A supply chain is a network of people and businesses involved in creating and distributing a product or service. It includes everything from the extraction of raw materials to the end consumers who purchase the product or service. A basic supply chain system involves suppliers of materials, manufacturers who turn it into a commodity, the logistics companies that manage the transportation of the raw material and commodities, as well as the final retailers that sell goods to consumers.
As supply chains have become global, the simple network of suppliers, manufacturers and retailers described above has developed into a complex environment where various products and materials move through multiple stages managed by different parties and geographically distinct processes. Thus, supply chain management involves integrating sourcing, procurement, manufacturing, distribution, and logistics into a cohesive system. This requires cooperation among a multitude of stakeholders and plays a critical role in the success of a business.
However, today’s supply chains are inefficient, expensive, and inflexible when compared to new and innovative technologies that are impacting business around the world. The reason is that while economics and business have transformed globally, the technologies used in supply chain have stayed the same. In particular, e-commerce and the global uptake of hand-held devices have dramatically changed the way people shop. There is increasing demand for custom products, easy shopping experiences, and transparency about where goods come from. These demands pose challenges for current supply chains, which are complex, inefficient and struggle to provide data transparency over the entire flow (i.e. to track goods from raw material to end consumer).
Benefits of Blockchain for the Supply Chain
Some of these most urgent issues facing supply chains can be addressed through blockchain technology, as it provides novel ways to record, transmit, and share data.
In essence, a blockchain is a unique database system created and maintained by participants in a decentralized network. It offers a secure and reliable architecture for conveying information and transactions (e.g. the exchange of data and assets among participants in a supply chain), which can be recorded digitally. As the distributed ledger is decentralized, each stakeholder maintains a copy, which prevents a single point of failure or data loss. This also means blockchains are highly resistant to altering or tampering. Such accurate and tamper-proof records secure data integrity and can be accessed to make regulatory compliance easier. Ultimately, blockchain can increase the efficiency and transparency of supply chains and positively impact everything from warehousing to delivery to payment.
Below are some of the top blockchain projects that I have come across that have significant potential to improve global supply chains through advanced traceability, transparency, efficiency, and security.
- Insolar is the first platform in the supply chain industry to support simultaneous public and private blockchains. This means it can integrate with existing enterprise systems and even enable migration from other blockchains. Insolar is also the first to allow for amendable smart contracts. Traditional smart contracts are immutable, which is good in many ways but they do not suit the needs of business because they do not offer remedies similar to those available under traditional contracts. For example, under a traditional contract a business can engage in an “efficient breach,” i.e., knowingly breaching a contract and paying the resulting damages if it determines the cost to perform is greater than the damages it would owe. This option is not available under traditional smart contracts. Thus, amendable smart contracts are essential to business-ready blockchains because they reflect the reality of how contracting parties actually act. Insolar’s enabling of amendable and terminable smart contracts gives it an edge over the competition. The company is in talks with Fortune 500 companies in the transportation industry about developing blockchain applications for their operations, and recently joined the Blockchain in Transport Alliance, which brings together leaders in transportation, finance, and technology with the aim of building the first set of transportation industry-specific blockchain standards. Insolar also recently released a proof-of-concept video that illustrates how its supply chains could work.
- Hyperledger Fabric is a private blockchain network designed for business applications. Recently, it launched a Special Interest Group (SIG) to facilitate technical and business-level conversations related to use cases for blockchain technology in supply chain management. Hyperledger’s architecture offers features such as distributed ledger frameworks and smart contract engines. These characteristics allow for a broad range of business applications, including supply chain. However, Hyperledger only uses private blockchain technology. This means it is less decentralized than a project like Insolar. It is also less versatile since it can’t interact with other chains and does not allow for amendable smart contracts. While Hyperledger supports large transactions it does not have long (more than a block time) transaction support.
- Skuchain is another private blockchain network designed specifically for business supply chains in international trade. Its platform provides tools for control in inventory procurement across all stakeholders. The platform combines blockchain technology with the internet of things (IoT) innovations such as radio-frequency identification (RFID). However, the fact Skuchain depends on a private blockchain and does not allow for amendable smart contracts means it lacks decentralization and some versatility. Similar to Hyperledger, it lacks the interoperability of a hybrid platform like Insolar.
Traceable and Immutable Records
Blockchain data is immutable and digital signatures are required to confirm information ownership. If multiple companies work together they can use a blockchain system to record data about the location and ownership of their materials and products. This data is stored in the blockchain, which offers a full history of all items in the supply chain. Any member of the supply chain can see what is going on as materials move from company to company. These data records cannot be altered and are highly traceable. In the event of a defective product, the source of the problem can be identified more quickly, which improves the efficiency of product recalls and disruption resolution between stakeholders in the chain.
Having a transparent and complete inventory of product flow helps businesses make better decisions. It gives stakeholders and customers more confidence in a product’s quality. The improved transparency is also a tool for fighting fraud and counterfeiting.
There is a lot of waste created because of the inefficiencies of supply chains. This is especially prevalent in industries that have perishable goods, such as the food industry. The improved tracking and data transparency that blockchain offers can help business identify these wasteful inefficiencies so they can implement targeted cost-saving measures.
The use of blockchain can also eliminate fees associated with funds passing into and out of various bank accounts and payment processors. Such fees cut into profit margins, so being able to take them out of the equation is significant.
One of the problems with current supply chain technology is not being able to integrate data across every partner in the process. In contrast, blockchains are built as distributed systems that maintain a unique and transparent data repository. Each party in the network contributes to adding new data and verifying their integrity. This means that all information stored on a blockchain is accessible to all parties involved in the network, so one company can easily verify information being broadcasted by another.
Replacing Electronic Data Interchange Systems
Many companies rely on Electronic Data Interchange (EDI) systems to send information to each other. However, this data goes out in timed batches rather than in real-time. Thus, if a shipment goes missing or pricing changes, other participants in the supply chain will only get this information after the next EDI batch goes out. With blockchain, however, the information is updated in real time and quickly distributed to all parties involved.
Looking to the Future
Several large players in the supply chain industry are already embracing blockchain-based distributed systems and setting up resources to encourage its use. For example, Walmart uses blockchain to keep track of the pork it sources from China, including where each piece of meat came from, where it was processed and stored, as well as its sell-by-date. Unilever, Nestle, Tyson and Dole also use blockchain for similar purposes. The world’s largest mining firm, BHP Billiton, will use blockchain to track and record data throughout the mining process with its vendors. Diamond-giant De Beers also uses blockchain technology to track stones from when they are mined up to when they are sold to consumers. As time goes by, more global supply chain platforms will be leveraging blockchain technology to streamline the way they share information as products and materials move around.
Blockchain technology is transforming business in lots of different ways, from production and processing to logistics and accountability. Supply chain management is one particularly important use case, as every stage in the process can be registered and verified to create transparent and immutable records. Therefore, the use of blockchain in supply chains has the potential to eliminate inefficiencies that are common in the traditional management models.