Blockchain as the Backbone of Digital Supply Chains

The digital supply chain is one of the most popular methods of organization for resources, assets, people, and inventory transfers. It is based upon modern web technologies to increase efficiency, reduce costs, and provide greater income.

With the digital supply chain, companies are able to perform their moving activities while avoiding risks related to transportation and/or manufacturing.

Blockchain also provides predictability in manufacturing. With a non-transparent, non-traceable supply, manufacturers cannot make precise estimations with regard to manufacturing processes and/or delivery times. With lean manufacturing on the rise, supply timing is always a key bottleneck throughout the entire value stream. Some try to deal with it through fulfillment, but only a few companies have trusting relationships with third parties (like Toyota and Amazon).

On the other hand, the 2018 economy is famous for its complex supply chains. The process of product transfer has become more complicated in recent years.

Let’s explore the trickiest challenges faced by the digital supply chain.

Challenges Faced by Digital Supply Chains

In 2009, IBM’s global survey involved supply-chain leaders (CSCOs) to discover the common challenges they were faced with.

In the picture above, you can see the top 5:

• cost
• visibility
• risk
• customer needs
• globalization

In 2017, the global supply-chain report Eyefortransport (EFT) showed that visibility remained the main problem of the digital supply chain. Through the survey, it was found that the situation had gotten worse in 2017 in comparison to 2016:

We should take into consideration the fact that giant companies like Amazon, Adidas, and Toyota took part in the survey. Thus, this indicator is expected to be lower among less-developed participants.

In order to be decent competitors, companies had to show at least 80% visibility.

The fact that these problems continue nowadays means a lot of digital supply chains are experiencing challenges of cost, speed, and quality. We can mention such inefficiencies as:

• a poor level of transparency because of data discrepancies or even an absence of data
• manual execution of many operations, which often slows the work process
• unneeded paperwork that consumes a lot of time and resources
• insufficient interaction
• a lack of information concerning the life cycle of a product and its transport data

The archaic way of exchanging data, also known as the Electronic Data Interchange format (EDI), is one of the key reasons for poor visibility levels. In the 1970s, when it was created, it was a good solution for OEMs (original equipment manufacturers) and suppliers.

Today, it isn’t suitable for implementation for cross-border transactions.

The trade finance record is also still using inefficient means: faxes, spreadsheets, emails, phone calls, and paper.

In any case, there is a solution — and its name is blockchain.

What Is Blockchain?

Blockchain has been one of the buzziest words from its very inception. It has deserved this amount of attention because of its revolutionary role in many different areas.

Nowadays, when someone says his/her business is based on blockchain strategy, it grabs more credibility.

Check out the advantages of blockchain integration into any business sphere:

Blockchain technology can be used in any type of supply chain in which some sort of transfer of ownership is present.

Blockchain has also been deployed in the financial services industry. This technology makes settlements and international payments more secure, efficient, and transparent.

The blockchain boom assists in overcoming these complex issues in different industries. Finally, new technology is making the supply chain transparent, streamlined, and operational.

The same is applicable for the distributed ledger, which is widely using as a synonym for blockchain, but with a slightly different approach for transaction data storage and verification.

How Can Blockchain Solve Current Problems?

Companies gain a real-time digital root (or ledger of transactions and movements) for all participants in their supply-chain network. The benefits you gain will save you time, money, and effort on several fronts.

This can help ensure smoother processes, make lead times shorter, decrease delays, reduce redundancy, strengthen partner relationships, and, as a result, make your customer much happier.

The blockchain model governs product transfer and modernizes supply-chain management. Its popularity has increased since 2016 among CSCOs, which can be proven by the data below.

Thus, successful blockchain application in these areas has changed widespread perception:

Blockchain suggests a set of advantages in contrast to the traditional model, including the IT arena and analytics capabilities.

Let’s analyze the most essential areas.

Traceability

Blockchain technology optimizes the supply chain and provides the possibility to track every single stage of delivery. If data is recorded in a block/ledger, it can’t be changed. The distributed-storage feature decreases the probability of cyber attacks.

On the other hand, in order to make these blockchain benefits available for use, a lot of effort must be expended.

A consensus of chain participants provides validity that excludes the necessity of a middleman in the chain. This makes data traceable and visible to each player.

Additionally, automatic RFID tags or QR codes can record information related to a product. They are helpful in tracking delivery location and date. Logisticians can trace a product by running the program. A smart contract shows the status and data related to stage of delivery.

Security

Blockchain is a sequence of blocks, or distributed ledger, in which every participant possesses an complete copy of the data. Nothing can be changed without the permission of all participants. Due to access rights, the information must be private. This makes it hack-resistant.

The data is available thanks to the cloud and global network. If there are any special kinds of data, the owner has to approve access to them.

A shared, immutable root/ledger with codified rules provides audits for legal compliance.

Plenty of opportunities for creating new, specialized usage of this technology result from decentralized architecture.

The Smart Contract’s Power

A smart contract in more than one blockchain can provide you with an advantage for digital supply-chain revolution. This is a special code upon which program business logic is based.

It helps to supervise stakeholders, providing flexibility in the process.

Let’s think about the investigation of the Deloitte white paper “When Two Chains Combine — Supply Chain Meets Blockchain.”

How it works:

First, a trigger initiates all required factors to execute a smart contract.

Then, a product is directed to the next chain section. This increases the speed of the blockchain, as all operations are immediate. Here is a list of common digital supply-chain use cases, and the ways they can be solved by blockchain:

As a result, smart contracts will reduce working capital requirements and simplify finance operations.

IoT in the Supply Chain

Smart contracts allow the establishment of self-executing code for robots to provide supply-chain services via interaction with each other, without the need for an additional intermediary IT system.

Robots will be able to recognize each other and initiate events that activate other robots. This will be especially valued in the time when self-driving trucks begin their rise.

There are even IoT-oriented distributed systems that have already been created for this purpose, like IOTA. This is based not on the blockchain, but on DAG, which makes it perfect for MESH-network connection, in which you have no need for an internet connection between robots. With layers of blockchain that support smart contracts (like Ethereum, Cardano, NEO, etc.), IOTA could become a powerful tool for automatization of the supply chain.

Convenient Payment System

Blockchain allows the transfer of funds to take place anywhere in the world. There is no need for traditional banking methods. The transfer is a direct path between payer and payee. It is also secure and fast compared to automated clearing house payments. Bitcoin offers low-fee transfers.

You may be asking, “How can I apply blockchain technology and get all these benefits?”

Here is the answer. We are not greedy today!

Three-Step Approach

Due to the three-step approach, blockchain can be integrated into supply chains very successfully.

In order to implement this integration, you have to:

1. Establish a company internally based upon blockchain technology. Obviously, it will take time to develop the technology and keep the data available and coordinated.
2. Involve the participants (for example, logistics and direct suppliers to improve the data transfer process) in a blockchain community.
3. Unite all participants around the supply chain.

In this way, blockchain makes the customer experience more enjoyable, ensures end-to-end value, eradicates any existing problems, and decreases costs.

To sum up, blockchain technology is a modern exchange solution method for conducting digital supply chains. Its ledger, security, and smart-contract platforms offer tools designed to develop a flexible, cost-effective DSC network.

Blockchain technology appears to be a good fit for this kind of integration. Better visibility in procurement, more accurate and reliable data for analytics, and increased trust among all participants in your supply-chain network are some of the benefits of adding blockchain to your infrastructure.

This technology will become a focal point of change in the coming years. Blockchain benefits from the network effect. As soon as key players start employing blockchain technology — others will follow.

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