Is blockchain technology the silver bullet for supply chain management? On paper, the concept sounds attractive and revolutionary. In practice, though, there is a lot of work that still needs to be done before the supply and logistics industry can reap the benefits of blockchain.
State of Supply Chain Before Blockchain
A typical supply and logistics operation involves hundreds or thousands of parties connected to one another, either directly or indirectly. There is a lot of documentation, regulations, data entry, tracking, paper trails, and auditing required to keep everything up and running.
Supply Chain Management has been relying on Enterprise Resource Management (ERP) systems to manage this kind of data since the 90s. However, these systems are unable to bring together the three most important parts of the supply chain—information flows, inventory flows, and financial flows.
As the needs of the end-user change and supply chains grow ever more complex and fragmented, there has been a need for a more powerful technology with seamless, real-time tracking of materials and products from the source to the end-user.
Blockchain in Supply Chain: How it Works
To understand how this technology can transform supply chain management, you need to be familiar with the working of blockchain and distributed ledger technologies.
A blockchain database could be used to hold information about a batch of products from A-Z. Records could be stored in the block including inventory levels, orders, bills of lading, financial information, and product identifier information for tracking.
The system could even have automated scripts (smart contracts) enabled to release payments upon testing and approval of goods, among others.
These records can be viewed by all parties across the whole value chain without necessarily having to reveal sensitive information. This Harvard Business Review article explains in greater detail how to record taking and tracking could be used to replace ERPs with blockchain technology.
Despite this potential, blockchain has a few hoops left to jump when it comes to supply chain and procurement.
Challenges With Blockchain Adoption in Supply Management
In a supply chain environment, the parties involved would prefer a permission system with access control, as opposed to the distributed ledger system often implemented with blockchain.
Secondly, the number of parties in the chain are likely to be few; think manufacturers, haulers, port and custom officials, shipping lines, and the end-user. Thus, a public DLT system would probably not be practical in this situation. McKinsey does a great job of weighing in on the matter in this informative article.
Some pioneering companies are working to develop custom blockchain-based solutions to meet these unique needs in SCM.
Blockchain Supply Chain Solutions and Benefits
1. End-to-end tracking
Blockchain enables the secure tracking of each product from start to finish along the value chain, thanks to the immutability of records stored in an encrypted blockchain database.
2. Blockchain for supply chain transparency
With exceedingly complex supply chains, it becomes almost impossible to maintain transparency and data flow between the parties involved. Blockchain provides an easy way to all parties to keep an eye on the ball anonymously.
3. Audits
With blockchain technology, a full history is instantly available upon demand, which will help with fraud control, eliminate counterfeiting, and allow streamlined supply management.
4. Smart contracts
With the integration of IoT devices, smart contracts can be enabled to allow automatic payments, proof of delivery, invoicing, and other formerly manual actions. This could greatly simplify the procurement and supply process for all involved.
5. Improving system compatibility
Unlike the current situation where suppliers have to deal with multiple incompatible ERP systems, blockchain protocols could allow for a universal system of record-keeping
Conclusion: The Future of Blockchain in SCM
As of mid-2021, many big-name companies are still weighing in on the uses of blockchain technology in supply management. These include Walmart, Maersk, IBM, and BHP.
By developing and testing tailored blockchain systems, such companies will pave the way for mainstream use of the technology in all aspects of supply chain management.
