From conducting payment and audits to tracking inventory and assets, blockchain technology will enable greater supply chain efficiency than ever before. Those swanky clothes, that colorful smartest phone, that distracting T.V., ever wondered how they were delivered to your home or to the nearest brick and mortal store? The answer is supply chain. A supply chain is the network of all the individuals, organisations, resources, activities and technology involved in the creation and sale of a product, from the delivery of source materials from the supplier to the manufacturer, through to its eventual delivery to the end user. The supply chain segment involved with getting the finished product from the manufacturer to the consumer is known as the distribution channel. Managing today’s supply chains is extraordinarily complex. With globalization, supply chain have spread to various areas, serving people like never before.
Depending on the product, the supply chain can span over hundreds of stages, multiple geographical locations, a multitude of invoices and payments, have several individuals and entities involved, and extend over months of time. Due to the complexity and lack of transparency of our current supply chains, there is interest in how the blockchain technology might transform the supply chain. It’s incredibly difficult for customers or buyers to truly know the value of products because there is a significant lack of transparency in our current system. In a similar way, it’s extremely difficult to investigate supply chains when there is suspicion of illegal or unethical practices. They can also be highly inefficient as vendors and suppliers try to connect the dots on who needs what, when and how. Blockchain is a digital ledger of transactions that can be programmed to record not just cryptocurrency transactions but virtually everything of value. Each record contains a time stamp and reference links to previous transactions. With this information, anyone with access rights can trace back a transactional event, at any point in its history, belonging to any participant.
Supply chain value generation may be limited due to departments working in silos and their KPI not being aligned with overall organizational goals. This results in an opaque supply chain that leads to a poor tracking of product flow. Blockchain is a holy grail for this use case, due to its decentralized nature where transactions are validated by every node in the system.
Blockchain until now had a bigger impact on cryptocurrencies, but implementing the technology in supply chain could bring in groundbreaking benefits. By utilizing value stream mapping, professionals identify value and non-value adding activities, these non-value adding components encompasse supporting activities like documentation, custom clearance, material handling and loading. Let's have a look at the case of verifying documentation in custom clearance. It takes significant effort and resources of your workforce without adding generating any value for customers.
With blockchain decentralized shared ledger, verification of documentation could be expedited by cutting dependency on any intermediate party. Transportation and shipment add significant cost to supply chain operations, blockchain could be used here to identify the path traversed by the truck so that it can analysed to identify cost-effective path. Blockchain powered with the Internet of Things (IOT) could also be used to track overall health of trucks by storing their spare parts status that would help in better maintenance of trucks. Industry stalwarts are implementing blockchain in their operations. Maersk as an example has been implementing blockchain solutions with IBM in its supply chain for better tracking of its cargos. Walmart is also using the technology to trace products back to their origin.
Beyond tracking, blockchain could also help in increasing trust between stakeholders and reduce financial risk in a supply chain with the application of smart contracts. The former are digital contracts (basically computer codes) that have their algorithm executing contracts without any human intervention.
Supply of common items is a tough segment to enter, where established players are preferred over newcomers due to reliability and their ability to deliver as promised. Buyers avoid the risk of doing transactions with newcomers due to the risk associated with newcomers, here smart contracts could come handy. Consider a simple transaction between a buyer and sender validated by a smart contract that includes money being released when the buyer receives the goods. Smart contract would debit the money from the buyer account, keeping it in a escrow account until the transaction is legally complete.
The contract being digital, it automatically validates terms and condition of completion. In case the seller is unable to fulfil the contract, the money held is escrow account would be credited back to the buyer's account. This could open new dimensions in supply chain by allowing new players to enter into it due to increased risk mitigation. Enhanced competition could also help in decreasing overall costs for supply chains.
Blockchain with its various use cases has the potential to turn around the way companies are managing supply chains. In order to completely reap further benefits, there is a constant need for companies to digitize themself by training their workforce to adapt to the continuous digital transformation.
Abhishek is an experienced System Engineer with a demonstrated history of working in the information technology and services industry. His interest lies in learning about the operations involved in manufacturing as well as service industry and how IT could be utilised to streamline their processes. He is passionate about project management and have a rich experience of its application in service industry.