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In the current connected and competitive world, Supply Chain plays a crucial role in every sector and every organization as it decides cost-effective and timely delivery of materials starting from suppliers to production houses to the customer. In this era of Industry 4.0, Internet of Things (IoT), Artificial Intelligence (AI) and Machine Learning; optimization in all production processes has been achieved and now entire pressure for cost optimization and timely supply is now on Supply Chain. Hence, Supply Chain will be a key focus area for any organization that wants to lead in the industry.
Supply Chain is a system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Any supply chain progresses by initially delivering the raw materials from a supplier to a manufacturer and eventually ends by delivering the final product to the consumer. Proper implementation of supply chain management can result in benefits like increased sales and revenues, decreased frauds and overhead costs, quality improvisation. Moreover, this will also lead to accelerating production and distribution.
Maintaining a supply chain is a tedious task even for small businesses. The inter-connectivity of different elements in the supply chain gradually becomes more inefficient when a business grows. In order to resolve these inefficiencies and save a company’s money, different technologies like AI and Machine learning are being applied to SCM. Amongst these, blockchain is exploring new ways to change the overall game.
Current issues in traditional Supply Chain are as follows:
- Lack of the latest management tools.
- Efficiency in sharing or managing data – How to sharing and managing information between parties decide the efficiencies in the operations.
- Lack of visibility in supply operations
- Inadequate mastery of provision and information flows
- Lack of trust between suppliers and customers
- Fraudulent activities
- Optimized Transportation and Logistics? – Addressing the same is a key variable to efficient supply chain management. Smart contracts with a small human intervention can play a great role.
- Feedback of Quality Improvement
- Building Long-term Stability
What is blockchain?
Blockchain is a data structure that holds the transactional records with security, transparency, and decentralization. It is a chain of immutable blocks and not controlled by a single authority. It is an append-only, decentralized and distributed ledger technology that is operated by a peer-to-peer network mechanism that records and validates data by retroactively referencing a list of previous records using hash functions. You may find complete details on Blockchain in my previous article “Blockchain – The next of Everything!!!”
Most Evident Blockchain PROs which can help in Supply Chain:
Supply Chain Challenges and Blockchain Solutions
Blockchain can be applied to many challenges of the Supply Chain industry such as complicated record-keeping and tracking of products. As a more hacking proof and better-automated alternative to centralized databases. The following are the ways in which blockchain can be useful in the supply chain industry.
- Provenance Tracking
The supply chain contains a lot of elements, particularly in big size organizations. Due to this, it becomes almost impossible to keep track of each and every record even for multinational corporations. The lack of transparency leads to cost and customer relations issues which ultimately dilutes the brand name.
In a blockchain-based supply chain management, record keeping and provenance tracking become easy as the product information can be accessed through the help of embedded sensors and RFID tags. The history of a product right from its origination to where it is in the present time can be traced through blockchain. Moreover, this type of accurate provenance tracking can be used to detect fraud in any part of the supply chain or sale through black/grey markets.
2. Cost Reduction
The real-time tracking of a product in a supply chain with the help of blockchain reduces the overall cost of moving items in a supply chain. According to a survey of supply chain workers conducted by APQC and the Digital Supply Chain Institute (DSCI), more than one-third of people cited the reduction of costs as the topmost benefit of the application of Blockchain in supply chain management.
When blockchain is applied to speed up administrative processes in supply chains, the extra costs occurring in the system are automatically reduced while still guaranteeing the security of transactions. The elimination of the middlemen and intermediaries in the supply chain saves the risks of frauds, product duplicity and saves money too. Payments can be processed by customers and suppliers within the supply chain by using cryptocurrencies rather than customers and suppliers rather than relying on Electronic Data Interchange (EDI). Moreover, efficiency will be improved and the risk of losing products will be reduced with accurate recordkeeping.
3. Establishing Trust
Having trust in complex supply chains with many participants is necessary for smooth operations. For example, when a manufacturer shares his products with suppliers, he/she should be able to depend on them for following factory safety standards. Also, when it comes to regulatory compliances such as custom enforcers, trust plays a vital role. The immutable nature of blockchain in the supply chain is well-designed to prevent tampering and establishing trust.
Benefits of Supply Chain with Blockchain
One of the most appealing benefits of using blockchain for data is that it allows the data to be more interoperable. Due to this, it becomes easier for companies to share information and data with manufacturers, suppliers, and vendors. Transparency in Blockchain helps reduce delays and disputes while preventing goods from getting stuck in the supply chain. As each product can be tracked in real-time, the chances of misplacements are rare.
Blockchain offers scalability through which any large database is accessible from multiple locations from around the world. It also provides higher standards of security and the ability to customize according to the data feed. Moreover, blockchains can be created in a private manner too which will allow the data to be accessed explicitly between the parties who have permission for it.
The value of adopting blockchain technology can be taken from the fact that it has the potential to connect different ledgers and data points while maintaining the data integrity among multiple participants. The properties of transparency and immutability of blockchain technology make it useful for eliminating frauds in supply chain and maintaining the integrity of the system.
Other than these, a few other benefits of adopting Blockchain technology in the supply chain industry are:
- Reduce or eliminate fraud and errors
- Improve inventory management
- Minimize courier costs
- Reduce delays from paperwork
- Identify issues faster
- Increase consumer and partner trust
Challenges to be met:
- Ecosystem Still in Progress: The first telephone was useless until the second one arrived. In time, the phone spread across the world, and now we cannot live without it. The situation is similar for blockchain and companies that want to do business with specific partners. Those partners will need to buy into blockchain as well. i.e. Tomcar can currently execute Bitcoin payment for about 2% of the parts it buys. However, niche uses of blockchain are on the rise. It may be just a matter of time until businesses “join the dots” for widespread acceptance.
- Currency Volatility: Cryptocurrency is an easy way to start using blockchain. The problem is that the rate of exchange between Cryptocurrency and other currencies can change rapidly. Payment terms must be short enough or flexible enough to be able to cash in Cryptocurrency and recover the value expected. Bitcoin and other cryptocurrencies (Ether, for example, for the Ethereum platform) are also volatile in another sense. If you lose the digital key (passcode) to your cryptocurrency reserve, there is no way to recover it.
- Technology and Knowhow: Blockchain programming takes a mix of software skills. It also helps to understand economies and businesses, especially your business. You may have to train staff or hire new people with these skills. You could also outsource your blockchain development to a third party. The best choice for you will depend on your current situation and future aspirations.
- Mindset: Blockchain arose when people began searching for a way to decentralize applications and operations. They wanted to make dependencies on centralized entities like banks optional instead of obligatory. It is a new way of thinking, so don’t be surprised if it takes you or your colleagues a little time to shed your mental shackles and get into the swing of the blockchain movement.
Real-World Blockchain applications:
At present, there are a number of blockchain supply-chain start-ups that have been launched in various industries. Though manufacturing is leading one, statistics prove that any sphere can benefit by using the supply chain. It is common in these spheres:
- Marketing and Advertising
- Drugs and Healthcare
- Energy and Utilities
- Commerce and Retail
- Environmental services, etc.
Few Known Examples of pilot projects of Blockchain application:
- Walmart’s Blockchain Traceability Drive -Walmart tested an application that traces pork in China and produces in the US, to authenticate transactions and the accuracy and efficiency of record keeping. Thereafter Walmart has continued investing in the technology, in partnership with IBM, and recently announced that it would require its suppliers of green vegetables to join in by September of 2019.
- Maersk and IBM are working on cross-border, cross-party transactions that use blockchain technology to help improve process efficiency.
- Broken Hill Proprietary (BHP) is one of the largest mining giants, introducing a blockchain solution that replaces spreadsheets for tracking samples internally and externally from a range of providers.
- Provenance, a UK start-up, just raised $800,000 to adopt blockchain technology to trace food. It previously piloted tracing tuna in the Southeast Asian supply chain.
- Tokenising the Shipping Industry with Ethereum – 300Cubits (Hong Kong-based shipping camp) has introduced a token-based system for both shippers and shipping lines. In this system, both have to submit their token amount in TEU cryptocurrency in a common Escrow Account. In case of failure from the shipper side, both tokens will be deposited to the shipping line’s account from the Escrow account and in case of failure of placing vessel from the shipping line on scheduled time, it will be credited to shipper’s account. Such of penalty system along with a rating for a number of failures to maintain the schedule has put pressure on shippers and shipping line both which has addressed the most expensive and lingering issue of the shipping industry. A smart contract, executed using the 300Cubit’s solution, automatically assigns tokens when a booking is made and reassigns them based on the outcome.
- AXenS is a blockchain-based platform designed for distributed supply-chain finance and distributed trade services. It provides accessible and secure automation for trading transactions as well as transparent management of documentation and data about the businesses involved. The company ensures compliance with legal regulations internationally to prove its reliability to its customers.
- Irene Energy – A Stellar blockchain provides transparency in electrical supply management. It provides accessible and extensive information to customers concerning their electricity spending, as well as a means to control their influence on the issue of global warming. The AI makes sure that this selection corresponds to the customer’s purchases, and updates every 15 minutes. Blockchain-driven traceability verifies past purchases. In this way, Irene provides customers with complete control of their electricity spending, while technical efficiency allows a choice of cheaper fares.
- Zeto is a software company that delivers food safety solutions in the retail and refrigeration industries. Zeto’s customers and clients include major global retail brands. The company recently launched a blockchain-based supply chain to provide scalability in food safety. Zeto aims to improve cold chain management practices by increasing transparency and trust, preventing waste and saving money and complying with food safety standards. With blockchain implementation, IoT sensors are applied to every link in the chain. Therefore, it is possible to keep temperature data securely recorded and stored in the blockchain. In case anything goes wrong, preventative measures are taken immediately. Smart contracts eliminate the risks of unsafe deliveries or product sales. The company offers a mobile application to track the entire product history.
- TE-Food: You have the right to know what you eat!!! – TE-FOOD is one of the largest food traceability systems worldwide. It provides customers with full access to the tracking of food-to-table product data. As of today, it is fully operational, with 6,000 customers and 400,000 transactions processed every day. TE-FOOD is an ecosystem that integrates various supply chains, customers, and authorities in order to improve food safety, eliminate fraud and decrease company costs.
- Devery – is the right platform for verifying product protocol. It allows customers as well as suppliers to identify product authenticity before the purchase. Blockchain-powered verification provides unique product features throughout the supply chain to protect brands from fakes and forgeries. Unique IDs are assigned to all products for online sale and verified by independent parties. Later, unique hashes (which are used just once) can be displayed by retailers to prove the authenticity of the product.
The supply chain is an integral part of managing product realization in different spheres, whether that includes manufacturing, retail, energy or the environment. As long as there is a product offered for the customer, it is essential to illustrate its pathway from production to final sale. Companies use blockchain technologies widely to provide process transparency and accessibility for customers.
The infrastructure offered by Blockchain technology can tackle registering, certifying, and tracking goods between distant parties. With Blockchain, you can easily provide proof of sourcing, track compliance, prevent loss. Supply chains can be complex and the networks are only getting vaster. The larger the size and more parties involved, the greater the risk for error.
This creates huge transactional costs — errors in paperwork, project or idea degradation, theft, personnel issues (safety, management), environmental damage, illegal production or forgery. Blockchain eliminates nearly all these concerns.
Current systems of tracking through the supply chain involve some digital records to be stored in some cloud-based software. However, not all information about any package is available or even exists in one place and logistics specialists have still not solved the problem of redundant inventory during transport.
With Blockchain, it is not possible for something to be in two places at once (and often really in another place entirely).
Small suppliers may also benefit from Blockchain technology, especially when they are involved in the global supply chain. Cash flow is more easily regulated and procurement can be strategic by using Blockchain technology. Because the Blockchain is fully transparent, it also provides opportunities for increased security and fidelity in the supply chain. High visibility means problems in the supply chain can be detected early — eliminates human intervention in making complex supply chain decisions.
Here are some key takeaways of how blockchain changes the future of the supply chain industry:
- Fraud/Theft Elimination – Blockchain’s public ledger technology offers transparency and allows tracking the ownership history of various items such as diamonds, for example.
- Transaction Process – The technology’s traceability enables wholesalers to pinpoint a product’s exact origin, which can save lives in case of contamination and gives the consumer trust in return.
- Smart Contracts – Enabling the automation of the purchasing process as well as ensuring the quality, authenticity, and availability of goods.
- Tracking – Blockchain facilitates the tracking of purchase orders, changes orders, receipts, shipment notifications, or other trade-related documents.
Looking to the above benefits, BLOCKCHAIN WILL BE PROVED AS A BOON FOR SUPPLY CHAIN.