The Technology Behind Blockchain-based Supply Chain: What Does it Actually Do?

Image: Pixabay

In the year 1991, Stuart Haber and W. Scott Stronetta first described cryptographically as a secured chain of the block following their intensive work in this field, they wanted to create a system which could timestamp documents that could not be tampered with.

The first conceptualized blockchain was introduced by a person known as Satoshi Nakamoto in the year of 2008 and improved the system using a methodology similar to Hashcash and implement the first cryptocurrency Bitcoin the following year.

Since nobody knows anything about this mysterious character, the uncertainty of Satoshi’s identity has produced a host of bitcoin conspiracy such as 4 noteworthy Asian tech giants explicitly Samsung, Toshiba, Nakamichi, and Motorola created bitcoin, it can be a project of American intelligence agencies and many more.

Now, Blockchain the technology behind bitcoin is being widely accepted by many industries as a platform to enhance the existing model of operations in various internal and external functions of a company.

The next generation of blockchain technology is being used as a platform for artificial intelligence, e-government, predictive analytics, security, and IoT. One of the areas where blockchain technology is being deployed and accepted across industries is the supply chain.

Nearly all the leading companies of the world are using supply chain management and enterprise resource planning software. Despite this huge investment most of the companies only have limited visibility into where all of their products are at a given point of time.

The analog gaps within the ecosystem of a supply chain are the culprit in most of the cases. Production may be recorded digitally at the manufacturing point but as soon as the product moves out, the visibility and tracking of goods get restricted to digital tools like RFID and PDF documents created to track the goods.

The systems currently in place were very relevant 30 years ago but not so much today. Creating a truthful set of data upon which a large number of entities can agree could only be done through a middleman, until the advent of Bitcoin and blockchain technology.

Blockchain technology makes it possible for a large number of partner companies in an ecosystem to share and agree upon the key pieces of information without using a middleman.

Instead of having a central intermediatory all data and transactions across the network can be synchronized through blockchains, and all the participants verify the calculations and work of others.

The logic of blockchain applied to the supply chain. The security and redundancy of blockchain applied on things like inventory, substituting supply chain partners with banking nodes will create the foundation of an entirely new way of supply chain management using blockchain.

At the core, blockchain technology means that there cannot be two locations for a piece of inventory at the same given point of time, as soon as the product is moved from the central location the transaction status of the goods will be updated to “in-transit” for everyone in the ecosystem within minutes with complete traceability back to the point of origin.

Although it’s a new technology, big companies are already undergoing pilot deployment of supply chain management systems powered by blockchain.

Starbucks is set to use a distributed ledger technology system powered by Azure Blockchain Service to gain “digital time traceability” concerning its supply chains.

Food and beverage giant PepsiCo had recently conducted a trial dubbed as “Project Proton” to test how blockchain powered supply chain management system can increase their efficiency and not so surprisingly found that system brought a 28 percent boost in supply chain efficiency.

Power of a Blockchain-enabled Supply Chain

Through blockchain, businesses gain real-time digital ledger of transactions and movements of goods across all nodes from all the involved participants in the ecosystem. But that’s all — the benefits of blockchain is transformational leading to businesses saving more time, money, and effort from all the fronts.

1. More Visibility and More Saving while Procurement

Businesses negotiate procurement discounts based on the overall purchase they generate. In a business driven by various vendors, subsidiaries, and internal functions, it becomes difficult to keep a track of the volume a company drives.

Blockchains make that simple by constantly refreshed digital ledger that consists of data from all the partners in the ecosystem this furnishes the capability to see total volume regardless who made those purchases in the ecosystem.

Without blockchain, a company would require to hire multiple auditors to capture the volume of purchases through manual orders.

2. Better Data and Analytics

A supply chain is a continuous process which includes multiple nodes of data generation. To understand how much product or material is in different locations, how much demand is generated in a period of time companies have to put additional effort by deploying people and technology to answer these questions.

In the technology industry, the cost of keeping inventory worth $1 per year is estimated to be about 20 cents to 40 cents taking into consideration the cost of capital and rapid depreciation of technology products.

Through blockchains, the system gains the capability to track and manage resources at the level of an ecosystem, providing much better forecasting and the need to keep less inventory to maintain the same level of service.

3. Digital Contracts and Payments

According to various researches, it takes an average time of 60 days in fortune 100 companies to get paid after completing a task of delivery of a product on the ground.

Although these payments are governed by contracts where most of them clearly state the payment to be cleared within 30 days of delivery of services, it takes twice that time to get the payment.

The gap is between contract and reality is generated because of the “analog gap.” That is, after completion of work, the process of invoice generation, emailed to the customer, payment process at the customer end which includes verification of delivery of services takes a lot of unnecessary time which can be cut short using blockchain powered ecosystem.

4. Stop the Rogues

Blockchain creates one ecosystem where all participants have exactly the same series of the ledger to create one-shared truth without one all-powerful centralized intermediary.

Each ledger contains information for all the transactions made and movements of inventory across the ecosystem. If any participant tries to fool the system by changing the entries in the ledger, it would only be manipulated with the entries in their ledger. This will un-sync their ledger with others, a powerful deterrent to bad behavior.