NFTs & Supply Chain: What Are The Applications?

NFTs & Supply Chain
22 Apr

Non-fungible tokens, or NFTs, have proven their potential in every industry known. Non-fungible means non-interchangeable tickets stored on a blockchain (electronic digital ledger). The topic, Application of NFTs in Supply Chain Management, is buzzing in the supply chain & logistics space. Not only will the NFTs move the supply chain from unnecessary paper trails to an electronic platform, but they will also reduce all the bottlenecks experienced in the pipeline.

In the past two years, the supply chain industry realized the system’s fragility and how operating failure in one country can negatively disrupt the entire chain. Hence, Non-fungible tokens have gathered so much attention to solving this disruption globally in the coming years.

Application of NFTs in the Supply Chain

 

NFTs in Supply chains are an emerging concept, and not many are aware of the benefit of streamlining the supply chain. The industry is aware of Blockchain being a problem-solver, but NFTs are irreplaceable tokens and have more significant applications.

 

Traceability of the Product  

 

Globalization is deep-rooted in the system. A product’s journey starts six months or a year before the actual sale at the retail/market shop. Outsourcing takes place in every service, so much so that the retailers or businesses are not aware from whom a specific part of the product is procured. A good example would be the Rana Plaza Tragedy of 2013. Companies like H&M, Gucci, and Versace weren’t even aware that the Rana Plaza factory was their supplier.

 

At such a time, NFTs will prove their worth. With the ability to know the real-time movement of the product due to its tokenization system, a company can easily find out the owner of the asset by quick scans and running reports. For perishable products, it is vital to know the distribution nodes for calculating shelf life and the time window for selling the perishables. NFTs create metadata for every product in the system, and the managers can have a real-time location of any product at any time. The tokenization system will also improvise how inventories are managed in the supply chain. Companies can have real-time replenishment data, fewer stock checks required, and fewer stock-outs.

 

We have seen the rise of the Pharma industry, but at the same time, we also saw all the malpractices going on in the Pharma industry. For example, a report from ABC News (Australia) claims that many were given harmless saline injections instead of the covid19 vaccine. The NFT technology can help eradicate most of the malpractices carried out worldwide as the customers have visibility of the entire supply chain journey, the name of the producer/owner, storage locations, and the product’s viability.

 

Data Sharing

 

This application is more beneficial to the customers because the companies are reluctant to share helpful information with the customers. Take the example of a smartphone. When we buy any smartphone, we go with features and the company, and we have no clue where it is manufactured, when it is manufactured, and the battery shelf-life. NFTs can create a transparent platform between the company and the consumer, thus creating trust between parties.

 

Better Supply Chain Collaborations

 

NFTs supply a sole source of truth. The cycle of building better supply chain collaborations begins by having one single fact from seller’s seller to buyer’s buyer. Trust is necessary to form SCC (Supply chain collaboration) and allow companies to take collaborative advantage by sharing resources and data.

 

Supply chain collaboration is of recent origin where the industry witnessed VMI (Vendor Managed Inventory) & CPFR (Collaborative Planning Forecasting & Replenishment). Companies are looking to cut costs and have an upper edge in dealing with competition. A fine example would be the supply chain partnership formed between 2 FMCG giants, P&G – and Walmart. A paper written by Michael Grean & Michael Shaw claims that increased profit margins, better decision-making, reduced inventory runs, and a more customer-centric approach. Starting a partnership and keeping the partnership are two different things. To save a collaboration, one company must supply all relevant data on every step, and from now on, technologies like NFTs will play a significant role.

 

NFTs support having one single set of data for the participants. For example, Gillette, a company owned by P&G, will have a scannable code on its razors. If the razors are manufactured in Poland (one of the factories of P&G), then these scannable codes (cryptographic implementation) will depict who was the raw material supplier, the pallet size, shelf-life, who were the trucking companies involved, financials, facilities involved, and stakeholders, to Walmart, who is the ultimate retailer. Such technologies create trust between parties and the initial point of strategic partnership.

Read further, Digital Supply Chain – 8 C’s of How to Make Your Supply Chain Digital

Streamlining Procurement Operations

 

To streamline the procurement operations, a critical point is to have 100% transparency from the supplier’s and buyers’ sides. Procurement is not just buying varied materials from the suppliers; it is the process of planning & identification, evaluating 100s of suppliers, selecting suppliers, adjusting the supplier performance goals, contract management, and payment evaluations. You can find more about procurement here.

With NFT placed in the system, companies can avoid supplier-boarding discrepancies. NFT being a non-changeable asset, alteration of data is not possible. NFT helps create a shared procurement platform for all the enablers. Chainyard, a blockchain firm, published a white paper showing that a new supplier’s onboarding process is faster by 70% to 80%. NFT being on blockchain technology enables finding minimal risk suppliers, providing a single platform with comparisons, forecasting & managing risks, and matching supplier’s standards with industry standards.

 

Production, Transportation, and Warehousing 

 

NFTs create a digital identity for every part included in a system. For example, each semiconductor will have its own digital identity stored in the system in the automotive industry. It will also update data automatically via time-stamping & geopositioning.

 

Employing NFTs will provide defects faster than before. NFTs will reduce the recalls, thus saving millions for the company. Reverse Logistics is quite costly for companies, especially in the FMCG sector. NFTs will help identify the product line and manufacturing batch quicker than before, thus back-tracking the entire supply chain.

 

One more example in the trucking sector is feeding every tiny detail in one digital ledger. Every week the trucks undergo repairs & maintenance, and the problem here is having no same driver for one truck every week. Here, Non-fungible tokens will give the details of every repair made to the truck since the beginning and have a lookout for future break-outs. Thus, achieving planned lead time. NFTs and Blockchain are believed to change the trucking industry by much margin, thus reducing the total landed cost.

 

NFTW or NFT Warehouse is the application of NFTs in the Warehouse management system. NFTW allows multiple parties to execute the order at a single time. Amazon is the most outstanding example who took the first mover’s advantage by implementing NFTs and the Amazon Warehouse Blockchain system. NFTs in warehouse management would help small-scale businesses to scale up their operation. It is pretty hard for small scales to decide which types of warehouses to use, allocate profit margin depending on the duties, and analyse the carrying cost. NFTW provides better tracking, transparency between parties, and movement of goods. Having a tokenization concept is knowing the real-time direction of every stock. Blockchain has a bird’s eye view of the supply chain & logistics, and NFT is like having micro-knowledge of every movement in the supply chain.

 

Reference Guide: Excess and Obsolete Inventory Policy Guide

Excess and Obsolete Inventory Policy

Challenges 

 

One of the biggest challenges is Cyber Security & Online fraud. Even though the tokens are non-fungible, they could be replicated by scammers. These scammers can recite the entire supply chain ecosystem to retake the automotive example.

 

Another challenge is the lengthy and costly process. Not every firm in the supply chain system understands and has the power to implement NFTs. All the supply chain partners require thorough research and understanding to implement the NFT program. For example, P&G and Walmart should have similar knowledge, cost adjustment views, and know-how of any repercussions.

Also read Challenges for the Digital Transformation of Supply Chains, to understand digitalization challenges in broader scale.

 

Conclusion 

 

With NFTs, companies can prove their transparency to customers worldwide. With Blockchain, IoT, and Digitization, implementing NFT has a marginal upper hand over the competitors. Representing unique assets digitally is going forward to seek out complex and paper-trail processes.

From production houses to retailers, from exporter’s port to importer’s port, NFTs will act as the source of standard information to all the players across the chain. Organizations can have better value chains from the start, and NFTs could be the catalyst of change in the complex supply chains.

 

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