Blockchain technology is revolutionizing the way businesses manage their supply chains. By providing a secure and transparent way to track products from their origin to their final destination, blockchain for supply chain can help increase efficiency, reduce costs, and improve trust between suppliers and customers.
However, implementing blockchain in your business also comes with its own set of challenges. In this guide, we’ll explore the benefits and risks of using blockchain for supply chain management so that you can come out of this read with a better and deeper understanding of what it is and how this profound technology can be used to elevate and implement supply chains of the future.
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What is blockchain technology and how does it work in supply chain management?
The use of complex technologies in managing inventory, transportation, trade, and other supply chain activities has been evolving for ages. With the advent of the digital age, businesses are constantly seeking innovative solutions to improve their operations. One such technology that has had a significant impact on the financial industry is blockchain, which is the underlying technology of digital currency or cryptocurrency. Initially introduced by Nakamoto in 2008 in his publication on Bitcoin, blockchain technology refers to a decentralized peer-to-peer network that runs behind Bitcoin transactions.
Blockchain technology is a decentralized, digital ledger that records transactions in a secure and transparent way. In supply chain management, blockchain can be used to track products from their origin to their final destination, providing a secure and transparent way to verify the authenticity and quality of products. Each transaction is recorded on a block, which is then added to a chain of blocks, creating an unalterable record of the product’s journey. This allows for increased efficiency, reduced costs, and improved trust between suppliers and customers.
With its decentralized feature, blockchain technology allows real-time data sharing between different parties while ensuring secure data storage and preventing unwanted changes in a network. It has become increasingly important for companies to embrace this emerging technology as they seek to adapt to rapidly changing environments and become more digitized. Even though adoption of blockchain is currently rare, it will become an essential tool for companies that want to continue their digital transformation in the future.
Large companies have already entered the blockchain ecosystem, and businesses should not overlook this technology if they want to improve the quality of their supply chain operations. By implementing blockchain for supply chain, companies can benefit from increased efficiency, enhanced transparency, and reduced transaction costs.
Real-World Examples of Blockchain in Supply Chain Management
An example of the use of blockchain in supply chain management is demonstrated through a project conducted by IBM and a large retailer in 2017. They collaborated to trace a bundle of sliced mangoes back to its source, with traditional paper documents taking nearly seven days to complete the task. In comparison, a blockchain search only took 2.2 seconds, demonstrating the effectiveness of blockchain in tracing and verifying product origins. Similarly, Nestlé has been utilizing blockchain technology since April 2019, allowing customers to track the entire production process from farm to warehouse through QR codes. As a founding member of the IBM Food Trust, Nestlé aims to improve customer confidence in the safety and authenticity of their products through the use of blockchain.
IBM and Maersk collaborated in June 2016 to launch a blockchain application that connects shippers, ports, customs offices, banks, and other entities in Maersk’s global supply chain known as TradeLens. This application eliminates redundant paperwork and provides real-time freight tracking. However, TradeLens was shut down in November 2022, which we will expand on further later in the blog when highlighting the challenges that arise when implementing blockchain technologies in supply chains.
Walmart, the largest retailer globally, also leverages blockchain technology in its live restaurant business to track, identify, and remove food if necessary. The company aims to reduce food recall times from weeks to seconds. In trade finance, HSBC completed the world’s first commercially viable trade finance transaction in May 2018, using blockchain. The bank’s proof of concept was a blockchain-based letter of credit for a transaction with Cargill. These blockchain for supply chain applications demonstrate how blockchain technology can streamline logistics management, supply chain management, and trade finance operations.
Advantages of Using Blockchain for Supply Chain
Blockchain technology can revolutionize the supply chain industry by reducing the cost of trust through a decentralized, distributed, secure, and immutable ledger. This innovative transaction method can disrupt the economic organization and supply chain structure.
Although the financial industry has used blockchain for the longest time, blockchain technology has proven to be a disruptive force in various industries. In fact, the Forbes 2020 list of top 50 blockchain companies showed that financial services led the solution field with a 39% advantage, particularly in cross-border payments, digital asset transactions, and digital/encrypted currencies.
Blockchain technology can also ensure security, immutability, and authenticity. It can detect fraud, prevent theft, and authenticate data and documents. Moreover, it can reduce process complexity, improve quality assurance, increase automation, and eliminate intermediaries.
In terms of operational efficiencies, blockchain technology can improve compliance, reduce transaction costs, and minimize human error. Thus, the blockchain is an efficient driver of transparency and trust that can significantly benefit the supply chain industry.
Challenges in the Adoption of Blockchain for Supply Chain
Despite its potential benefits, implementing enterprise blockchain requires establishing common data standards and bridging organizational silos to promote record checking. We have outlined some further hurdles that may arise when implementing blockchain for supply chain management:
Lack of Awareness and Knowledge
- Lack of understanding and awareness regarding blockchain’s potential
- Limited availability of skilled workforce to design, implement and operate blockchain solutions into supply chain operations
- Lack of trust among companies who are nervous about sharing data
Regulation and Governance
- Lack of clear legal frameworks to govern blockchain transactions in various domains
- Limited accepted business practices to act as a reference for operating and governing blockchain solutions
- Integration issues due to variety of individual solutions used from each party involved
- Non-existence of a standard “one blockchain” solution
Risk of Disintermediation
- Redundancy of intermediates in the logistic chain
- Very specific use cases and requirements of existing blockchain solutions
- Limited direct visibility of benefits for the flow of goods due to more focus on process automation and optimization
- Lack of full global industry collaboration due to which a lot of the blockchain solutions out there are not commercially viable
- An example is of the IBM and Maersk collaboration, TradeLens, which had to be shut down for the same reasons which you can read further about here.
Blockchain as the future of Supply Chain?
Supply chain management is essential to business success, and it involves the coordinated management of product, process, information, and cash flows. However, the increasing complexity of global supply chain networks and uncertainties in geopolitical, technological, and economic spheres make this task challenging (Chang, Y et al. (2019)). Blockchain technology offers a promising solution that can secure data storage, replace traditional business models and increase competitiveness in terms of product cost, working capital, speed-to-market, ROI, stakeholder value, and profitability. It’s not a question of whether to use blockchain technology, but when to start using it. However, the adoption of blockchain technology faces certain challenges, such as industry-specific requirements and a lack of knowledge, trust, legal frameworks, interoperability, and performance.
Although the use of blockchain technology has been prevalent in the banking sector, it has broader applications in logistics, insurance, energy, industry, health, and more. The use of blockchain technology for supply chain management has the potential to improve transparency, security, and efficiency by enabling the real-time tracking and monitoring of products throughout the supply chain network. Companies that adopt blockchain technology early can gain a competitive advantage and stay ahead of the curve. With the growing list of blockchain services and applications, vigilance is necessary to ensure that businesses do not miss out on this opportunity.
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- Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System
- Amami, M. (2021). Emerging Technologies and Supply Chain Digitalization
- Geimer, H. ; Vermeire, P. and al (2020) ,PwC, Blockchain in Logistics