Excitement over blockchain technologies in the financial world was already established years ago, but now blockchain is getting its due in other key industries — among them supply chain management (SCM). Companies worldwide that produce products of almost any sort rely on their supply chain networks to source materials and deliver goods quickly. Now, blockchain is improving how companies can better collaborate with their supply partners and track goods more effectively.
Blockchain in Supply Chain Management vs. Financial World
Blockchain is defined as a distributed, digital ledger that records transactions via a series of blocks. Multiple copies are spread over many computers, also known as nodes. Ledgers and transactions are fundamentally secure because each new block links back to previous blocks in a manner that makes tampering virtually impossible. And because it’s decentralized, the blockchain ledger doesn’t rely on a single entity such as a bank to keep the data safe. Nodes in the blockchain network receive updated versions of the ledger with every new transaction. To falsify, someone would have to tamper with all copies at the same time, which is very hard to do. And blockchain ledgers can be programmed to automatically trigger transactions.
There are some key differences in the way blockchain is used in supply chain networks versus financial transactions. In cryptocurrency networks, for example, the primary function of a blockchain is to enable an unlimited number of anonymous parties to conduct transactions privately without a central third-party entity. Conversely for supply chains, it’s about the opposite: it enables a limited number of known parties to protect operations and transactions from outside tampering. Blockchains are helpful in situations where supply chains are extensive and there are many partners and products to track.
Key Benefits of Blockchain in Supply Chain Management
Supply chains are all about moving goods and materials to where they need to be, and blockchain improves companies’ ability to trace, record, and certify the relevant information associated with that process. Deloitte recently highlighted several key benefits for blockchain in supply chain management:
1. More Accurate Tracking:
With blockchain, companies can digitize physical assets and create a reliable, decentralized record of transactions, which makes it easier to track assets from manufacturing to delivery and provides better visibility from end to end.
2. Better Transparency:
Businesses that produce high-value goods such as pharmaceuticals can reduce the possibility of fraud in their supply chains. By better understanding how vital ingredients move from one subcontractor to the next, they can reduce losses from counterfeit and grey markets and grow trust by consumers that goods are authentic.
3. Contract Manufacturing:
All parties in a supply chain have access to the same information, reducing communications problems and data transfer errors, and lowering the amount of time spent on validating the data.
4. Administration:
By enabling a trustworthy audit trail within the supply chain, blockchain streamlines various administrative processes such as compliance and credit checks, thanks to a distributed ledger of all data and activity.
How Blockchain Helps the Food Industry
Food supply chains, especially the distribution of fresh produce, are often vulnerable to costly recalls driven by bacterial outbreaks that can happen to food in transit. Companies are now looking into blockchain as a better way to enhance visibility and traceability of goods throughout the supply chain, resulting in better quality produce. Consumers themselves are demanding better authenticity of the food they eat. According to Nielsen, almost half of all shoppers will pay extra for products with higher quality safety standards. Walmart has been particularly successful with blockchain-driven food supply chain management, improving their ability to track food supplies from farm-to-store operations in near real-time.
The wine industry, which is one of the most counterfeited in the food world (nearly 50 percent of all wine that is sold in China is either counterfeit or deceptively labeled), can also benefit. A decentralized, blockchain-based system helps track wine from vineyard to the store, helping to ensure safety and authenticity of wines in the consumer market.
Enabling Smart Contracts
Procurement is a key part of any supply chain, and blockchain enables smart contracts, or chunks of code within an individual block in a blockchain, to automate actions when predetermined conditions are met. The procurement owner can define rules for transactions and enforce obligations by participants. Some examples include:
- Enabling digital keys that become useless after a predetermined data expires, which helps to enforce payment for either virtual or physical goods
- Tracking and ensuring the ethical mining of rare earth metals and diamonds by providing a clear audit trail back to its place of origin, all in real time
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The Future Is Bright for Blockchain in Supply Chain Management
The use cases for using blockchain in complex supply chain scenarios are growing every day. There will be increased demand for those with blockchain expertise in the real world who can readily build blockchain networks, deploy smart contracts, and ensure the safety and efficiency of their companies’ manufacturing and distribution capabilities.
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