People optimizing supply chain management using blockchain technology

How Blockchain Is Improving the Supply Chain Management

Supply chain is the backbone of the economy and global markets. Blockchain, for its part, provides this demanding and complicated industry with fully-fledged solutions capable of making supply chain management more efficient and advanced.

Managing supply chains has always been a hectic job. Depending on the product type, a supply chain product may pass through hundreds of stages, geographical locations and entities, generating a myriad of payments and invoices, before it gets to its final destination. As well as this, the processes are normally fraught with inefficiency and entirely lack transparency and traceability.

Blockchain presents a great opportunity to completely transform the supply chain industry. The technology has enormous potential to enhance and streamline numerous daunting and complicated processes. It can tackle issues connected with origin tracking, cost reduction, and fraud prevention — and that list is far from complete. As evidence of this, it’s expected that the post Covid-19 global market size of blockchain supply chains will grow from USD 253 million in 2020 to USD 3,272 million by 2026 at a Compound Annual Growth Rate (CAGR) of 53.2% during the forecast period. In other words, we can be sure that the popularity of blockchain in supply chain management will only increase, as no other technology can grant such substantial benefits.

Read on to find out more about blockchain in supply chain, the benefits and solutions that it offers, and how world-renowned companies are leveraging blockchain in their supply chain processes.

The supply chain process and its problems

Supply chain is the streamlined process of producing goods and delivering them to customers. It starts with procuring the raw materials required for production and ends with the customer buying a product.

A scheme of the supply chain process

Figure 1. Supply Chain Process

Like any other complex industry process, supply chain management has its bottlenecks and inefficiencies. Current methods are often time-consuming and costly, and they could be avoided with a more optimized set of tools or by approaching the problem from a different perspective.

Below are the main problems which have a negative effect on the supply chain industry.

Productivity loss

When inventory is misplaced or lost, the entire supply chain process is delayed with production lines shut down, retailers short on inventory, and consumers frustrated. This leads to loss of revenue and hurts the company’s bottom line.

Wasted labor

Troubleshooting logistical issues to fix disrupted chains consumes both labor and time while removing labor from revenue-generating activities.

Higher shipping costs

Lost and misplaced products need to be replaced and re-shipped. To avoid delays, these shipments must be expedited, which is expensive and has a negative impact on profit margins.

Customer complaints

Delayed shipments and lost packages result in angry and frustrated customers left wondering where their packages are and when they will be received. Traditional tracking methods are limited, and they require constant updating and proper execution. Very often customers aren’t able to track their packages at all. They have also become accustomed to free shipping options, which cut into profit margins.

Damaged products

Damaged products frustrate distributors, retailers and consumers. Improper packaging, loading, transportation, heat, humidity and other factors contribute as well.

Communication issues

Lack of communication and information sharing across supply chain parties leads to a breakdown of the supply chain process.

Furthermore, the Covid-19 pandemic has led to multiple companies and even entire industries rethinking and changing their global supply chain mode. Even if they didn’t experience any issues before, they may now be in dire need of supply chain transformations and improvements.

How can blockchain help?

A person pointing on the route for on a map

Being a totally trustworthy digital ledger, blockchain technology assists the supply chain by tracking and keeping record of products. It updates information every time the product changes hands, stores data regarding who purchased it, and when the product was packed, shipped, sold, etc. Besides, blockchain allows you to store additional identifying data such as whether the package/cargo needs to be handled with special care or whether the fresh product is organic or not.

The distributed ledger technology can also contribute to better data interoperability. This means that companies worldwide can share information with manufacturers, vendors, and suppliers more easily and effectively. Consequently, it can reduce the occurrence of delays and disputes and even help track shipments in real-time.

Blockchain is highly scalable and offers an extensive and almost unlimited database that can be accessed from anywhere. It provides high levels of security and can be customized for more sophisticated and specialized applications.

In general, blockchain has a lot to offer the supply chain industry, and its potential has been discovered not only by businesses but also by governments worldwide. So, for example, the Australian government is offering $6 million in grants to innovative blockchain teams who can introduce viable blockchain solutions for supply chain tracking in the minerals industry and tax tracking in the food and beverage sector.

It’s just a matter of time before blockchain in the supply chain is adopted more widely. But as you see, even right now its power cannot be overlooked.

Discover more about this enterprise blockchain system supporting data integrity for the automotive supply chain

What issues can blockchain address?

With blockchain it’s possible to surmount numerous obstacles in the supply chain and make it more reliable and transparent. Below, we outline how exactly blockchain can make supply chain processes more sophisticated.

Origin tracking

Sometimes even the most progressive companies can lose track of all their transactions and fail to track a product. These inefficiencies result in extra costs and effort, and may even tarnish their reputation. However, with blockchain built-in sensors and RFID tags, the issues of provenance tracking and record keeping can finally be resolved. The history and movements of a product are possible to track right from its origin to its present location at any given time. Just as importantly, thanks to better provenance tracking provided by blockchain, it will be easier to identify and prevent fraud, even within the most complex supply chains.

Cost reduction

The real-time product tracking offered by blockchain can lead to overall cost reduction. Blockchain can substantially cut extra costs while also providing top security levels for transactions. What’s more, when using blockchain, there’s no need to involve middlemen and intermediaries whose services are quite costly. Consequently, this can save you a lot of money.

Better confidence

To ensure the smoothness of all operations, it’s of paramount importance to build trust among all participants within supply chains. Because blockchain is totally immutable, all the information kept in it is free from tampering on all levels and the integrity of all records is guaranteed. Therefore, all stakeholders can be confident in the correctness and reliability of the data recorded on the blockchain, and can freely and securely cooperate with one another.

Fraud prevention

Counterfeit goods have become abundant these days. Blockchain, however, can guarantee that you’ll receive a genuine item, not a fake one. RFID tags and sensors can help you track and verify the production of handbags, shoes, clothes, and other items so as to make sure that they’re authentic.

Product safety

Determining a product’s condition can be immensely important in some cases. For example, for food retailers and wholesalers it can be crucial to eliminate products that may harm consumers’ health. Luckily, blockchain can connect farmers, processors, retailers, and consumers to allow the latter to find out more about the product’s transaction history. It’s possible to find out how the product has been grown, stored, refined, and inspected. Having this data at hand will help reduce the number of foodborne illnesses and be better aware of the product’s characteristics.

Introduce yourself to Blockverify — a blockchain supply chain and anti-counterfeit solution

What are the benefits of using blockchain in supply chain management?

People on a forklift taking part in the supply chain management

Blockchain is a real game changer and has the capacity to turn the supply chain sphere upside down. Below are some of the major benefits that the distributed ledger technology grants to supply chain management.

Improved communication between supply chain participants

Blockchain promotes transparency. All supply chain participants can upload data and information about their products and share it in a secure and transparent way. The distributed ledger technology makes data interoperable, tremendously easing data sharing among manufacturers, vendors, contractors, and retailers. Thanks to better interoperability, trust between participants will be greatly improved and they will have fewer or even no conflicts regarding data accuracy.

Unparalleled security and data protection

Blockchain is made up of secure blocks, which consist of copies of a document that are chronologically stored and connected with the previous blocks. They are highly secure and almost impossible to falsify. This unparalleled security is the very reason why blockchain has been embraced by major financial services and banks. The supply chain will also benefit from blockchain adoption as its ingenious technology is fully capable of protecting data against cyber attacks.

Simplified access to data

All the data uploaded on the blockchain is stored in the cloud. To access and view your data all you have to do is to sign in to the blockchain. All relevant information about the product is safely stored in one single place, which makes communication much easier and processes more streamlined. As well as this, blockchain technology is highly scalable; it can support global partnerships and enable communication within a few minutes, which makes it a perfect solution for a global economy.

Opportunity to predict future outcomes

Blockchain is not limited to simply storing and tracking data about a product. It also provides state-of-the-art solutions which help analyze the uploaded information. Based on previous data, blockchain is able to produce forecasts and predictions regarding future outcomes. These insights prove to be very useful and enable companies to cut down on supply chain expenditures and boost their ROI.

Customer engagement and satisfaction

Retailers can access the blockchain database to get updates regarding the location of items and other contextual information about shipments in real-time, so as to draft a more accurate delivery timeline for their stores. In addition, customers can view some information about the product too. For instance, a clothing brand may grant its clients access to blockchain data that includes a how-to-launder guide, information about the garment material’s origin, a social consciousness approval form, etc. This data sharing provides a new level of transparency and helps build stronger and friendlier relationships between businesses and their customers.

Smart contract customization

Smart contracts allow for automatic transfer upon signature collection and help streamline the workflow. Smart contracts operate autonomously on preset instructions. When their specific parameters are met, they can execute transactions between trustless parties. This is both time-saving and cost-effective for businesses. Many transactions can be set up this way, including the delivery of raw materials or finished goods, payment for services, transfers of copyrights, and more. Smart contracts also allow for co-signatories, which can be executed independently to speed up the approval process.

A person utilizing a drone for supply management

Supply chain optimization

Through relevant data aggregation, validation,and replicated data storage across blockchain network peers, the supply chain can be optimized to eliminate friction and faulty behavior, and thus be geared to run at maximum efficiency.

Supply chain audit, secure data storage, and coordination

Blockchain public ledgers are immutable, providing high-security assurance. The stored data is validated across the entire network, allowing auditors to reliably analyze and audit historical trails and easily detect inefficiencies within the system.

Specialized RFID tags

RFID tags are fitted with asymmetric encryption and decryption to protect communication between a tag and a reader. Tags consume less power than traditional industrial design solutions. They contain storage space for housing hash values and keys, making them tamper-resistant. Anti-collision mechanisms are integrated into the chips to lower interference and ensure more efficient communication with readers. The new technology that goes into RFID tags is also present in RFID read-write chips, which read tags and supply power to passive tags.

Access to inventory flows on a blockchain

Supply chains are often fraught with unpredictable lead times and poor visibility, which can result in a disruption or delay in one or many parts of the supply chain, and even excess inventory. However, once all the data on production and inventory allocation has been stored in one common repository, the problem can easily be resolved. Supply chain participants can all share their inventory flows on a single blockchain, thus allowing all parties to manage and use the data available, which will contribute to more efficient decision making.

See how enterprise blockchain can slash your challenges

How is blockchain disrupting traditional supply chain processes?

A scheme of blockchain working process

Figure 2. How Blockchain Works

Blockchain technology and smart contracts could streamline the supply chain approval process, allowing for simultaneous co-signatories, auditing of the supply chain trail, and rapid identification of supply chain problems and localization of their corresponding points of failure.

The shared ledger could prove to be a gamechanger for supply chain management similar to the disruption that the assembly line, privatized shipping services and online merchant point-of-sale, payment, and settlement services had on the efficiency and speed of production and delivery processes. Ripple (an enterprise-grade distributed ledger solution) does the same for legacy financial and banking systems.

Possible technical implementations of blockchain in supply chain

With a huge number of blockchain platforms available today, one needs to ensure that a proposed blockchain-based implementation is a perfect fit for the supply chain management system.

One of the most important questions to be answered is whether to use a public or private (permissioned) blockchain. In order to make this decision, it is best to consider what the goals of implementation are, what problems need to be solved, and how much data needs to be made public.

It is worth noting that from a technical perspective most of the functionality required for a supply chain management solution can be implemented with the use of smart contracts and executed on a VM-capable blockchain.

One of the best examples for this is Hyperledger stack: Hyperledger Sawtooth and Hyperledger Grid (under development).

By far the biggest advantage of these implementations is their adaptability and purpose as an easy-to-set-up permissioned blockchain, as well as a set of smart contracts, which can be combined and, if needed, modified, to reflect the business processes within an organization. This solution requires the knowledge of general WAVM smart contract logic, as well as experience in Rust, in addition to extensive knowledge of C++ blockchain implementations. Therefore, a blockchain-focused development company is the best fit for such project development.

New to Hyperledger? Acquaint yourself with this article to learn more about top Hyperledger projects and applications

Blockchain supply chain ecosystem and user roles

Introducing blockchain to supply chain management imposes specific new features in operational processes. Below we describe the general approach to blockchain use and application in the supply chain industry.

Witness nodes

A witness (also called a delegate) is an authority that produces, broadcasts and signs blocks as a full node. Witnesses are central to the Delegated Proof of Stake (DPoS) system. Witness nodes are selected via a democratic voting mechanism and are run by the most trusted users on the network. Witness nodes overlay the network, collecting data from the designated child and/or local nodes, and serve as the permanent place of storage of the ledger’s entire history.

Child nodes

Each child node is equipped with a reader, and processes information from each segment of the supply chain: production, warehousing, distribution, logistics, and retailer. Child nodes relay information to each other and the master nodes. Like master nodes, child nodes operate on consensus mechanisms. Child nodes can only receive new blocks.

Traditional users

Each traditional user executes physical actions which provide tracking information and other data for the nodes to be implemented on the blockchain.

Transactions on the supply chain

Actions and counteractions are performed as transactions on the blockchain network, allowing for a transparent and widely available log of deliveries.

Companies that leverage blockchain in supply chain management

A person plotting a route next to the office building

Blockchain has established itself as a go-to tool for a number of world renowned companies. They’ve started implementing the technology in order to improve transparency, security, traceability as well as auditability for their supply chain management processes. Below, we are listing just a few examples of how different companies are making great strides with the help of blockchain.

Walmart and its food safety blockchain solution

Walmart has partnered up with IBM and designed an advanced Hyperledger-based food safety blockchain solution that brings greater transparency to the food supply chain ecosystem. By using blockchain, Walmart has managed to bring about better traceability, as each node located on the blockchain stands for an entity responsible for the food’s status on its way to the store. Consequently, it’s become much easier to trace how fresh the food is and whether a farm has sold an infected batch or not.

Ford embraces blockchain for advanced tracking of cobalt supplies

In January 2020 the Ford Motor Company announced that it was planning to adopt blockchain to trace supplies of cobalt. In March of that year IBM, together with Ford, Huayou Cobalt, LG Chem, and RCS Global introduced a new blockchain platform capable of tracking cobalt production from the mine to the end user. This initiative has given Ford the assurance that the company receives an authentic product to maintain its quality. Once cobalt has been mined, the corresponding data will be entered into the blockchain, thus allowing the company to track its location as well as other relevant information.

Tracr by De Beers: enhancing trust for the diamond industry

In 2018, the largest diamond producer De Beers Group launched Tracr — a blockchain platform specifically designed for tracking natural diamonds from the mine to the retailer. Tracr helps validate the authenticity of diamonds and makes sure they do not come from conflict zones where precious stones can be used for financing violent activities.

As diamonds start their journey along the supply chain, each receives a unique Global Diamond ID created by Tracr. This ID records the diamond’s characteristics such as carat, clarity, and color via the integration with the participant’s record keeping system. Tracr manages to combine all the relevant information about each diamond in a single immutable digital trail and assure its provenance and traceability. It’s also possible to upload stone images as well as planned outcome images of diamonds in order to validate their authenticity, with the help of data science and some specific physical identification techniques.

UPS and Inxeption: revolutionizing B2B eCommerce

The logistics giant United Parcel Service, better known as UPS, has set its sights on the blockchain too. In November 2018 UPS became part of the Blockchain in Trucking Alliance (BiTA) with the purpose of promoting transparency within the supply chain ecosystem among all organizations. Moreover, in 2019 together with Inxeption, a San Francisco technology company, UPS developed Inxeption Zippy — a blockchain-based platform for B2B merchants, which can significantly improve the efficiency of merchant supply chains.

UPS keeps on adopting blockchain at full throttle. The company has also filed a patent for a blockchain system that could store data about package destinations, movements, transportation methods as well as other pertinent information. This will undoubtedly add extra transparency and better interoperability between all parties involved.

FedEx: striving for global customs clearance

Being one of the biggest shipping companies, FedEx views blockchain as a groundbreaking technology able to improve its chain of custody. The enterprise has also joined BiTA and introduced its own blockchain-based pilot project aimed at providing insights into what data has to be stored on the blockchain in order to ease customer disputes. FedEx has also been developing blockchain platforms that empower customers to track their packages and view other relevant details about their shipments.

IBM: propelling a wider blockchain adoption

IBM is by rights considered to be one of the driving forces of the wider implementation of blockchain in the supply chain area. The company has been at the forefront of many of the latest technology developments, with blockchain being no exception. IBM has been enthusiastically aiding other companies in implementing blockchain in their supply chains to foster efficiency and transparency. So far, supply chain blockchain solutions by IBM have been used by Maersk, Walmart, Nestle, and so on.

Read this article to find out more about TradeLens – Maersk and IBM blockchain solution for supply chain

DHL and its blockchain-based pharma supply chain project

DHL, a German based international package delivery and express mail service, has teamed up with Accenture to create a blockchain-based serialisation prototype that can track pharmaceuticals across the entire supply chain. The ledger that is responsible for keeping track of these medicines can be shared with manufacturers, warehouses, pharmacies, doctors, distributors, and healthcare institutions. By using one common and secure ledger, it will be possible to attain higher safety standards right from the factory to the patient and significantly cut related costs.

Final thoughts

There’s no doubt that we have seen wide adoption of blockchain across numerous domains and business verticals in recent years, along with much acknowledgment of its importance from the industry’s biggest market players. As an after-effect of the introduction of permissioned (private) blockchains, and with the strong capabilities and many possible use cases of smart contracts, it is evident that supply chain is one of the many industries where cutting-edge emerging blockchain technology will be enormously influential.

Businesses should definitely be looking into, and trying to take advantage of such an opportunity to streamline their processes, reduce unnecessary expenses, and increase revenue.

To cover the full gamut of blockchain capacity and derive benefits from its implementation, it’s always advisable to reach out to an experienced blockchain development team who will ensure the smoothness of the entire process and guarantee the success of your project.

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