Blockchain and Supply Chain

Have you ever wondered how much work, effort and time have gone into a dress? Starting with the design, followed by getting the right materials, creating the final piece, manufacturing in quantity, and delivering your dress to the store, there are many steps that take place before you place your hand on the hanger and take it from the rack. The same applies to the pre-cut salad you had for lunch. Have you ever thought about which farm it came from and how long those tomatoes were in the warehouse? How about the phone you are talking on, or the tea you are drinking? Where did the parts of the mobile phone come from; and how long were those tea leaves in storage, and in which country were they picked?

The Supply Chain is a system of processes, people, activities, information, and resources needed to move a product from the manufacturer to the consumer. The supply chain is essentially the process from natural resources and raw materials to a final product that is delivered to the consumer. This process involves all of the suppliers, manufacturers, and companies that assemble the products and deliver to the end customer.

Problems with current Supply Chain

Supply chain at the moment is long on data and short on trust. Significant lack of transparency generates constant suspicion of illegal and unethical practices. Companies are so keen on keeping their information private, without even seeing the damage they are doing to the trust between them and their suppliers and vendors. Building a strong relationship between parties starts with mutual respect, benefits, honesty and trust.

For supply chain management to work effectively, enterprises need to track the movement of the raw materials that are needed to create the products, optimize their inventory levels to reduce costs, and synchronize their supply with customer demand. Maintaining an overview of the logistics to ensure availability of materials and delivery of products helps to avoid production stoppages. By identifying the areas in which they are reliant on a single supplier, or which part of the chain has the weakest link, helps businesses to strengthen their processes.

With globalization, companies have the opportunity to move their manufacturing to countries with lower labor costs, lower taxes, and even lower costs for transporting the raw materials. One of the prime examples is China. Whatever piece of technology you take in your hand these days, there’s a high chance that it says “Made in China”.

Moving your production away from the company’s HQ has its downside – it extends the production process and the company’s procurement network. Having suppliers in different geographic locations makes the supply chain longer and more complicated. Companies will have to coordinate and collaborate with parties across borders, manage manufacturing, storage, and logistics, deal with foreign laws and customs, and on top of that, they must maintain their fast delivery times, because the customers don’t care about the increased complexity of the manufacturer’s supply chain, they expect fast deliveries.

Companies need to maintain oversight of their production cycle and be aware of the real-time status of each step. This ensures the efficiency of their manufacturing process – from raw materials to finished goods.
Companies with international supply chains also have to consider different cultures, preferences and legal frameworks. There is an essential risk of losing control, oversight, and mismanagement over their inventory when the supply chain is taken lightly.

What is Blockchain?

The blockchain is a distributed database that holds records of digital data, transactions or events in a way that makes them tamper-resistant. A blockchain ledger is updated and validated in real time with each network participant. It enables equal visibility of activities and reveals where an asset is at any point in time, who owns it and what condition it’s in. While many users may access, inspect, or add to the data, they can’t change or delete it. The original information stays still, leaving a permanent and a public mark about the fact on the blockchain.

Main features that blockchain integration gives to supply chain

Transparency – parties involved can track the product's journey across the supply chain, revealing its true origin.

Traceability – you can find out instantaneously when a product has swapped hands or location, whether it has been kept in needed conditions, or even broke significant laws, such as the use of child labour. This also leaves out double or missing paperwork, certificates, claims and previously needed third parties. Smart contracts (contracts that run on the blockchain) make sure that all parties are part of fair trading practices.

Security – blockchain allows data to be shared with known members within an agreed network. All the information, documentation and records will be stored and shared with all the member devices of the network, letting the information be visible to all the parties, according to their permission clearance.

Automation – data and documentation movement will be automated thanks to smart contracts, reducing administrative operations and costs.

Immutability – if something is written on the blockchain, it is there permanently. No one can delete, forge or change it, unlike current the supply chain databases.

Many industries have already made the steps towards blockchain integration within global logistics platforms to boost supply chain transparency and automate administrative operations.

Mining Industry

BHB, the UK and Australian based mining company, implemented blockchain to record the movements of wellbore rock and fluid samples. For better security of real-time data that is generated during delivery swapping, the spreadsheet system that has been used for tracking and monitoring up to this point is no match to blockchain technology. Integrated blockchain will not only increase efficiency internally but also lets the company have more effective communication with their partners.

High-End Luxury items Industry

De Beers added blockchain to their supply chain to track their diamonds’ way from the miners to cutting and polishing to retailers. With blockchain, they can significantly reduce the possibility of “blood diamonds” (diamonds mined in a war zone that are used to finance insurgency) being mixed with the real ones, or any other type of fraud.

Food Industry

Everyday lives are getting busier, leading people to buy and consume pre-cut and ready-made foods. Why shouldn’t you buy it – after all it is so convenient, right? Actually, no! With all the positive sides it has, there’s also negative sides – you don’t know where it came from, who washed or packaged it, did they use gloves, did they wash the knife before cutting your salad, how long has it been in transit, and so many more questions. Every year there are at least 2-3 Escherichia coli (E. Coli) outbreaks in the US, with one of the largest outbursts over a decade ending recently, affecting 36 states, killing 5 people and sending 96 to the hospital. Incidents like these have shaken the whole nation and impacted jobs and revenue streams. To reduce the risk of contaminated food ending up on your dinner table, IBM and Walmart have formed the IBM Food Trust, a blockchain powered solution uniting growers, distributors, processors, retailers and other food industry stakeholders. The solution brings efficiency and safety to the food industry by providing a fast, end-to-end way of tracing the products and accessing the compliance certifications.

Conclusion

Blockchain technology can change most industries, and supply chain management is one of the more obvious uses for this technology. Supply chain management provides enterprises, especially manufacturers, with tremendous competitive and business advantages. Adding blockchain to the mix will make your business more competitive, transparent, secure, tracable, and above all, trustworthy.

Originally published at cryptofinance24.com.