Blockchain in Supply Chain

Where does the real potential lie?

Using blockchain technology to enhance supply chains continues to be a hot topic among executives and investors. While promising applications gradually come online, finding the right fit has proven challenging as misconceptions surrounding the technology’s capabilities continue to endure.

To date, millions of dollars have flowed into blockchain applications that create little added value or don’t make sense in the first place.

A blockchain is no silver bullet

One common misconception understands blockchain technology as a silver bullet solution that can solve every supply chain problem. Of course, this isn’t true, not least because today’s supply chains are so incredibly complicated. Supply chains also differ widely by industry, the number of parties involved, trust levels between these parties, and each have a unique set of challenges and requirements.

A blockchain isn’t the only or best solution out there

Blockchain isn’t the only technology solution for supply chain optimization. Other technologies, such as electronic data interchange (EDI), exist and even serve as a better option in many cases. Generally, a centralized database is more than adequate for supply chains with known and trusted players who closely collaborate.

Blockchains won’t be public or open

The vast majority of blockchain solutions for supply chains will be permissioned; they will not be public or open to all parties, as some commentary has outlined. Instead, access will be governed centrally and restricted to known parties who may face limitations in the types of data they can see. Open access is not possible given privacy concerns around IP, pricing, margins, etc.

Of course, none of this means there aren’t several high-impact applications for blockchain technology in supply chains. But these realities indicate a need for a more nuanced and critical eye when investing in blockchain-based supply chain solutions.

They also serve as a cautionary tale. When deploying a blockchain-based solution, it’s essential to understand each supply chain’s specific and unique pain points. It’s also critical to understand the technology’s capabilities and the real value add.

Where Does the Real Potential Lie?

Ultimately, the most impactful applications can be found where the technology provides substantial advantages over other supply chain solutions in areas such as automating connections between parties, establishing trust, and reducing complexity. Within this context, there are two key areas where blockchain can make a significant impact.

Automation and reducing intermediaries

Blockchain technology can help replace many slow, manual, and repetitive processes using self executing smart contract agreements that automatically execute according to predefined rules. By automating many high volume and time-consuming tasks like payments and settlements, supply chains can reduce operating costs and human error, leading to greater efficiencies.

Smart contracts also eliminate the need to store copies of the same document on numerous databases across various entities, putting an end to duplications and data reconciliation.

With better record keeping, a supply chain can become more efficient, enjoy greater accountability, and adhere more effectively to regulatory compliance requirements. With secure and accessible digital data available to parties in a transaction, fraud and other execution risks can be reduced as well, as smart contracts prohibit manipulation and nonperformance.

Provenance and traceability

Knowing where products come from is becoming more critical to businesses as consumers become increasingly aware of sustainability and slave labor issues. But for companies in industries like pharmaceuticals, there is a legal necessity to comply with strict regulations on maintaining a drug’s chain of provenance.

Blockchain can collate and share data about the locations and materials that create products leading to a more transparent supply chain. The technology can help verify the authenticity of products and raw materials to guarantee product quality, safety and prevent fakes by providing some types of businesses the ability to look into granular data throughout each stage of the supply chain and track the movement of goods.

With the ability to trace goods throughout the supply chain, businesses can gain the capacity to conduct real-time audits to see where a problem has occurred.