Blockchain in supply chain management – Explained ever so easily!

Blockchain in supply chain management – Explained ever so easily!

The supply chain is a tricky terrain to track and optimize. Be it moving goods from their origin to the destination in a transparent manner or standardizing production or even simply ramping and speeding up processes – there’s ample scope of improvement in logistics.

To fill the gaps that leave your supply chain process in a slump of inefficiency you definitely need emerging tech solutions. Ever thought about applying block chain to supply chain process? 

Consider this – Often companies have to incur heavy losses because of delays in stock procurement information. Because of this ‘invisibility’ they often have to struggle to promptly manage sudden demand changes. At this front, blockchain can bring in more reliability visibility in the supply chain, wherein information is shared real-time by all parties. Blockchain enables recording every event, as and when it happens, in a distributed ledger. Sharing information amongst all participants in the supply chain brings in ‘timeliness’ and ‘transparency’ into operations, minimizing losses at the hands of abrupt demand requirements.

Here are a few clear cut blockchain benefits that set the record in favor of this futuristic enterprise technology solution for supply chain management.

  1. Ensures that all payments are made in a timely manner, brings in more transparency in this process, and reduces chances of fraud by ensuring that all transaction information is always available and accessible to concerned parties.
  2. Brings in the needed visibility in transportation capacity changes by monitoring freight availability real-time. If demand suddenly exceeds supply, and you are unaware of this bottleneck the end result can be difficult to deal with. Such bottlenecks and disruptions (that occur because of failed attempts at transportation capacity planning) often result in businesses failing to meet customer demand requirements in a timely manner. When you’ve promised your customer an order in 2 days and it’s taking you over a week to deliver, because you couldn’t forecast capacity changes accurately, you can’t spare yourself from orders getting cancelled. Unhappy customers will think twice about ordering from you again. 
  3. Allows monitoring previous track record of a potential supply chain partner, such as regularity and consistency in making on-time deliveries, on-time pickups, etc.
  4. In the blockchain universe, all transactions are recorded on a network that’s accessible to every supply chain member. All actions taken on that centralized system or network come immediately to the notice of the authorized parties. Additionally, notarization allows shippers to securely track any modifications as and when made to any document, thereby bringing in traceability, authenticity, and security into the process. Ultimately, preventing the concerned parties from breach of interest and fraud.
  5. Saves you from theft. Blockchain packs in sophisticated security layers and strict measures for authorization. For example, for freight pick-up, a blockchain may contain information and rules like photo ID, biometrics, etc., which need to be validated before freight gets picked up from destination A. These measures prevent malicious thieves eyeing your inventory from stealing it.

So far so good. You’ve gone through a few ways in which you have an upper hand over supply chain disruptions, with blockchain. But, how does blockchain magically do so much?

From supply chain risk management to providing for clear end-to-end visibility in operations to tackling sudden and unavoidable supply-demand changes – blockchain has successfully ousted the many challenges of modern day sophisticated supply chains. How? Let’s find out.

How blockchain magically smoothens dents in the supply chain?

The answer to this question lies in the mechanism that this technology is built using. As it’s definition conveys, blockchain is a sequence of blocks, wherein blocks are synonymous to chunks of digital information. The information in each of these ‘connected’ boxes may pertain to:

  1. Transactions like the date, time, and dollar amount of purchases, payments, billed amounts, amounts cleared, etc.
  2. Participating parties in the transactions. For example, if you have purchased raw material for construction equipment, your information and that of the material supplier will be stored in blocks. Instead of using actual names, each party’s “digital signature,” is used as their username.

Each of the interlinked blocks store information that distinguishes one block from another. Say, you bought raw material from supplier X but also need spare parts from the same provider. Information regarding both these transactions will be stored in different blocks on the chain. Because both these transactions are ‘purchase transactions from the same supplier’ they are identical in nature. However, you can later still tell the two transactions apart if using blockchain technology. How so? Because each block generates unique code called a “hash” created by special algorithms. These codes can be used to track or retrieve information about specific transactions previously carried out.

It would be remiss of me not to mention that on the surface, the information tracking and retrieval might appear very small when reading the above example. But, imagine if such transactions are happening every half an hour, every single day, 365 days a year. How do you smartly and intelligently store and use information then for smoothly running your supply chain. What will happen if in a month you have to make multiple raw material and spare part purchases from the same supplier.

It may also be the case, if you are an enterprise, that you might be dealing with multiple supplies and different parties in the supply chain. Such complex, interconnected, and sophisticated networks call for a solution that simplifies information storage, tracking, visibility, and retrieval. And, this is essentially what blockchain facilitates.

Additionally, all this stored information about transactions becomes more useful with the added convenience of ‘shareability’. Each time a new block is added to the blockchain, it can be viewed by anyone. That’s how you know:

  • Where the transaction data came from and can trace its complete history
  • When and by whom were the modifications to the existing data made by
  • What data needs to be segregated and encrypted

Although transactions on the blockchain are not completely anonymous, personal information about users is limited to their digital signature or username. Digital signatures are being increasingly used because of their cryptographic nature and the security that they bring in. However, because real names ( digital signatures being highly encrypted) aren’t being used, the question that arises is how can you trust blockchain if you cannot completely identify who is actually adding blocks to the blockchain. In other words, is it a secure technology to use? If that’s a concern you think your top management may point out, there’s sufficient reason you can still defend your take.

Point #1 Encryption of data secures all records on the blockchain. Once a new block has been added to the end-tail of the sequence of blockchain, it is extremely difficult to alter the contents of that block. Cryptography converts the digitally stored information into encoded numbers and letters. Additionally, as mentioned before, each block has a unique ‘hash’ code. Suppose a hacker attempts to edit the total billed amount to your raw material supplier. As soon as they edit the dollar amount the block’s hash will change. Every time a new block is added to the chain the hacker will need to update it because it is being protected by the old hash code. It’s simply too much work for hackers to keep recalculating all those hashes being created.

Point #2 You can address the concern about lack of trust among parties who are adding blocks to the same blockchain by implementing certain authentication tests. One such test is the consensus model. This authentication test requires users to “prove” themselves before they are added to a certain blockchain network.

Point #3 A blockchain network’s infrastructure is what really decides how secure it is. An infrastructure that offers promising features like oracle and smart-contracts, for example, is definitely better than others. Basically, an oracle sends the needed information from the physical world to the blockchain. And, the smart contract  self-executing contract triggered automatically when conditions pre-defined by authorized members of a blockchain are meant.

For example, parties decide that raw material of a certain specified measurement should be shipped. The oracle will upload the measurements of the raw material from the physical world on to the blockchain. The smart contract would be automatically triggered when the predefined condition that these measurements are as per the specified and agreed terms is met. Similarly, as and when a payment has been received, a smart contract can trigger a delivery. However, when there is payment delay the smart contract can trigger a penalty interest. As such, there will always be trust and transparency in the transactions happening between different members of the supply chain, from start to finish.

With this, let’s read about some of the most interesting ‘real-world’ applications of blockchain in supply chain processes

Application of blockchain in supply chain management – Real-life Examples

  1. Tracking and tracing the world’s first commercial organic hemp crop grown in Arizona.

The demand for ‘organic’ produce has picked up manifold across the globe. Regulators shoulder extra responsibility of ensuring that the crop they supply is truly ‘organic’ and meets the specified quality. Additionally, consumers are becoming increasingly weary of conventionally grown hemp produce wrongly labelled as ‘organic’. Fraud is rampant in the supply chain of hemp crops as there is little transparency about where it is being sourced from.

Treum, an advanced blockchain based system has been deployed by Verified Organic, to tackle this problem. This new system based on blockchain provides businesses and consumers complete transparency into the organic supply chain – from seed to sale.  Treum tacks all steps in right from planting to fertilizing to harvesting to packaging to distribution of organic hemp. The kind of transparency introduced ensures that quality standards are met at each phase in the supply chain, and there are no chances of tampering with the produce.

  1. Transparency in wine supply in China

Nearly 30,000 bottles of illegitimate wine is sold in China every year. Worse still, most of this wine, which is mixed with dangerous additives is toxic. There’s another interesting story that in 1985 a single bottle of wine was sold for $157,000 at Christie’s in London. Why, you may ask. Because it was thought to have the founding father’s initials ‘Th.J’ carved on the bottle. Later, it was found out that it was a fake and fraud. 

Products utilizing blockchain technology, such as TagItSmart, are now being used to track such malpractices in the wine supply chain. Before buying any bottle, you can simply run a QR check code placed on each bottle, and know the minutest details regarding their purchase. Introducing intervening transparency with blockchain can even help you know if harmful adultrations using lead acetate, diethylene glycol, and methanol were used to increase the sweetness in wine.

  1. Meeting food safety standards to prevent gut health

Walmart, JD.com, IBM, and Tsinghua University are four companies that have joined the blockchain bandwagon to ensure the quality of food that reaches the end consumer. These four are on the mission to ensure shipment efficiency and food supply chain transparency at all levels. 

Right from sourcing to selling, these companies ensure that all food products are carefully handled, made in the best conditions, packaged with care, free of toxins and any adultrations, and meet all other standards laid down for perishable consumables. Various other food companies are soon to join these big names in their endeavor given the fantastic results they’ve achieved.

Ending Note

Supply chains are surrounded by an inescapable complexity. Businesses, as a counter answer to the tough challenges posed by logistics, need equally sophisticated solutions. Blockchain, has successfully, proved to meet the current demands in supply chain operations and management. And, in the future, this emerging tech is only going to boom and beam when fused with even smarter solutions. Think IoT plus blockchain – Blockbuster, isn’t it?

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