How Blockchain is Modernizing Supply Chains
Blockchain is often touted as a disruptive technology with uses in potentially hundreds of industries. But while many of these center around its financial applications, its use in supply chain management is quickly coming into the spotlight, and has already been recognized by more than a few international enterprises.
As distributed ledgers that provide an immutable record of transactions secured by a decentralized network of nodes — each of which is involved in the processing and confirming the authenticity of data — blockchains are powerful tools for any use case that requires up-to-date, fraud-proof information.
As it turns out, this feature, combined with the unique capabilities of smart contracts, makes blockchain a golden bullet for many of the challenges that come with managing supply chains.
What is a Supply Chain?
In order for goods and services to reach the consumer, they need to first move through a system known as the supply chain — which is the sequence of steps that transform raw materials into a good/service that is sold or provided to the end-user.
It is a network of facilities and distribution options that receives goods from suppliers and delivers them to customers. The main purpose of a supply chain is to deliver goods to the customer at the right time, in the right quantity, and in the right condition. A supply chain is made up of many different parts, including suppliers, manufacturers, warehouses, distributors, retailers, and customers, and can be wholly domestic or span over multiple countries.
The rapid growth in the global economy has seen a huge number of businesses expand to new territories. This has made it more difficult to track where products are made and how they are transported. Additionally, the rise of e-commerce has created a need for faster delivery times, which has put pressure on supply chain managers to find ways to speed up the process. Finally, the growing popularity of social media has made it easier for customers to share their experiences with businesses, which has created a need for greater transparency in the supply chain.
Some supply chains can span dozens of countries and include hundreds of thousands of moving parts.
In the last few years, supply chains have seen a massive explosion in complexity, and many companies are now taking measures to optimize their supply chains, to minimize cost and delays while maximizing their upside by cutting supply-chain-related losses and improving transparency for consumers.
In the search for solutions, blockchain technology is increasingly demonstrating its potential to radically overhaul the way supply chains are managed while resolving some of the longest-standing challenges facing participants in all stages of the chain.
Why the Supply Chain Needs Blockchain
Supply chains are complicated. This, unfortunately, makes them extremely difficult and typically expensive to manage efficiently, and exposes several intrinsic challenges that can be difficult to overcome.
Right now, many supply chains suffer from a lack of visibility, making it very difficult to track processes and items as they move through the supply chain. But blockchain can be used to provide a more detailed and transparent view of the supply chain by ensuring all events are tracked and recorded on an immutable blockchain ledger. This can help to improve coordination and communication between different supply chain partners, and can also help to identify, isolate, and resolve issues more quickly.
Counterfeiting has proven to be a persistent problem that a huge number of brands now suffer from — particularly those in the high-end fashion and jewelry industries. Indeed, a recent report by the OECD and the EU’s Intellectual Property Office now estimates that the yearly global volume of counterfeit goods and pirated products equates to at least $509 billion — which is equivalent to ~3.3% of global trade.
By leveraging blockchain technology, all links in the supply chain can be better tracked and audited, allowing firms to easily track the movement of raw materials used for manufacturing, and create a tamper-proof record of the provenance of their products, which can help to ensure that only genuine items are being sold. This could help improve revenue in several high-impact industries, including the software, sportswear, perfume, and pharmaceutical industries, as well as ensure that quality standards are being met.
Theft in the supply chain is another cause for concern, with a staggering €500,000 (~$540,000) stolen from supply chains in the EMEA (Europe, Middle East, and Africa) alone in 2020. The opportunity for theft can be largely attributed to a lack of granular tracking in the supply chain, as well as the rampancy of fake documentation and impersonation which are used to facilitate fraudulent collections.
Since blockchain can be used to achieve more granular tracking of goods in the supply chain, it can also help pinpoint where theft typically occurs — allowing firms to reinforce security in these areas. Moreover, by producing a tamper-proof record of provenance and ownership, blockchain can make it more difficult for thieves to sell stolen goods, and help law enforcement more easily track and identify thieves and retrieve stolen goods.
From an operations perspective, smart contracts can be used to automatically trigger payments upon receipt of goods, helping to reduce the incentive for theft.
As supply chains increase in complexity and span more regions, the challenge of maintaining efficiency by cutting out sources of fraud, human error, and delays grow. Blockchain is well-positioned as a potentially disruptive technology that can be used to address several of these challenges simultaneously — paving the way for dramatically improved sourcing, procurement, manufacturing, and logistics.
The utility of blockchain technology in supply chain management is still being explored, but its properties lend it to the following benefits:
- Better transparency: Blockchains include a permanent record of any transaction that has been included in a block. This means anything that any information reported to the blockchain from the supply chain will be permanently stored on the blockchain and can be accessed at any time — with essentially zero chance of manipulation. This makes it well-suited for situations where transparency is key to public perception, loss prevention, and cross-partner communication.
- Improved efficiency: Firms can potentially dramatically improve efficiency in the supply chain by leveraging smart contracts and digital assets to carry out payments between supply chain participants and automate tasks that would otherwise require processing by a human — such as inventory counting and flagging unusual events. This not only helps to cut costs but also improves the speed at which items move through the supply chain.
- Increased granularity: Blockchain, in combination with other technologies including RFID tags and IoT, could be used to dramatically increase the granularity of supply chains, allowing individual items to be tracked as they move throughout the chain. This can improve the auditability of supply chains while enabling manufacturers and retailers to demonstrate the provenance of individual goods. Moreover, it will allow firms to better take stock and adjust their manufacturing to better meet demand.
- Reduced administrative costs: By automating many of the processes that are currently carried out manually — such as inventory tracking, verifying ownership, and processing payments — blockchain can help to reduce the amount of time and money that is spent on manual administration. This, in turn, can boost profit margins while eliminating sources of human error.
- Improved compliance: By providing a transparent and permanent record of all supply chain activity, key individuals involved in the supply chain can easily track and verify the status of products and components, and identify any potential compliance issues at their source. Moreover, smart contracts could be used to automatically enforce compliance rules and regulations, increasing transparency and consumer trust, while protecting involved companies from the consequences of regulation violations.
- Reduced counterfeiting/grey market trading: By using smart contracts and blockchain-based access credentials (e.g. on-chain identity), blockchain can be used to securely track the movement of goods through the supply chain and ensure that only authorized parties can access data related to the acquisition (suppliers), manufacturing (schematics and production techniques), and distribution (storage and transportation providers) of goods — thereby reducing the opportunity for counterfeiting and theft.
Supply chains are becoming increasingly stressed by a burgeoning global economy, and blockchain is well-positioned to help ease some of these growing pains. This potential has already been recognized by a wide variety of prominent organizations, who are exploring how blockchain can tackle challenges faced in their supply chains.
In 2017, Walmart, Unilever, Nestle, and other global food giants formed a partnership with IBM to see how distributed ledger technology could be used to boost transparency and visibility in their supply chains — helping them identify and track sources of contamination at record speed. Walmart Canada also now leverages blockchain technology to automatically manage invoices with its 70 third-party freight carriers — helping to reduce the number of invoice disputes from 70% to just 1%.
“Blockchain technology enables a new era of end-to-end transparency in the global food system — equivalent to shining a light on food ecosystem participants that will further promote responsible actions and behaviors,” said Frank Yiannas, vice president for food safety at Walmart, in a 2017 interview.
Major players in the precious metals industry are also beginning to leverage blockchain to improve tracking in their supply chains. Last month, a consortium of prominent organizations, including the London Bullion Market Association (LBMA) and the World Gold Council (WGC), announced plans to develop an “international system of gold bar integrity, chain of custody and provenance”.
This program will test how two distributed ledger companies (aXedras and Peer Ledger) can be used to create an immutable ledger of provenance and custody for gold bars. It is hoped that other participants in the gold industry will leverage this technology to register and track their goods, helping to improve integrity the overall integrity of the industry.
Further pioneering the use of blockchain in the supply chain, Unilever recently announced its pilot test of a new blockchain-based resource traceability solution, which will see it leverage GreenToken (developed by SAP) to track, verify, and report the origins of its palm oil in its supply chain.
“Unilever is committed to achieving a deforestation-free supply chain by 2023, and blockchain technology has the potential to help companies, like ours, track their supply chains to ensure the commodities we source respect people and the planet,” said Dave Ingram, chief procurement officer at Unilever.
Until very recently, blockchains generally suffered from at least one of two major problems: low throughput and/or high fees. Given that firms may need to track hundreds to potentially thousands of items as they move through their supply chain, and make a large number of requests for historical data, this could have posed a major obstacle to adoption.
However, thanks to the advent of more efficient platforms with much higher throughput than first-generation blockchains, in addition to significant upgrades to by far the most popular smart contract chain (Ethereum), these early limitations have almost been resolved.
Likewise, a number of blockchains and DLT-technologies specifically designed to tackle the challenges posed by complex supply chains are also in the works. These include MY E.G. Services Berhad’s (“MYEG”) Zetrix SCM platform, which can be used for tracking and tracing items in the supply chain; Amazon’s end-to-end production visibility solution known as Track and Trace; and IBM and GTD Solution Inc’s TradeLens platform — which is already being used for vaccine distribution tracking, supplier management, container logistics, and more.
With more than half of the companies in Forbes’ Blockchain 50 list now using blockchain to supercharge their supply chains and tackle logistics issues, the merits of the technology are clearly being appreciated by major organizations.
About Master Ventures
Master Ventures is a blockchain-focused venture studio helping to build the next generation of blockchain-based Web 3.0 system innovations within the crypto industry. Launched in 2018 by Founder and CEO Kyle Chassé, the company’s ethos can best be summarized in the acronym #BeBOLD: Benevolent, Open, Love, Decentralized.
Master Ventures co-creates with entrepreneurs and businesses worldwide to turn the best ideas into innovative and disruptive products. They do this by investing as strategic partners through offering advisory services to the projects they believe in. To date, Master Ventures has invested in over 40 crypto projects, including the likes of Kraken, Coinbase, Bitfinex, Reef, DAO Maker, Mantra DAO, Thorchain, and Elrond.
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