Impact of Blockchain in Supply Chain

Rising into prominence with the cryptocurrency hype, the scope of Blockchain technology is now being explored outside financial services. While the market value of Bitcoin, Ethereum and Ripple has skyrocketed to over 10,000 percent, the global blockchain market is estimated to reach $7.59 billion by 2024. According to the report, demand for blockchain is set to rise across various sectors such as media, telecom, healthcare, transportation and consumer or industrial products.

With several banks already experimenting with blockchain so as to deploy it in their services, blockchain has a convincing use case for the finance sector. However, arguably the next biggest transformation it could bring, would be in the supply chain management. According to a report by IndustryARC, blockchain’s supply chain market is projected to reach $424.24 million by 2023 with compound annual growth rate (CAGR) of 48.37%. The many benefits of blockchain such as automation of contracts, reduced costs, better visibility into the process etc., have made it a promising solution to the existing problems faced in the management of supply chain. The traditional SCM is wrought with issues that impede it from efficiently delivering the needs of the global market. To see how blockchain could make an impact on the supply chain, an overview of these existing problems in SCM becomes necessary.

Lack of Transparency — With globalization, managing supply chain has become an incredibly complex task. Neither customers nor enterprises have a clear visibility of all the elements in the management. As products have to travel multiple geographies, it is extremely difficult to keep track of every channel that the product passes through. Due to this lack of visibility, companies have no way of identifying the inefficient intermediaries in the process and as a result expenses rise for the enterprises, which in turn hampers customer satisfaction and inflates prices for the consumers.

Long Lead times — Lead time refers to the time between the initiation and the execution of the production process. When suppliers, manufacturers, distributors and customers are spread across multiple geographies, longer lead times are experienced. This is particularly the case with global supply chain where supply chain parties are located in different countries. As the demand for their products rises, enterprises cannot afford to have longer lead time. Thus, it becomes a critical appealing factor to the customers.

Maintaining trust across supplier networks — A crucial factor to handling supply chain is maintaining good relationships with suppliers involved in the network. While it is a smaller issue for domestic players, it is a key element for handling global supply chain networks. When globalized, enterprises need to maintain good trust with a wider number of suppliers, while at the same time having no control over them. As a result, enterprises cannot manage their businesses efficiently as they are reliant on the supplier to deliver items. Therefore it becomes crucial for companies to weed out unreliable suppliers.

Uncertainty — Having to send products over various geographies, the supply chain, severely suffers from uncertainties in logistics and production due to political and economical instability of a region. In addition, an enterprise managing suppliers in multiple countries has to take into account the region-specific factors such as transport connectivity, weather etc., in order to be able to effectively manage the supply chain without hindering their business operations.

Security — Without visibility into the supply chain and proper accountability of who handles what, passing products over different channels implies that they are subject to several risks, such as, theft and piracy. For instance, items while in transit can be taken through illegitimate channels in which unauthorized replacement of items can take place or they can be tampered with. Besides, those enterprises that rely on sub standard IT management systems may be subjected to hacking, thereby, posing a threat to the entire supply chain network.

How can Blockchain Technology help?

While some forms of the Distributed Ledger Technology (DLT) has been around for over a decade, such as the Peer-to-Peer (P2P) Torrent technology, what makes Blockchain worthy of the attention, is its unique combination of various concepts. Blockchain is a distributed ledger that works upon the principles of game theory, P2P technology and cryptography.

A distributed ledger is nothing but a registry of digital data or a database distributed or spread across nodes in a network to be shared and viewed. It is essentially a decentralized network that works without a single central authority. Following are the key features that make blockchain appealing as a distributed ledger platform for supply chain:

Decentralized — Having a ledger replicated over all the user nodes in the network implies that the transactions are always verified by users to be legitimate. For supply chains, decentralization is the ideal solution to tackle the issue of transparency. For instance, enterprises can record location, price, date and other relevant information of items in the supply chain and this information, shared via public ledger, can provide all the stakeholders with the information and status of the transit and origin of items.

Immutability — One of the striking features of blockchain is that once the information is recorded on a block in the chain, it cannot be tampered without altering the subsequent blocks and without the consensus of the majority of users in the network. The level of security that blockchain allows, owing to its immutable nature, ensures that the recorded information is not altered. In the case of supply chain, trustworthy and shared records ensure stakeholders to maintain trust among partners.

Smart Contracts — Opening up blockchain’s application across other verticals, the Smart Contract is a feature that allows two parties to enter into a contract and have the terms in the contract execute automatically once an event is triggered. It is essentially a piece of code that is encoded into a block and distributed across the network. This is highly relevant in supply chains, where financial transactions can be easily managed between multiple parties instantly at the time of product delivery, thereby, enabling transactions efficiently in a faster and cheaper way.

Recognizing the potential of blockchain, enterprises are becoming more positive towards its adaption into the supply chain management. For instance, IBM has paired up with Maersk, a leader in logistics and has used blockchain in its initial pilot to digitize, automate and store paperwork. Hence, it is evident that blockchain has certain advantages and understanding the key benefits is vital to know its potential.

Potential benefits of using blockchain in supply chain:

Undoubtedly the key reason to implement blockchain in supply chain is to increase transparency, improve security and reduce costs, and in particular, following are some of the benefits it provides:

  • Reduced paperwork and administrative costs
  • Streamlined business processes
  • Improved visibility of supply chain channels
  • Increased traceability of materials in the channels
  • Prevent theft and piracy
  • Improved trust and transparency between business parties
  • Increased customer satisfaction

It is evident that adopting blockchain provides numerous advantages for the supply chain industry. It also gives a competitive edge that is much need for any enterprise to stay relevant in the market. In addition to the benefits highlighted above, blockchain enables enterprises to reduce communication errors and improve collaboration between parties, as all those involved have access to the same information.

To conclude, blockchain technology has an immense potential in the supply chain management practices. For any industry, supply chain forms a major part of the business and coupled with globalization, an effective business strategy always prioritizes streamlining the supply chain. Blockchain, therefore, comes as a solution that can completely tackle the issues of transparency and security that currently exist in the supply chain. For enterprises looking to gain a competitive edge, early adoption of innovative solutions, such as the blockchain, becomes a key to the business growth.

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