Blockchain DLT for Supply Chain Management

Supply chain management is an important piece of enterprise resource planning (ERP). Supply chain management is the oversight of funds, raw materials, components, and finished products, as they move from suppliers, to manufacturers, to wholesalers, to retailers, to consumers. This movement can occur both within one company, or among several companies. As assumptions change over time, the supply chain models can begin to show weak performance metrics. Good supply chain management will keep product quality consistent, and also prevent either understocking or overstocking of inventory.

Stocking the right amount of inventory over time is also known as supply demand synchronization, and is the key component in just-in-time lean manufacturing and distribution. Companies want to ensure that products are available when needed, but overstocking inventory is costly. Companies that overstock perishable goods must discard items. Companies that overstock non-perishable goods cannot use the money paid for those goods for other purposes until the inventory is used. Furthermore, if the price of a good drops while a company is storing excess inventory, then the company will lose money.

Currently, there are weak points in the supply chain management. These weak points occur where there are multiple ERP systems in use across organizations. Data doesn't flow well through the handshakes or interface points between systems. These weak points usually happen during transference of ownership, or change in status between two parties. Visibility is limited at the hand-off points of funds, raw materials, components, or finished products. This lack of transparency is often intentional, as companies don't want to expose their competitive advantages (e.g., an inexpensive supplier who delivers quality products on time). Additionally, a company could be cut out of a supply chain if members start transacting directly with that company’s suppliers.

Blockchains are currently being used to solve problems in supply chain management by eliminating the need for a trusted third party to certify raw materials, components, or finished products, as they travel through a supply chain. Every participant, or node, contains a copy of all transactions. This provides an audit trail of every transaction that has occurred in the system. A change would be validated or rejected by the nodes in the system. Because all participants have a copy of all past transactions in the network, any participant can detect if a product is not as advertised. Instead of examining raw materials, components, or finished products at several points in the supply chain, a record of the inspection would be available and bound to the item as it flows through the supply chain. Although a record of the transaction is public and tied to the movement of physical items across the network, specifics such as the quantity of goods, or the identity of the parties transacting, can be done pseudo-anonymously in a blockchain. Such a granular view of movement through supply chains improves resource allocation.

The trade finance industry can also leverage information visible in a supply chain blockchain. In its broadest sense, trade finance manages capital required for international trade. Trade financing has become the norm for cross border transactions, with the World Trade Organization estimating that "up to 80 percent of global trade is supported by some sort of financing or credit insurance" (2016). An exporter needs to to mitigate the risk of non-payment, while an importer wants to mitigate the supply risk. The function of trade finance is to act as a third party to remove the payment risk and the supply risk, whilst providing the exporter with accelerated receivables, and the importer with extended credit. Institutions that provide capital during these trades can leverage the information visible in a supply chain blockchain to better evaluate companies for lending.

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