Blockchain is a distributed, unchangeable ledger that makes recording transactions and managing assets in a corporate network much easier. On a blockchain network, virtually anything of value may be recorded and traded, lowering risk and cutting costs for all parties involved. Business runs on information. The faster it’s received and the more accurate it is, the better. Blockchain is ideal for delivering that information because it provides immediate, shared and completely transparent information stored on an immutable ledger that can be accessed only by permissioned network members.
New technologies are presenting promising opportunities for improvement across the supply chain. Using blockchain in the supply chain has the potential to improve supply chain transparency and traceability as well as reduce administrative costs. A blockchain supply chain can help participants record price, date, location, quality, certification, and other relevant information to more effectively manage the supply chain. The availability of this information within blockchain can increase traceability of material supply chain, lower losses from counterfeit and gray market, improve visibility and compliance over outsourced contract manufacturing, and potentially enhance an organization’s position as a leader in responsible manufacturing.
As blockchain gains publicity, large corporations and startups are exploring uses of the technology outside of the financial services industry. Many organizations are already experimenting with blockchain innovations to fulfill a range of needs. Provenance, a supply chain transparency start-up, recently completed a six-month pilot for tracking responsible sourcing of tuna in Indonesia via blockchain. Monegraph, a startup launched in 2014, uses blockchain to secure the usage and sharing rights of digital media such as video clips or brand-sponsored content and enable sharing of revenue across the media creators, publishers, and distributors. Skuchain builds blockchain-based B2B trade and supply chain finance products targeted towards the $18 trillion global trade finance market that involves numerous entities including buyers, sellers, logistics providers, banks, customs, and third parties.
Execution errors—such as mistakes in inventory data, missing shipments, and duplicate payments—are often impossible to detect in real time. Even when a problem is discovered after the fact, it is difficult and expensive to pinpoint its source or fix it by tracing the sequence of activities recorded in available ledger entries and documents. When blockchain record keeping is used, assets such as units of inventory, orders, loans, and bills of lading are given unique identifiers, which serve as digital tokens (similar to bitcoins). Additionally, participants in the blockchain are given unique identifiers, or digital signatures, which they use to sign the blocks they add to the blockchain. Every step of the transaction is then recorded on the blockchain as a transfer of the corresponding token from one participant to another.
A blockchain is valuable partly because it comprises a chronological string of blocks integrating all three types of flows in the transaction and captures details that aren’t recorded in a financial-ledger system. Moreover, each block is encrypted and distributed to all participants, who maintain their own copies of the blockchain. Blockchain thus greatly reduces, if not eliminates, several execution, traceability, and coordination problems in the supply chain. Since participants have their own individual copies of the blockchain, each party can review the status of a transaction, identify errors, and hold counterparties responsible for their actions. No participant can overwrite past data because doing so would entail having to rewrite all subsequent blocks on all shared copies of the blockchain.
A few key elements will determine blockchain’s suitability for a project in supply chain:
- Data Exchange: When data needs to be exchanged between multiple unrelated parties, blockchain is a good candidate as a solution.
- Trusted Partners: As blockchain requires updates to be made by multiple unrelated parties, you want to be confident you can trust the partners involved in the project.
- Defined Data Standards: A consistent and well-defined process and data standard that all partners can work with will keep data accurate, ideally with an existing standard like electronic data interchange (EDI).
- Shared Value: If the project offers value to all partners involved, they will be incentivized to adopt the technology and processes to make it work.
In adopting blockchain technology for its supply chain, a company must first decide on the type of blockchain it would need to build. Blockchains come in two dominant types. “Permissionless” distributed ledgers, such as bitcoin, reside in the public domain, while “permissioned” ledgers are centralized and governed by “actors,” “nodes,” or “miners,” and are held outside the public domain. This distinction has important consequences in the supply-chain context. In most supply chains, the parties are known and trusted. Moreover, the supply-chain world is unlikely to accept open access because its users don’t want to reveal proprietary details, such as demand, capacities, orders, prices, margins, at all points of the value chain to unknown participants. This means most supply-chain blockchains would need to be permissioned, with access governed centrally and restricted to known parties who may be limited to certain segments of data. However, for supply chains with known and trusted players, a centralized database approach is generally more than adequate. Thus, many of these supply chains do not need blockchain technology to solve such issues, as they can leverage existing technologies that are better suited to their high-volume transactions, either on their own or with partners. A number of companies are exploring the benefits of leveraging blockchain technology in adjacent areas, such as introducing smart contracts, bringing more rigor to purchase order payments or demand chains where “real demand” signals can propagate the upstream supply chain faster.
References:
https://www.ibm.com/in-en/topics/what-is-blockchain
https://www2.deloitte.com/us/en/pages/operations/articles/blockchain-supply-chain-innovation.html
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