How can blockchain application improve supply chain performance? The potentials of blockchain technology can be exploited across several industries to make them perform better and in a more efficient manner.
One such industry is the supply chain industry that has been using this technology to improve its overall performance.
It will help the supply chain industry to be more transparent, traceable, sustainable, trustworthy, and cost-efficient.
If you are wondering how supply chains can perform better by implementing blockchain technology or are in the lines if implementing it in your business, this article will clarify all your doubts.
There are several potential benefits of this technology offered when applied which includes and are not limited to reduction of cost of transaction, reduction of human error since there is no involvement of any intermediaries, and offering a highly secure platform for communication and trading on a global scale more efficiently.
This article explores the potentials of blockchain technology with specific emphasis on the relation of it with different aspects and systems of supply chain.
This includes traceability, transparency, trust, cost efficiency and sustainability.
When you know these aspects you will have a more comprehensive and a much better understanding of the potentials of blockchain technology and its application in improving the performance of supply chains.
How Can Blockchain Application Improve Supply Chain Performance?
The working principle of the supply chain industry is pretty basic and simple.
The goods and services related to a specific supply chain typically move through different and a vast network of actors related to each other, thereby forming a chain.
If any one particular end is broken, the entire chain fails to operate efficiently.
Ideally, the goods and services in a supply chain travels through a network that consists of:
- The manufacturers
- The distributors and
- The retailers.
It is essential for all of them to have better, clear, and complete information regarding a product or service beforehand when it moves through their hands.
However, in most of the cases it is seen that complete information is not available to them, one or all, which affects the product flow.
It is blockchain technology that can effectively remove this hurdle and make the supply chain functions in a more efficient manner as desired.
Moreover, visibility of the supply chains is another significant challenge that the industry needs to overcome.
Most of the companies have very little or no knowledge about the second or third tier suppliers of their own.
This affects the transparency of the supply chains and thereby affects the flow of products, whether it is the raw material for processing a product or the finished product itself.
This calls for a new type of analysis in the supply chain to overcome this barrier, which, once again, is effectively removed by the innovative blockchain technology.
Apart from that, traceability and transparency are also very important factors to look into which will seriously and directly affect the performance of the supply chain.
Given the digital world of today where people want faster and better service, traceability is one of the most urgent and immediate requirements.
This aspect, in fact, has become one of the most significant distinguishing features of several performers in the supply chain industry sector which includes and is not limited to food, pharmaceuticals, medical products, and other high-value goods.
Once again, blockchain technology can come to the rescue of the supply chain industries and help them to perform in a much better and more efficient way.
The technology will successfully remove all these barriers along with others in the areas that often go overlooked.
This unique and innovative technology can help in specific ways such as:
- Creating contracts with different parties
- Tracking the goods in transit all the way and
- Receiving or making payments.
Every aspect of all transactions will be recorded on the blockchain and will be added as a new block to it.
These records are immutable and multiple copies of the same ledger are distributed across the network for each and every party involved in an activity to see.
Since it is shared, it is called the Distributed Ledger Technology and is very transparent.
The good thing about this technology is that any participant can add data to the chain while performing any transaction within the network and others can see it.
However, none of them, whether it is the one who is adding the new block or the one who is just viewing the record, can hack or make any modifications in them.
It is this specific characteristic of the blockchain technology that makes it so transparent and reliable and is the main reason for it being applied across several industries including the supply chain industry.
What is Supply Chain?
In simple words, supply chain can be best defined as the line that consists of different points.
These points are engaged in different jobs such as in manufacturing the good, handling and delivering it.
These performers are spread all over the process right from the purchase and procurement of raw materials to the production, from packaging to delivering it to the final consumer.
This means that a supply chain consists of several different stages and all of which may not be performed in one simple location.
Therefore, it is required to track each and every aspect of a particular transaction that is dependent on several events.
This is where things become difficult for the supply chain.
If there is lack of transparency, traceability and trust, the consumers or buyers will not be able to ensure the true value of the goods or services offered.
Also, in a supply chain network, there is a high chance of an illegal event to occur which is not only hard to detect without proper communication between the nodes but is also very hard to investigate and find the actual people behind such unwanted incidents.
This can result in several other unwanted issues that could also result in legal and fiscal consequences such as:
- Counterfeiting of products
- Forced or illegal labor
- Bad working conditions in the factories and more.
With regard to these serious issues, the blockchain technology may prove to be one of the most effective solutions that can fix them and eliminate them as well.
Experts believe that there are some primary functions of the blockchain technology that are very useful for the supply chain industry. These are:
- The availability of all necessary information to the public which allows easy access and offers a chance to all to track the goods right from its initiation to reaching the final destination
- The opportunity provided to each participant in the network to add information due to its decentralized structure and
- The basic cryptographic structures that cannot be hacked or modified by anyone that adds to the security and trust level.
Even the most fundamental implementation of this innovative blockchain technology can solve most of the major issues within the supply chain and bring huge profits to it.
Supply Chain Transparency
Since transparency is very important in the supply chains, blockchain technology can help to cancel out any asymmetries related to information and communication within the chain.
Once again, it is the fact that blockchain technology allows open and free access to the records that help in it.
It helps in the procedure of tagging, registering, and handling the items all through the different stages and locations of the supply chain.
Blockchain technology can help in maintaining immutable records of the data regarding user access and distributed storage, controlling them with its decentralized distributed system.
This helps significantly in collecting, storing, and managing all the key information of each individual product all through.
With specific product information now available, it will be easier for any player within the supply chain to track and record the movement of products through the supply chains right from the beginning to the end.
This way, when a product is tracked by using blockchain technology, it can validate the authenticity and provenance of any product directly.
This will, in turn, help the consumers to get all relevant information about a product which is necessary to make a decision whether to buy a particular product or not.
This transparency of information and records all through the chain will also raise the trust among different parties involved in the network of a supply chain.
Every participant on the network is given the assurance that every record in the blockchain is not tampered by any malicious actor due to its immutable nature and cryptographic algorithm. This enhances its security aspects.
Transparency in record maintenance in supply chains can also eliminate the potential scandals and dangers such as unearthing of hazardous chemicals in toys.
It is all due to the near-real-time recording of transactions, auditing functions, and tracking of products.
This may eliminate the need for any external auditors which will reduce the cost of auditing as well.
When smart contracts are used on the blockchain, the supply chains can also reduce delay time and additional costs.
This will make them much more efficient. These contracts written in a digital form on top of blockchain technology are much more dynamic and efficient than the conventional rigid supply chain working principles.
The transaction data as well as the history of the product from the manufacturer can be documented on the blockchain as and when it happens in one node to another in the network of the supply chain.
This reduces additional costs, time delays, and chances of human errors making the supply chain more trustworthy and efficient.
The success of the entire system however depends on the level of coordination between the people involved in a supply chain network.
Therefore, the right process of recording a transaction should be followed and is as under:
- The manufacturer embeds the item with a code
- It should be then hashed and recorded on the blockchain
- Product movement should be recorded through proper scanning and registering of the code.
If done properly, the transparency of the supply chains will increase dramatically which will improve its performance in turn.
The retailers will be able to inflict trust and loyalty among the consumers by sharing all information with them to establish that the product they intend to buy is manufactured safely and by sustainable manufacturers.
Supply Chain Traceability
Traceability is also another important factor that will improve the functionality of the supply chains, and blockchain technology can help in attaining it.
When blockchain is implemented in a supply chain, it will help every actor within the network to trace all necessary information regarding a transaction and an item remotely along the supply chain.
This can be with regards to the quality of the raw material, the performance of the different actors involved in the supply chain as well as timestamps of the product journey through the supply chain.
The traceability can also be established by printing the related data on the packaging directly.
These are quite cheap and more compact and the RFID are especially re-usable.
The best part is that consumers can read these codes themselves to gain info about the product using their smartphones.
In this process, every transaction is recorded on the blockchain in the form of a hash code.
This includes the information about the parties involved, the transaction details, and the timestamp with a digital signature of a bona fide vendor.
Each of these products in a supply chain is represented by a unique serial number, tag or a barcode in physical form.
The blockchain encrypts all of the data and then delivers the same to all of the peers for verification.
Once the data is verified and accepted by all the peers within the network along with the changes, if any, the new block for the transaction is added to the distributed ledger.
This consensus algorithm also acts as an audit trail for the transaction within the network.
This means that if any unauthorized change is made within the block, the peers will either reject or validate the change based on the written smart contracts.
This will make the entire approach much more holistic and efficient. Also, a proper traceability model can reduce the costs of product recalls.
Along with that, it can also enable the retailers to trace any individual product in quick time thereby reducing process inefficiencies.
This will increase public confidence and product safety. If any defective product is sent to a customer, the blockchain records will allow the system to pinpoint the particular product to be discarded.
This will not affect the entire product line of the supply chain adversely.
Supply Chain Sustainability
Typically, the supply chain industry, just like all other industries, faces high pressure from society to execute sustainable business practices.
This is mainly due to the reason that this particular industry is blamed for its contribution to global warming.
It is believed that the supply chains produce an extensive amount of carbon emissions during the process of product manufacturing by the producers and distribution to the consumer.
This calls for an immediate need to make the supply chain industry ‘green.’
Once again, it is the blockchain technology that can offer better solutions with its huge potential to overcome this issue.
This will make the supply chains more sustainable. The technology can track the dangerous materials and products much more effectively and accurately.
This means that the supply chains will have a much better way to monitor their environmental compliance efforts.
There are also several other benefits that blockchain technology applications will offer while greening the supply chain industry. Some of these are:
- It will reduce the need for frequent product recalls and rework, both of which involve a considerable amount of money which relates to losses due to unnecessary and unproductive consumption and waste of resources. This is because the blockchain technology application can pinpoint the defective goods most precisely.
- It will also reduce the need to send out electric power over long distances. This will subsequently result in huge savings. This is because it will not result in any lost and wasted energy that is so common normal loss in sending energy over a long distance. Also, this will not need storing energy which will also save the resources in turn.
Given the fact that no record or info on a blockchain can be modified without the knowledge and permission of the actors concerned, it will prevent corrupt individuals and officials of the governments or associations from unjustly confiscating the assets of people.
This will in turn improve social justice and at the same time provide better assurance of fair work and business practices along with protection of human rights.
Supply Chain Trust
Trust is an important factor for supply chains to flourish. It is also an extremely fragile element that determines the growth and expansion potential of a supply chain.
However, it is the size, expanse and complexities involved in the operation of a supply chain that makes it pretty difficult for it to maintain trust among different parties involved in the network.
In fact, research has shown that a high level of willingness and trust in relation to sharing information hardly exists in a supply chain, especially if it is large and multi-tiered.
Blockchain technology can help in eliminating the issues related to it, most effectively, once again.
This is the need of the moment given the fact that the supply chain industry has gone global right now.
Trust has become one of the most integral assets that help a supply chain to build long-term partnerships.
It is this trust among partners that may result in reducing uncertainties and asymmetries in information sharing, which is, once again, a critical aspect for the success of a supply chain.
Once again, it is the immutable data maintenance and distributed nature of the blockchain that enables the supply chain to maintain a high level of trust, if implemented properly.
Transactions can be done with more confidence relying on the shared information available on the blockchain that is unchanged.
Trust and transparency cannot be separated from the actors involved in the network because the records of all activities are the evidence of truth and leaves an audit trail with which any disputes within the process can be resolved quickly and efficiently.
Based on the transparency of actual transaction information on the blockchain proper evaluations can be made for all the actors involved in the process.
Belonging to the same account in the supply chain network this raises the credibility of parties in action within the blockchain setting along with the reputation of the supply chain on the whole.
The cryptographic and decentralized nature of the blockchain does not leave any space for conflicts arising between the parties involved in the supply chain network.
They know that the information is true, validated, and verified and is shared among each and every one within the network right from the grassroots level to the topmost tier.
And, all of them share and view the same and unchanged version of the ledger.
This eliminates conflicts between any participants and makes it easy for all to reach an agreement.
Also, the ability of the blockchain to track products effectively and accurately raises the trust between the actors.
No one will act in a way which may jeopardize the product because the person at fault or the stage in which a defect has resulted in will be caught soon and easily.
This is because the blockchain technology is able to trace and track the entire history of the product right from the retailer to the manufacturer, from the supplier of raw materials to the people involved in the production, and in both ways.
This makes it easier to find the cause of the defect in the product quickly and easily.
Supply Chain Cost Efficiency
Finally, survival of any business, including supply chains, depends mainly on the profits made. In order to ensure that, every activity and process should be cost effective.
Blockchain technology, once again, can ensure cost efficiency for a supply chain in several ways.
These ways include reducing the cost of operation because you will not need any intermediaries for mediating any transaction since it will provide transparency in real time.
It will also reduce the cost of transactions of goods, reworks and recalls due to human error and fraud as well.
In addition to that, costs involving surveillance and verification will also be reduced significantly.
This is because the blockchain technology will develop confidence and trusted partnerships among the actors involved.
The true financial status of the buyers and the inventory of the provider of the product both will be clearly visible to the respective parties.
This will eliminate the need for any verification during real-time accounting and save a significant amount of money in the process.
Since smart contracts can be used on the blockchain it will also reduce costs of operation.
These contracts that are defined by a code are enforced and executed automatically if the terms of the contracts are fulfilled.
The payments are also made automatically from a crypto account of the buyer which is uploaded and linked to the smart contract.
All these reduce the costs of operation for a supply chain significantly making it easier to beat and survive the cut-throat competition.
Blockchain technology can improve the performance of a supply chain widely. With controlled access of the users to the immutable records, it enhances trust and transparency. It will also lower operational costs as pointed out in this article.