Blockchain Technology Is Revolutionizing Supply Chain Management
How well do we know the food we consume? Do we know where it originated, how it is produced, whether it is organic? What is the visibility and trust level, we have?
Do we know if the medicine we consume is genuine or counterfeit? The World health organisation (WHO) has estimated that 10–30% of all medicines in developing countries is counterfeit.
In this article we see how blockchain technology could be adopted in Supply Chain Management to address these concerns.
Key Challenges in Supply Chain Management
Multiple separate players
The global supply chain ecosystem is very complex with a plethora of activities. In the global ecosystem multiple parties are involved, each one trying to coordinate and share information to work together to move the products and services across the supply chain.
Despite the investment in technology and related infrastructure, the entities in the supply chain have limited visibility to their products at any given point of time.
Lack of transparency
Separate “legacy” systems used by the entities in a supply chain network. This causes duplication of data and information between systems and enterprises could be out of sync. This can also lead to discrepancies, inefficiency and manipulation.
Limited visibility
Silos of information are held within an organisation. Using systems like electronic data interchange (EDI) and XML moves information only one stop down. A manufacturer of electronic components will not be able to trace the mobile handset (with the serial number / IMEI number) where his product is finally used.
Paper based shipping documents and labels printed when the goods leave the manufacturing plant. Numerous other paper-based transactions happen between the supply chain entities before the product finally reaches the end customer. This gives rise to a gap between systems across enterprise.
Counterfeiting
Counterfeits in the supply chain is a pervasive problem and it is getting worse. If not properly checked for quality, and authenticity, counterfeits can enter the supply chain. The global value of counterfeit goods is estimated at $1.2 trillion.
Defining Blockchain
Blockchain can be defined as a distributed ledger, which is
Decentralized — The blockchain architecture uses decentralized, distributed ledger. This means the participants in business network has access to the same ledger, which is updated every time a transaction occurs through peer to peer replication.
Secure — The transactions are cryptographically signed, making it extremely secure. The transaction blocks in the blockchain are linked by cryptographic hashes to ensure integrity of data.
Immutable — A block of information once verified and added to then blockchain can never be deleted or modified. This give the blockchain the properties of immutability, provenance and finality.
Trusted- The consensus algorithm in the blockchain protocol determines how the transactions are validated by peers and encoded to blockchain. There is no central entity or system controlling the blockchain network. Thus, blockchain constitute a highly trusted platform implemented on open, trust-less networks of peers.
Adopting Blockchain in Supply Chain
Blockchain technology, when adopted by the supply chain network, the transactions are recorded in a common ledger which is available to all the participants of the network. The privacy services of the blockchain protocol will ensure that the participants see only the parts of the ledger that are relevant to them, and that transactions are secure, authenticated and verifiable.
Key benefits of Blockchain in the Supply Chain
Traceability — When an asset moves along the business network, Blockchain records each change in ownership or change in any attribute of the asset as a new block. The original block of the asset is never changed. Thus, Blockchain maintains entire history of an asset giving it the property of provenance. Products & Assets can be tokenized and its movement tracked throughout its life cycle.
On October 6, 2006, multiple states in the US suffered a major E-Coli outbreak. The culprit? Spinach. It took the Food and Drug Administration (FDA) a total of 2 weeks to find the source of the contaminated spinach. Today, with blockchain implemented this can be achieved in a few seconds.
Walmart is adopting blockchain solutions for is leafy-greens suppliers and mandated them to comply by the end of 2019. Walmart has also tested solution for tracing the origin of Pork sold in its stores, which is sourced globally.
Transparency & Trust — The shared, immutable digital ledger bring in transparency and trust across all participants in the supply chain network. Consensus algorithm ensures only verified and authenticated transaction is added to the blockchain. Then shared ledger provide with greater visibility into participants’ activities along the value chain. This reduces disputes, reporting costs, and eliminate errors associated with manual activities.
Improvement in efficiency — Procurement decisions and planning would become more efficient since information is shared in real-time and seamlessly to all stakeholders, providing better visibility of the entire supply chain network. With cleaner, trusted and verified data, forecasting and planning becomes more efficient. Better data gives better outcomes. Multi-way matching of supplier invoices, product pricing, order booking and validation process could be radically enhanced.
Smart contracts — Smart contracts are tamper-proof, self-executing piece of programs running on top of blockchain infrastructure. The business contracts between parties can be incorporated as business logic in smart contracts. When contractual terms are met, the smarts contracts are executed, triggering movement of assets, payments etc. for eg. When proof of delivery is presented by the logistic carrier, if payment terms are payable upon receipt, the self-executing smart contract triggers automatic digital invoicing and payments through the banking system. Cash-to-cash cycle becomes extremely efficient.
Reduce counterfeiting — Blockchain can track the progression of assets, record the information, and show previous asset records. Smart contracts and consensus algorithm ensure authenticity of the assets moving across the supply chain. Any change in any part of the process will automatically create an exception. Critical information like quality report, statutory certifications, audit reports etc will remain immune from forgery and other compromise.
Italian winemakers are the first to implement DNVGL “My Story™“ blockchain solution to track provenance of wine and products. Scanning the QR code on the wine bottle gives consumers insights to contents of each wine bottle. Consumers get Grape-To-Bottle visibility, which provides Quality, authenticity and origin of ingredients.
Integrating with existing technology infrastructure
Using Blockchain Oracles, the blockchain technology could be integrated into the existing technology infrastructure like ERP, CRM, RFID, IoT etc. The difference now being when you look at data, you just don’t see your data but that of entire supply chain network. This data can be trusted, audited, traced, analysed upon to get very deep business insights!
Conclusion
To conclude, blockchain provides a single source of truth that is verifiable, tamper-proof, traceable and unchangeable. When implemented properly, blockchain has the potential to revolutionize the way we do business.