Blockchain supply chain management
By tackling the inherent complexities and difficulties of supply chain management (SCM), blockchain technology has the potential to completely transform this field. From raw materials through different intermediate storage and manufacturing cycles to delivery to the final customer, supply chain management (SCM) usually entails controlling the flow of goods and services required to create a product. Traditional SCM is especially costly because of the associated expenses of managing inventory, procedures, and failure detection as a result of the worldwide interaction among numerous organisations.
The Need for Blockchain in Supply Chain Management
SCM has always lacked openness, which is problematic for the food chain. When multiple parties are involved, keeping accurate records is difficult. Lack of stakeholder trust and end-to-end visibility make supply chains vulnerable to fraud, misuse, and theft. Manual methods can be lengthy and error-prone for verifying product authenticity and quality along the chain.
Blockchain technology, a decentralised digital ledger that securely and freely records transactions, can overcome these issues. It enables financial value exchange and interaction between mutually distrusting entities without the need for a central, reliable third party.
How Supply Chain Management Uses Blockchain
The use of blockchain in supply chain management makes use of its fundamental characteristics:
Distributed Ledger Technology (DLT)
A blockchain is a publicly accessible distributed ledger that generates an immutable record of transactions between various users. The data creates a new block in the chain each time a group of transactions is added. It is nearly impossible to alter data once it has been captured. A verifiable and auditable record of each transaction is guaranteed by this immutability. To ensure uniformity and confidence, every member of the network has access to an identical copy of the ledger.
Smart Contracts
These are computer programs that run on their own and are kept on the blockchain. When certain conditions are met, they automatically carry out the provisions of a contract. In supply chain management, smart contracts can speed up procedures and cut down on errors by enabling automated payments upon delivery of goods that meet predetermined standards, starting the production of new products upon order receipt, and ensuring all necessary approvals are in place.
Cryptography & Security
To ensure the security of transactions, users sign them using public-private key encryption. The longer the chain, the more challenging it becomes to make changes due to the cryptographic linking of blocks. Among supply chain partners and investors, this built-in security fosters confidence.
Peer-to-Peer (P2P) Network
The Peer-to-Peer (P2P) architecture used by blockchain enables data to be kept globally on thousands of servers and enables real-time viewing of each other’s entries by any user on the network. As a result, middlemen are no longer necessary.
Blockchain’s advantages for supply chain management
For SCM, integrating blockchain technology has several benefits:
More Transparency and Traceability
Blockchain verifies the accuracy of transaction data throughout the digital information ecosystem and offers more transparency. For all supply chain participants and end users, it improves the traceability of inventory data and operational transparency. Real-time views of bills of lading, customs paperwork, and the status of items are available to participants. This aids businesses and customers in identifying potential negative effects, such as financial crime or violations of human rights.
Enhanced Accountability and Trust
Because blockchain records are immutable, no one person may add, remove, or alter any block without the consent of other network users. By minimising competing goals and holding pertinent supply chain participants accountable, this standardises asset management and fosters confidence.
Disintermediation and Cost Efficiency
Blockchain can result in lower transaction costs and quicker execution by doing away with the need for expensive middlemen. A single cryptocurrency, for instance, might promote a single trading market and lower transaction costs.
Fraud Prevention and Authenticity
In commodity supply chains, blockchain-based systems can prevent counterfeiting and bootlegging. To stop counterfeiting, for example, every product can be marked with a Block Verify tag, verified, and entered into the blockchain. It aids in confirming the ownership and authenticity of valuable objects like diamonds.
Better Access and Liquidity
By converting historically illiquid assets, like real estate or artwork, into liquid tradeable assets through fractional ownership, tokenisation of assets on a blockchain can provide better access and liquidity.
Faster Transactions
Real estate sales and other business transactions can be verified more quickly, which might cut down on the time it takes to complete them from months to hours. By offering a single version of the agreed-upon data on a shared ledger, it facilitates speedier trade settlement in the financial industry.
Innovation and New Business Models
It promotes the creation of new online asset trading tools and new application models, such as decentralised exchanges, insurance, and creative lending systems.
Applications and Implementation in SCM
Several industries are using blockchain for supply chain management.
- Walmart and IBM have cooperated on blockchain-based food supply chains like Food Trust to trace foodstuff from farm to table. By eliminating confusion and speeding up taint detection, this ensures food safety and quality.
- Logistics and Shipping: By digitising the supply chain process, blockchain can track and manage the paper trail of millions of shipping containers. Real-time updates on the status of customs documents and the progress of goods are available to participants. For this reason, IBM and Maersk launched a proof-of-concept shipping platform.
- Medicine Logistics: From procurement to delivery, blockchain can preserve an unchangeable record of medicine data, guaranteeing quality control and keeping counterfeit medications out of the market.
- Enterprise Asset Management: By offering worldwide ownership and authentication, blockchain technology helps businesses like Everledger and Chronicled assist enterprise asset management.
- Traceability of Goods: By preventing alteration and guaranteeing simple access to pertinent parties, the technology assists in tracking goods as they move through a supply chain network.
Also Read About Distinguish Between Centralization And Decentralization
Obstacles and Restrictions
Tokenisation and blockchain in supply chain management encounter challenges despite their promising applications:
- Regulatory Issues: Although security tokenisation norms and laws are developing, a lack of uniform regulation has been a worry. Regulating this technology is something that governments are considering.
- Scalability: Compared to conventional systems like Visa, which can process thousands of transactions per second, blockchains are currently unable to handle large amounts of transactions. For wider use in business applications, this is a significant roadblock.
- Data Quality: Information entered on the blockchain is only as good as its source; this is often known as the “garbage in, garbage out” problem.
- Centralisation Issues: Because of the required oversight and supervision from exchanges and investors, a certain amount of centralization may be imposed while advocating for decentralisation. The nodes may become centralised when a business creates its own blockchain, which would go against the blockchain’s intended function.
- Integration with Legacy Systems: Converting current contracts or company records to a new blockchain-based approach involves time-consuming and expensive migration operations.
- Costs: Because blockchains like Ethereum have built-in scalability limitations, directly storing massive amounts of data can be quite expensive. Adoption is difficult because to the high installation costs and concerns about data protection and governance.
All things considered, even though blockchain technology is still in its infancy as a commercial and widespread technology, it has the potential to revolutionise present business operations and solve long-standing problems by bringing trust, transparency, traceability, and efficiency to supply chain management.