How Blockchain Is Improving the Global Supply Chain

Blockchain technology is still relatively new to most people. If you ask the random person walking down the street what the blockchain is, they’ll likely look at you like you’re speaking a foreign language.

The blockchain is the technology that powers cryptocurrencies like Bitcoin. A lot of people know what Bitcoin is, but still don’t know much at all about the blockchain that powers it.

That will change in due time because the blockchain technology has the power to change everything. One of the first things it looks to disrupt is supply chain management. Supply chain management relies on a system that has been outdated for years and has become unreliable and practically useless in today’s world.

It uses a system that still relies on paper records and dozens of middlemen. Let’s take a look at the supply chain and how the blockchain technology is destined to revolutionize it.

What Is the Supply Chain?

In short, the supply chain is getting a product from creation to the customer.

It’s the network of all the people, companies, resources, activities, and technology involved in the creation and sale of a product. This includes the delivery of materials from the supplier to the manufacturer, all the way to its eventual delivery to the end user.

This process can be extremely complex, especially when it’s on a global scale. Major corporations have supply chains that span multiple countries and even continents, so properly managing the supply chain is key.

Supply chain management (SCM) is the oversight of materials, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to consumer. The three main flows of the supply chain are the product flow, the information flow, and the finances flow. SCM makes sure everything flows smoothly from the beginning to the end.

What is Blockchain?

If you’re someone with no prior knowledge of or experience with blockchain, it can seem extremely overwhelming and complicated at first glance.

The blockchain got introduced to the world via Bitcoin. Bitcoin is the most popular cryptocurrency, with one Bitcoin being valued at $3,202.70 at the time of this writing.

But the blockchain technology can be used for more than cryptocurrencies. At its core, the blockchain is a public record of transactions. It’s also distributed, so instead of one person controlling everything, there are thousands of computers around the world connected to a network, and they come to an agreement on which transactions are valid.

Whenever someone makes a transaction, it is broadcasted to the network, and the computers run complex algorithms to determine if the transaction is valid. If it is, they add it to the record of transactions, linking it to the previous transaction. This chain of linked transactions is known as the blockchain. Since the transactions all reference the one before them, you can figure out which ones came first, thus ordering them.

The ability to track and reference transactions of the blockchain technology has the potential to revolutionize almost any industry you can think of. It can be especially useful in supply chain management.

Blockchain Has the Potential to Revolutionize the Supply Chain

When the idea of the supply chain was born around 200 years ago, it was a revolutionary idea that improved visibility and control of goods as they moved from point A to point B. But the way it was done 200 years ago no longer support today’s production and supply cycles, which have become extremely fragmented, complicated and geographically dispersed.

Currently, supply chains can span over hundreds of stages and dozens of geographical locations, which makes it very hard to trace events or investigate incidents.

The blockchain has the potential to transform the supply chain and disrupt the way we produce, market, purchase and consume our goods. As a distributed ledger that ensures both transparency and security, the blockchain is showing promise to fix the current problems of the supply chain.

The first thing to do using the blockchain technology would be to register the transfer of goods on the ledger as transactions that would identify the parties involved, along with the price, date, location, quality, and state of the product and any other information that would be relevant to managing the supply chain.

With the blockchain, it would be possible to trace back every product to its origin. All the way back to the raw material used to create it. The decentralized structure of the ledger would make it impossible for anyone to hold ownership of the ledger and manipulate the data to their advantage. And the cryptography-based nature of the transactions would make it nearly impossible to compromise the ledger.

The Advantages of Using the Blockchain For the Supply Chain

Let’s go over the major advantages of using blockchain technology in the supply chain one by one.

Transparency. The blockchain is a shared database that ensures honest transparency. All partners have the responsibility to upload their information and data about the product. A digital collection of accurate data improves accountability and trust between partners. Blockchain technology can show updates to the product in mere minutes. Everyone involved knows exactly where a product stands at all times. You can see exactly where a product is, how it’s being made, and when it will be delivered all in one place.
Security. The blockchain is built using extremely secure blocks. Each block is a copy of the document that is chronologically stored and linked to all of the previous blocks. Some experts already consider the blockchain “unhackable.” To hack it, a hacker would have to change hundreds of copies at the same time, which is basically impossible without the software picking up on it.
Streamlined. All of the logging involved with the blockchain is done digitally. This leads to less administrative work and more consistent and speedy data tracking. With the blockchain, you cut out the middleman and sign on to the blockchain to instantly download information. Everything is in one spot, making communication and operations highly streamlined. The blockchain is global and scalable. The technology can support worldwide partnerships and communications just as fast as regional partnerships. This makes it the ideal solution for an economy of globalization.
Enhanced Analytics. The blockchain offers complex solutions to analyze the data being uploaded. It can help create forecasts and predictions based on previous data, and it can allow users to pinpoint lags in the supply chain. These data analytics are proving invaluable to companies who want to minimize supply chain expenditures and grow their businesses.
Customer Satisfaction. The blockchain technology can also be used to boost customer satisfaction. Business owners can use the blockchain database to see where items are in production and shipment to build a delivery timeline for their customers. It also has a social advantage to it. A clothing brand with a dedication to fighting sweatshops may give their customers access to the blockchain, showing them a social consciousness approval form, and a labor union sheet.

The Disadvantages of Using the Blockchain For the Supply Chain

Even though the advantages are overwhelming, there are still some disadvantages to using the blockchain. The technology is still very new, and it will take some time for it to be trusted on a mainstream level. And, companies are usually resistant to change at first, especially change of this magnitude.

The three biggest concerns today are:

Blockchain programming is complex and challenging. Companies have to host extensive blockchain training or outsource programming to a third party.
Since it’s international, it would eventually have to succumb to a variety of global laws. Moving forward, you can expect trade organizations to better standardize supply chain blockchain usage.
Blockchain relies on a network effect. The more people that use it, the more value it has. In order for it to truly succeed, all partners of the supply chain should use the platform consistently.

IBM and Blockchain

IBM has rolled out a service that allows customers to test blockchains in a secure cloud and track high-value items through complex supply chains.

The service is already being used by Everledger, a firm that is trying to use the blockchain to push transparency into the diamond supply chain and thus help fix a market fraught with forced labor and tied to the funding of violence across Africa.

Blockchain Technology Is Gaining Traction in The Food Supply Chain

The Wall Street Journal recently posted an article that exclaimed, “after initial tests, 12 of the world’s biggest companies, including Walmart and Nestle, are building a blockchain to remake how the industry tracks food worldwide.”

As it stands today, The Food Safety Modernization Act requires companies in the food supply chain to provide “one back, one up” traceability. “One back” refers to where the food came from, and “one up” refers to who it was sold to. To do this, many participants may have to go into paper records to figure out the information that needs to be provided.

When tainted food makes its way onto store shelves, the current process makes it extremely difficult and time-consuming to figure out where the food came from and when it was tainted, etc.

Like we’ve already talked about, all the information companies would need to find out where the bad food came from would be stored in one centralized place online. No looking into paper records, or calling all of your suppliers on the phone. You would simply look up the information in the blockchain, and problems that traditionally take days or weeks to solve can be solved in just minutes.

A World of Potential

The blockchain is already revolutionizing the financial world, and it’s only a matter of time until it takes over every other industry.

A technology like this is a generational technology, something that will change the way the world works. For something like the supply chain, the blockchain technology will update a 200-year-old system and make it more reliable, secure, and transparent.

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