Blockchain for Supply Chain Management
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Wondering about blockchain for supply chain management? You’ve come to the right place.
In this article, I aim to examine the way in which blockchain database technology is set to revolutionize supply chain management.
I will start by first taking a closer look at exactly what a blockchain database means for transforming supply chain management, before going on to give examples of where they can be implemented to help speed up and improve the complex supply chain management.
Blockchain in Supply Chain Management
Blockchain is set to become a real game-changer for supply chain environment. Blockchain technology arrived on the scene back in 2008, when Satoshi Nakamoto published his paper “Bitcoin: A Peer-to-Peer Electronic Cash System“. Few people outside the tech industry even noticed this monumental event until 2017, when bitcoin exploded in value and sent the world rushing into a cryptocurrency gold rush.
This explosion sent shockwaves around the globe. Not only did it represent an easy way to make a quick buck, but it also created a whole industry built on cryptocurrencies, and more importantly, the blockchain technology that underlies them.
When it comes to the need for efficient and reliable management of supply chains, the cargo industry stands to benefit massively from the blockchain. Each year trillions of dollars of freight are transported globally, 90% of which is sent via ocean freight.
Given that the major freight companies are among the largest businesses in the world, it is amazing to discover that much of their supply chain processes are still done using legacy systems involving physical documents.
The processing of such paperwork is usually very time-consuming as it must all be done through manual processes, not to mention far riskier. A lost document could cause huge delays as the handlers would need to trace and verify transactions by contacting the other party for documents copies causing increase in transaction costs, etc.
A blockchain database could almost completely automate the entire process, all the way from the factory to the retailer.
An initial block could be created for the goods as they leave the factory, thereby initiating the blockchain. This block would detail the time, type, and quantity of goods, as well as the transport company’s confirmation of goods received, etc. A new block could then be added for each step of the journey until the goods finally reach their destination.
This process would not only make the whole process more secure but would also allow companies to track their goods in real-time. Another added bonus of using a decentralized technology is that it helps prevent these records from being altered without authorization, as all parties have a record of the transaction.
Since a large cargo ship can carry millions of dollars of freight, most of which is purchased on credit, the implementation of blockchain database technology will benefit the industry enormously.
“The sooner manufacturers and distributors can agree on shipments and receipts, the sooner manufacturers can be paid for their goods. Getting paid faster improves financial liquidity for members of the supply chain.” – Bill Fearnley, Jr. Research director for IDC’s Worldwide Blockchain Strategies.
Another advantage of the use of blockchain technology in supply chains comes through the ability to automate processes. Smart contracts could be set up between the various different parties involved in the process which could be set to trigger predetermined actions to be taken once a given set of criteria were met.
So, for example, when the goods arrive at the port and are marked as received, this event would trigger an automatic payment being made to the shipping company. This would streamline the whole process and allow companies to operate with fewer administrative staff, etc.
Recently, IBM announced that it is planning to join forces with shipping giant Maersk to form a blockchain-based shipping supply chain company. And they are not the only ones looking to cash in on this new technology.
The Diamond Blockchain
Diamond giant De Beers is another company that has identified a specific need to apply blockchain technology to its supply chains. For years, De Beers has been mired in controversy surrounding allegations that it was involved in the illegal ’blood diamond‘ industry.
Given the company‘s need to ensure that its diamonds are not sourced from conflict zones, De Beers has stated that it intends to implement a blockchain-based supply chain management system as soon as possible.
This blockchain solution will presumably record the weight and size of the stone, along with the exact time, date, and location where a diamond was found. This blockchain distributed ledger technology could then be used to track the diamond all the way through the supply chain until it was finally sold to the retailer.
The problem of authenticating the location could be solved by using a smart GPS device that would record the exact coordinates into the blockchain when a new stone was found. Precise weight and stone dimensions could also be recorded to be used to help ensure the authenticity of the stone.
The application of a blockchain-based supply chain solution would also help De Beers with another problem that has always hurt the diamond industry, namely fraud. Synthetic diamonds frequently enter the marketplace and are sold as being authentic.
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A recent article in The Centurion highlighted that “the presence of undisclosed synthetics in the market could cause irreparable damage to the integrity of the diamond supply chain and undermine consumer confidence in diamonds”. The article goes on to explain how impractical it is for retailers to test every single stone in an attempt to detect fraud.
A supply chain solution that could guarantee the authenticity of any diamond would have a number of benefits. Firstly, it would save the industry untold time and money spent trying to prevent fraud.
Another important benefit is that prices would actually rise due to increased consumer confidence that the diamonds they are buying are real and not from conflict zones. Since synthetic diamonds would be effectively eliminated from the marketplace by such a system, the carefully controlled supply would have the effect of helping to raise prices.
One firm has already implemented a digital ledger to solve the diamond supply chain problem. To date, Everledger has managed to record more than 850,000 separate diamonds to its database. The firm records 40 separate pieces of information relating to each diamond that allows it to authenticate all the diamonds it has stored in its database.
Authentication equals better safety
The final area that I wish to touch on is how blockchain can help to improve supply chains is safety. You might not have ever thought about it, but being able to ensure the authenticity of goods leaving a supply chain has massive safety implications.
The most obvious example is the food supply chain activities. Manufacturers need to be able to prove the authenticity of their products to help retailers identify them as genuine. Perhaps even more vital than this is the ability to quickly trace products in the case that they need to be recalled.
Each year, the food industry has to recall products, especially raw materials that pose a health risk to consumers. One such example was the 2013 horse meat scandal where numerous beef products were found to actually contain horse meat.
A lengthy investigation by Ireland‘s Department of Agriculture into one of the companies involved could only conclude that “there is no evidence that Silvercrest knowingly purchased horsemeat”. This is an astounding claim and shows just how little accountability there is in the current food supply chain.
Given that a blockchain supply management solution would be tamper-proof, provided it was implemented at each stage of the process, it would prevent such things from ever happening again because it would make the perpetrators fully accountable.
Aviation, transportation, infrastructure, and even toy manufacturing, would all benefit from being able to prove the authenticity of their products and the materials/components that they include. Fake components finding their way into planes and vehicles, for example, constitutes a real public health concern and has resulted in tragic accidents.
This article published in The Irish Times brings attention to numerous incidents where fake parts have actually resulted in aircraft crashes.
In 1989 a plane crash in the North Sea, which killed 55 people, highlighted the problem of unfit spare aviation parts. It is widely believed the tail fin fell off the aircraft after parts failed. The same year a DC-10 crashed in Chicago when bolts securing the engine to the wing became loose and it fell off.”
These tragic accidents would have been preventable had the supply chain had a way to guarantee the authenticity of the parts. Once again, this subject points to the need for industries to implement secure blockchain-based supply chain management solutions as quickly as possible.
All of these companies have foreseen just how important blockchain implementation into supply chain management is set to become in the future.
Areas of supply chain management that can benefit from the blockchain:
- Recording the type and quantity of goods being shipped
- Tracking orders
- Automation of processes such as payment
- Helping to prioritize orders
- Providing shipping information
- Preventing Fraud
- Increased Safety
- Authenticating goods
If your company is interested in implementing blockchain technology and would like to know more about how to use blockchain to build a simple database, then click the link to read this interesting article.
My Final Thought
According to a study, “Supply Chain Industry Analytics Market to grow at 16% CAGR to hit US $10 billion by 2025” and blockchain technology is strengthening this supply chain visibility.
It is clear just how important blockchain databases will become in supply chains around the globe. We can expect to see them implemented into the global supply chains, especially the shipping companies, such as Fed Ex and Amazon first, after which the technology will filter down into medium-sized companies.
While companies are always resistant to uprooting their existing systems, the enormous advantages that blockchain databases have to offer are simply too great to ignore. It is for this reason that I believe we will see widespread use of such databases within the next 5 to 10 years.
If you, as supply chain business CEO or CTO, are looking forward to investing in a blockchain supply chain management solution, you will likely need a team of capable blockchain developers. DevTeam.Space can help you here through a community of experienced blockchain engineers.
Write to us your initial blockchain supply chain management specifications via this quick form and one of our technical managers will get back to you for discussing further details.
Frequently Asked Questions
Blockchain is a decentralized technology. Blockchain enables the creation and storage of blocks of data. Each block is linked to the preceding and subsequent block in a way that has led to the name blockchain.
Blockchain network is an ideal solution for supply chain management as blockchain technology enables the use of smart contracts that can be used to automate processes in the supply chain. Examples include synchronize logistics data that can be integrated with electronic data interchange systems, automating payments after goods are received as well as initiating delivery instructions, visibility across the value chain, quality control, etc.
There are many examples of great blockchain applications for supply chain such as the one developed by Walmart. Commercially available ones are a little harder to find, however, IBM is currently offering the best solution.