforded by blockchain may enable buyers to negotiate more effectively with their supply chain partners. A relevant example of blockchain being utilised to support procurement strategy is that of a large and complex organisation which had relied on subsidiaries and intermediaries to conduct their procurement activities, and as a result of this fragmented approach, they had missed out on appropriate volume discounts. By using blockchain technology they were able to quickly and easily view their total procurement volume and address this issue in future procurement strategy planning and negotiations.