Is Blockchain the Future of Supply Chain? Benefits and Challenges

You probably know blockchain as the powerhouse of cryptocurrencies such as Bitcoin, right? Most people do, but the truth is that blockchain represents a much more complex technology with enough potential to revolutionize a wide range of industries.

Supply chain systems are certainly one of the branches of business that could benefit from blockchain technology. A lot of companies have started exploring this option and already proposed some projects that aim to find the best use cases for this new revolutionary tool.

In this article, we will discuss the benefits and current challenges of using Blockchain in the supply chain.

What Is Blockchain?

By definition, a blockchain is a digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network. Simply defined, it's a way of recording and sharing data across a peer-to-peer network.

The important distinction here is that information shared on this type of network is decentralized and open to anyone. That means there isn't one governing body or single person who has control over the information or can make changes to the blockchain ledger. The main features of blockchain include:

• Immutability: No one can change the database
• Decentralization: No one governs it
• Security: Data is cryptographically secure
• Transparency: Everyone has access to the data
• Speed: Transaction speed increases as the network grows

Almost all data science consultants agree that blockchain has huge potential in the field of supply chains. That's why the global blockchain supply chain market size is projected to reach $9.8 billion by 2025.

But how is this possible? Keep reading to find out.

5 Ways Blockchain Contributes to Supply Chain

Blockchain has nearly unlimited potential in all fields of work, but we don't want to analyze dozens of benefits and use-cases. On the contrary, we are going to focus on five ways this technology can contribute to the supply chain.

1. Improved planning and forecasting

We all know how important planning and forecasting are for the success of a company, but it is always difficult to have an accurate estimation of demand and supply. One of the biggest advantages of blockchain is its ability to improve these two elements of the supply chain system.

Blockchain will do the task easily thanks to its decentralized network where information is distributed among many nodes. There won't be a single point of failure that can lead to inaccurate data. Therefore, planning and forecasting will be more precise than ever before.

At the same time, software consultants say that blockchain gives companies enough data to analyze the past. Big companies with a lot of transactions can use it for efficient data analysis that would lead to better decision-making.

2. Faster delivery

Shipping physical products from one country to another is a complicated process, but blockchain can make it faster. Reducing delivery times is a huge advantage for any international business because it will increase their productivity while decreasing costs.

The shipping process begins when a supplier sends the shipping information and the product to an importer. The importer stores this data in a smart contract and writes down all shipment details on blockchain until it reaches the customs agency.

This way, every time there is a new update or change of cargo, it will be recorded on the ledger automatically without any need for third-party assistance. As a result, the process of shipping and customs operate smoother.

3. Enhanced transparency and traceability

Product traceability is yet another benefit of using blockchain in supply chains. Customers feel more secure buying products on the market when they know how the product went from producer to consumer.

Thanks to the decentralized nature of blockchain, you can easily trace any product from point A to point B. In other words, your clients will be able to see the location of the cargo at all times thanks to GPS tracking devices that are installed on ships, trucks, containers, etc.

4. Better partner coordination

Partner coordination can be a useful application of blockchain in the supply chain industry. This technology makes operations transparent and verifiable to everyone involved in the process, including suppliers and customers.

Suppliers can track the production process with a GPS device and transmit data at each stage to producers who can also share their data. All of this information will be stored on different nodes in the network and it can't be changed, manipulated, or removed without consent from other parties.

A decentralized ledger brings all parties to the same page by providing them with access to the same data. To put it simply, partner relations and coordination will flow much smoother thanks to blockchain.

5. Less paperwork

The supply chain industry is not an easy one. It consists of many different parties and all of them need to work together to deliver the product on time. Blockchain facilitates this process by automating operations and eliminating third-party systems like banks and brokers.

Eliminating the middleman means lower costs for your business, but it also reduces the number of possible errors. As the result, you get to minimize repetitive administrative tasks and paperwork.

Challenges of Implementing Blockchain in Supply Chain Systems

Despite all its benefits, supply chains are going to face a few challenges during blockchain implementation. We don't think these obstacles are a long-term threat, but they will probably slow down the process. Here are the main challenges:

• Upfront costs

Implementing any new technology requires investments. Blockchain is not an exception - it definitely requires a certain level of capital to start with. This obstacle will only last until the blockchain industry matures enough for companies to benefit from using it without breaking the bank.

• Steep learning curve

It's important to understand that it will take a while for supply chain managers and professionals to learn the ins and outs of this technology. However, companies that start early will gain a comparative advantage for sure.

• Scaling

Blockchain is not easy to scale. It faces issues with transaction processing capacity, storage space, and energy consumption among other things. Scaling will require serious planning because it means including more people, tools, and money in the entire process.

Conclusion

Although blockchain technology comes with its own set of challenges, the benefits it offers are undeniable. The advantages of using blockchain in this industry are simply too great to ignore.

With careful planning and execution, businesses can take advantage of all that this technology has to offer. What do you think? Is blockchain the future of supply chain management? Let us know in the comments!