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How blockchain will impact supply chains

23 Apr 2018
Let’s start with a brief recap. What exactly is blockchain? Briefly put, it is one enormous digital ledger in which a variety of actions – from transactions to detections – are stored in digital blocks, in chronological order as well as connected to each other.

For each action, a new block is generated, and a copy of the digital ledger is shared with everyone who participates in the blockchain. The order of the blocks can never be changed, and blocks can’t be deleted. This makes it very difficult to commit fraud, as one would have to get all participants on board to make it happen. Therefore, blockchain’s three unique features – immutability, verifiability, and disintermediation – make it a very certain way of capturing actions in time.

Why is blockchain useful to supply chains?

Generally, companies endeavor to ensure that their supply chains are as efficient as possible. On the one hand, they need to pay suppliers in order to purchase raw materials and other supplies, on the other, they have to sell their own products. In view of cash flow, the goal is to optimize the alignment between supply and sales.

However, if friction between the different links in the chain occurs – for example, when the delivery of supplies and/or payments are delayed – it leads to uncertainty among parties that depend on you or that you depend on. Moreover, third parties that consolidate and resell goods greatly complicate the supply chain, making it a long-stretched process comprising many steps. This leads to transparency problems: when you’re depending on a variety of suppliers that are based in all corners of the world and that work with different currencies, you quickly lose overview.

Blockchain can solve this issue, as it allows you to validate the time and place of all transactions. It offers the opportunity to track and trace transactions, which enables you to validate ‘low-trust’ supply chains in real time. Furthermore, third parties will largely become superfluous, as there is no need for them to consolidate anymore.

Futuristic? Not so much!

A world where blockchain facilitates supply chains is much closer than you might think. As we write (and speak), the above-described system is already being tested and used. We will give you two examples of situations in which blockchain is useful to supply chain and operations.

1. Tracing products

Global retailer Walmart currently uses blockchain to track its sales of pork meat in China – a notoriously non-transparent country – so it can see exactly where every piece of meat originates from, how it is processed, where it is stored, and what its sell-by date is. If a product is recalled, Walmart can see the batches concerned as well the people who purchased them. Of course, track and trace can easily be set up without blockchain – but when dealing with low-trust supply chains like these, who would trust the information?

2. Contract bids and execution based on RFID tags

Using RFID tags in supply chains to store product-related information is a common practice. Automatically reading and processing them is easy, so logic dictates that it is wise to link the information to a blockchain and use it for smart logistic contracts. For example, RFID tags for cartons or pallets could store information regarding the delivery date and location. Through applications, logistics partners can search for these tags and bid for a delivery contract. The contract will then be awarded to the partner that offers the most favorable conditions. Subsequently, a smart contract tracks the shipment status and triggers the payment upon successful completion of the final delivery.

In this example, blockchain is used to automate a process that requires a great amount of trust: invoicing and payment. In short, ‘trust’ is what blockchain is all about.

No need to rush, but consider your options

Of course, the use of blockchain in supply chain is still in its early stages of development. It needs to grow to be accepted and embraced by society. Currently, the topic is still surrounded by many uncertainties, and only time will tell if it can be successfully implemented at a large scale.

However, now that we have given you a picture of the ways in which a supply chain may benefit from blockchain, try to consider what it could do for you. What are the advantages, possibilities, and applications relevant to your organization? It’s not necessary to implement blockchain right away, but it can be very interesting to calculate your savings if you’d start using it.

Would you like to discuss this in more detail? Please don’t hesitate to contact us.

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