Blockchain: The Future Of The Supply Chain
Our global and interconnected economy has built complex, intricate supply chains. Whether it’s creating a product or trading stocks, moving a unit from source to customer has become a complicated process.
The largest problem for supply chains today is a lack of transparency. Up until now, there hasn’t been an easy way for supply chain partners to share data and information. This can lead to uncertainty, delays, confusion, longer lead times, and critical production mistakes.
Friction along the supply chain can kill a business. When supply chain partners can’t communicate with one another, simple transactions become lengthy and convoluted.
Blockchain software is booming in popularity to overcome these concerns in a variety of industries. Finally, new technology is making the supply chain transparent, streamlined, and operational.
What Is Blockchain?
In essence, blockchain is a shared database in the cloud. It’s a digital ledger that shows the history of a product as it moves through the supply chain. All of the supply partners have access to this ledger, so they can see every step of the production process as it’s happening.
Blockchain records actions in a chain of “blocks” (hence the name). The tech will show the most recent information, but it also saves all the previous records. This makes it possible for multiple partners to be working on the same record at the same time without a loss of data.
Think of blockchain as similar to Google Docs. Two people can be working on the same document, and the changes are visible in real-time. Blockchain builds a shared database, but it also tracks all of the previous changes in a block format. Users can see old versions and monitor workflows all in one spot.
Each new block is linked back to previous blocks, making it nearly impossible to tamper with or falsify. Trying to fabricate the ledger would mean having to change the hundreds of copies of that ledger at the same time. This makes it nearly un-hackable.
Blockchain info is “decentralized technology.” This means it’s not stored in a single location as previous supply chain tech has been. The data is accessible through the cloud and a global network of computers. This technically means the records are public via the internet, but a partner would need to verify access to specific data.
Because it’s a shared database, blockchain builds honest transparency along the supply chain. This transparency is crucial as product lifecycles are becoming shorter and more partners are entering the supply chain. Each partner has a responsibility to upload their digital data because their partners are constantly checking and monitoring them.
Moreover, blockchain tech is nearly instantaneous. That means partners can watch transaction status changes within minutes. They know exactly where the product is at all times without confusion of manual records. This can help ensure smoother processes, shorter lead times, fewer delays, reduced redundancy, greater partner relationships, and a happier customer.
Overall, blockchain technology shows an integrated view of all of the steps of the supply chain. It builds an ecosystem of data where all partners can share and synchronize critical information.
Who Uses Blockchain?
Blockchain is best known for its use in Bitcoin, where blockchain tech is used as a means of hyper-security. Still, its reach extends beyond cryptocurrency. Blockchain technology can be used in any type of supply chain where there is some sort of transfer of ownership.
Blockchain has also been deployed in the financial services industry. This technology makes settlements and international payments more secure, efficient, and transparent.
So far, blockchain has been used to protect important documents, enhance food and drug traceability, and monitor shipping RFID tags. Ultimately, blockchain is able to reduce the time and cost of all sorts of global supply chains.
We expect that more industries will start to implement blockchain in the upcoming years as organizations continue to see the value of implementation.
Sample Blockchain Supply Chain
Let’s take a look at a sample blockchain to understand blockchain tech in action.
Consider Chipotle as an example. Chipotle had an E. coli outbreak, but they didn’t k
now where along the supply chain the bacteria came from. They had to manually trace back through the supply chain to find the source of the problem. With a blockchain, they would be able to better see what was going wrong—and catch the problem before it happened—thanks to an increase in transparency and data sharing.
Below is what a fictitious sample blockchain for Chipotle could look like.
The suppliers are the ones growing the food. They can upload data about quality inspections, production start dates, expected quantities of food produced, and more. Each supplier would have its own “block” of recorded data. They would upload anything that would prove to their partners that they’re doing the job as promised.
If this is where Chipotle’s problem stemmed from, the partners would have been able to monitor quality concerns and health inspections through uploaded data.
The goods then go to the producer, who packages the food. They can look back at the supplier’s data to see when the food will be ready, how the food was made, and any necessary information about food handling.
For example, the producer could upload a QR code to the packaging of their beef. That QR code can then be linked to the cloud so anyone who scans the code can instantly have that product’s information through the blockchain. They can see what farm that beef came from, what food it ate, and what other animals are on that farm.
The distributor will receive a notification when the food is finalized. They can then start building a distribution plan based on the producer’s approximate timeline as uploaded to the blockchain database. They could say how many pounds of beef versus chicken are going to different locations, for example. They will then prep the goods for shipment.
The distribution plan shared on the blockchain allows shippers and retailers to get an idea of where the goods are going. This will also include shipping and storage instructions that the shipper can use to appropriately move the units. For example, the distributor can upload information about refrigerated shipping needs for their produce going to local restaurants.
A 3PL or shipping company will then take control of the goods. The shipper will upload info about the origin and destination of the products based on the distributor’s plan. The shipper can then use the blockchain to keep updated, real-time logs about product location and delivery timeline.
It’s crucial today that forwarders keep specific logs about their shipments. From hours spent on the road to the condition of the items, detailed and accessible data is crucial to providing top-notch service. Moving from manual logs to electronic logging devices will enable an easier upload of information to blockchain platforms.
The retailer can watch the blockchain to see when the shipment is supposed to come in. This transparency allows the retailer to build better relationships with their clients. For example, if one Chipotle location is not expecting to get beef delivered until next week, they can request beef from a nearby location or they can email their loyal customers to let them know about the temporary shortage.
The retailer can then upload data about how well the product is selling and additional feedback from the customer. This can help the supplier and producer see what is and isn’t working, so they can make appropriate changes.
In some cases, the customer can also have access to the blockchain information. They can see data about where the product is coming from and how it was shipped. They can even see info uploaded by the retailer, like popular recipes or promotional coupons.
Chipotle could use this technology today to transparently demonstrate quality inspections and supplier regulations. Consumers would have access to info about their food firsthand. They could see where their food is coming from, the quality inspections of that farm, and even how that food was prepped and packaged.
Note: Partners can set up the blockchain so that customers only have access to certain portions of the data. Customers wouldn’t have access to all of the same records, but instead they would only see those documents most relevant to the consumer point of view.
Why Use Blockchain?
The above was one example, but blockchain can be used in just about any field. Blockchain is becoming the backbone of all digital supply chains, and its advantages are hard to ignore:
• Fast implementation
• Safe and secure
• Accessible to all partners
• Data restriction options (i.e. customers)
• Forecasting analytics
• Less administrative work
• Partner accountability
• Transparency and control
• Credibility and visibility
• Ensures quality standards
Overall, blockchains are making supply chains more dynamic. This enables a more efficient use of resources for all involved parties.
What Are The Challenges Of Blockchain?
The key barrier to blockchain is that it needs a strong backbone and network of users. In order to scale, everyone along the supply chain needs to start using it—from the supplier to the retailer. The entire ecosystem of blockchain is still new, so people are still adapting to it.
Moreover, implementing blockchain is easy, but blockchain programming still requires complex skills. This means that companies will need to train their force extensively or outsource their programming to a third party.
There is another barrier to blockchain: the law. Because supply chains are so global, there is a complex array of worldwide regulations that need to be considered. Today’s supply chain regulators are looking to find ways that will marry old-world laws with new digital technologies.
We expect that as people begin to see the advantages of blockchain, though, more companies will adopt this cloud-based database.
Blockchain is the future of supply chain transparency. It will change the way the supply ecosystem operates moving forward. From financial services to cryptocurrency to food and product shipments, the opportunities for blockchain are still on the rise.
Implementation won’t happen overnight. However, we estimate that this technology will become a focal point for change in the upcoming years. Blockchain benefits from the network effect, and as key players start employing blockchain technology, others will follow suit.