Secure, transparent communication is a strong pillar of supply chain management, the lifeline of any business from healthcare, agriculture, or the food industry, as it integrates all players performing different roles within the chain. While source-to-store traceability that promotes product visibility is crucial, conventional data-sharing techniques are ineffective, expensive, and unadaptable as products traverse multiple parties where stakeholder cooperation is paramount.
In this article, we discuss the potential of blockchain technology in supply chain management and how industry players can use permissioned blockchains in logistics to improve supply chain trackability and reshape existing industry processes.
The emergence of e-commerce promoted by the availability of hand-held devices has evolved customer requirements, introduced new competition devoid of geographical boundaries and changed how people shop. Besides increasing the demand for customized products, these new ways of doing business have brought significant challenges to outdated supply chains that need help to keep up with the need for data visibility and tracking products from raw materials to end consumers. The main challenges include the following:
Existing discrete centralized systems containing different databases impede efficient product tracking in a world where traceability is essential, as there’s a trust deficit among participants.
Distrust among stakeholders has created a reliance on expensive third-party intermediaries to offer verification services, thereby increasing costs and reducing process efficiency.
Existing discrete databases offer little transparency since crucial information often disappears as products and data move from one stakeholder to another. Moreover, inconsistent data sharing and inadequate interoperability make existing systems incapable of offering transparency.
Using paper-based documentation involves stacks of essential documents, which inefficiency causes delays of ships and airplanes at ports when the paperwork gets mismatched.
Unlike permissionless blockchain networks like Bitcoin, where anyone can participate anonymously, permissioned blockchains are networks designed for specific groups operating under determined governance models to enhance transactional trust. Since they’re private, new entrants need permission to join these blockchains – they use more efficient consensus protocols to validate data.
Blockchain provides the fundamentals of integrity and reliability that make supply chains more efficient by eliminating intermediaries. The technology facilitates direct transactions by integrating financial and logistical services, enabling data collaborations between parties. The resulting payment solution integration enhances timely product movement by reducing ordering and payment processing time. Moreover, introducing smart contracts helps companies to improve compliance and curb fraud and counterfeiting.
Organizations can track and identify products via electromagnetic fields by integrating blockchain with radio-frequency identification (RFID). The technology store’s product-related information is used for automatic verification when possession or ownership is transferred. Smart contracts get fulfilled as soon as RFID-code-tagged shipments are automatically scanned on reaching their final destination. Every step of the supply chain gets logged securely, and since blockchain records can’t be erased, all logistics issues are easily tractable to their sources, thereby increasing transparency and accountability.
The following use cases are examples demonstrating the impact of permissioned blockchain in select global supply chains:
The giant diamond conglomerate employs blockchain technology to track its precious stones from when they’re mined to when a customer purchases the final product. As a result of using the technology, the company eliminates all possibility of getting involved with “blood” or “conflict” diamonds, thereby reassuring their customers of buying clean jewelry.
The availability of solid records is paramount in the food industry and is non-negotiable following the recent outbreak of food-borne diseases, especially in the U.S. To avoid a process generally taking days or weeks at its worst, Walmart uses IBM's blockchain-based Food Trust to track every product as it moves along the food chain from the farm to the supermarket shelf.
Besides introducing trust to the food supply chain, the blockchain-based food traceability system has reduced the time needed for tracing provenance for mangoes in the U.S. from 7 days to 2.2 seconds.
Other companies employing blockchain systems in their food chains include Carrefour, Tyson Foods, Nestle, and Raw Seafoods. On the other hand, Walmart Canada introduced a blockchain-based invoice and payment system. The move automated transactions for over 500,000 shipments and tracking via IoT-enabled devices, thereby reducing shipping discrepancies by 97 percent.
Undoubtedly, blockchain’s distributed database facilitates secure, transparent, and tamper-proof transactions within all industries, from financial and banking services to healthcare and supply chain management. With the different varieties of blockchain protocols, organizations don’t have a silver bullet for choosing the one that addresses their specific needs.
Users must, of necessity, understand the different characteristics, advantages, and disadvantages of the other blockchains before making an informed decision. Companies involved in supply chain management need a proactive approach to grasp the technology and its ability to present stakeholder data as a shared version of the truth.
Selecting the correct blockchain configuration is especially important when the vision involves multiple stakeholders, vendors, and customers within the supply chain. Among the top considerations for choosing permissioned blockchains for supply chains include the following:
Transaction speed is critical when choosing a suitable blockchain for any application. Speed in blockchain technology is determined by the number of transactions a blockchain can process per second. Since permissioned blockchains require a smaller number of nodes to manage transaction verifications, it is easier to maintain high-performance compared to public blockchains. The smaller, permissioned blockchain will require less computing power to achieve a high transaction speed.
Bridging is another essential feature to consider when choosing a blockchain. This is a blockchain protocol’s ability to interact with one another and is critical as it allows for greater interoperability and flexibility. Using a trusted or federated bridge to link two permissioned blockchains ensures there is still a central entity to manage and oversee bridge transactions. This helps avoid any security issues that could come from bridging two blockchains.
A blockchain protocol’s energy efficiency is another essential factor. Supply chain management projects will most likely be interested in some energy-intensive applications like smart contracts, among others. Trying to manage the costs of implementing blockchain technology will ensure it delivers a good return on investment.
While the primary purpose of blockchains is processing data, all platforms are different, and they all have various features to achieve their functions. It is paramount to research the functionality of other blockchains to see whether they have the best features for your needs. For example, some platforms don’t support smart contracts, a vital need for supply chain management.
Blockchain platforms are, by design, a more secure method of storing and sharing data. However, triple-check a platform’s security features, primarily if your business handles private or sensitive information. It pays to check blockchain cryptographic methods and how regularly the platform is updated.
As supply chain management becomes more complex and challenging to manage using existing manual processes such as different computer systems by various parties that do not integrate and paper-based bills of lading, the current supply chain problems will persist. Permissioned blockchains have the solution to complex supply chain challenges and increase efficiency, visibility, and tractability, prevent fraud and eliminate mistakes.
