Supply chain management has grown more complicated in recent years. Businesses can now operate internationally and work with partners and suppliers from around the globe thanks to globalisation and technological advancements. This has reduced expenses and improved efficiency, but it has also brought forth new difficulties.
Gone are the days when companies had to worry about disruptions and inconsistencies in their supply chain. Imagine having issues with your downline affecting effective operation or even tarnishing the image of your organisation because your suppliers were not careful with the goods or late in supply because you could not track goods in real-time. This is what blockchain seeks to challenge and solve.
Blockchain technology promises a huge solution in three forms: transparency, traceability, and security. This solution seeks to allow real-time tracking of goods, reduce fraud, reduce errors and improve the overall efficiency of any organisation through its immutable record-keeping abilities. This further fosters trust among the stakeholders involved in the business.
Companies such as Amazon, Microsoft, Huawei, IBM, SAP SE and many others have been reported to be using blockchain in their supply chain management, which in turn has helped these companies increase their revenue. For instance, the blockchain supply chain management industry is valued at $271 million in 2021 and predicted to increase by $14,180 million by 2028.
However, the question is, how exactly has blockchain impacted supply chain development, what is the future of blockchain in the supply chain industry, and how can companies benefit from this?
What is Blockchain in Supply Management?
Blockchain technology in itself is a decentralized digital ledger introduced in 2008 that records transactions in a secure and transparent manner. Although it is known as the backbone of prominent digital currencies like Bitcoin, over the years this technology has been applied in different sectors, and the supply chain is not excluded.
In supply chain management, blockchain is seen as a decentralised, trusted ledger technology that ensures efficient recording and verifying of the movement of goods or raw materials from the source to the final delivery to the consumer.
Unlike recording transactions between sender and receiver of digital currency, blockchain is used by supply chain companies to record a tamper-proof record of transactions, supply, and demand in an entire supply network.
Additionally, 85% of firms in the ESG and sustainability global corporate survey identified supply chain risks as a significant factor influencing ESG and sustainability agendas.
How Blockchain is Changing Supply Chain Management
Industries like food, pharmaceuticals, and logistics have adopted this technology to address issues such as counterfeiting, inefficiency, loss, and lack of trust. Here are a few ways blockchain is changing supply chain management:
1. Real-Time Tracking
An item in the supply chain can be tracked right from its origin to the final destination. This provides each party involved with a clear view of where goods are at any given moment.
2. Supply Chain Security
A blockchain ensures that data is, for all intents and purposes, immutable by employing one-way hashing and documenting transactions across several platforms. Data in the public ledger is kept with a unique signature created by one-way hashing. The blockchain’s owners will be alerted if the data is altered because the signature won’t match when the hash is recalculated.
Copies of the ledger will not agree with one another if the hash and the data are altered. Since at least three public ledgers are maintained, changing one will indicate an issue while leaving two valid entries unaltered. Making changes to all public ledgers is an extremely challenging undertaking.
3. Smart Contract
The blockchain can be integrated with smart contracts that, when specific terms and conditions are met, automatically carry out the activities specified in the contract since its ledger records the times at which each step occurred for all parties involved. Smart contracts and blockchain eliminate disagreements over milestones and the execution of contract conditions.
Real-World Application of Blockchain in Supply Chain
1. Food Industry
Food product traceability from beginning to end is made possible by blockchain supply chain systems. Every step of the food supply chain, including manufacturing, shipping, and storage conditions, may be tracked from the producer to the final customer. Furthermore, in the event of a product recall, the impacted food items might be recognised and eliminated from the supply chain.
Data like humidity, temperature, storage mediums, and more may be verified and monitored in real time when the food business uses blockchain technology for supply chain management. This lowers the danger of fraud, contamination, and spoiling by ensuring that the supply chain’s correct handling and storage procedures are followed.
For instance, IBM and Walmart have partnered to increase the food supply chain’s traceability and openness. Walmart is able to track mangoes kept in its US shops in 2.2 seconds after its partnership with IBM to create a Hyperledger Fabric-based traceability system.
2. Pharmaceuticals
Throughout the pharmaceutical supply chain, blockchain supply chain solutions can help verify the authenticity of expensive medications and guarantee their integrity. Furthermore, by offering transparent and verifiable transaction data, blockchain-based solutions will facilitate more effective supply chain finance, which will assist pharmaceutical companies in lowering and enhancing their financing and liquidity costs.
For example, Pfizer partnered with Chronicled, a supply chain system driven by blockchain technology, to enhance pharmaceutical product security and traceability.
Addressing issues related to supply chain inefficiencies, fake medications, and regulatory compliance is the main rationale for partnering with Chronicled. To keep track of batch numbers, location details, and expiration dates, Pfizer established an unchangeable record of every pharmaceutical product.
3. Manufacturing
An important resource in the manufacturing sector is intellectual property, or IP. Patents, trademarks, and copyrights might be safely recorded and managed with blockchain supply chain solutions. Blockchain will lower the danger of illegal access and intellectual property infringement by offering an unchangeable record of usage and ownership rights.
Every element, including production procedures, supplier details, shipping records, and quality checks, may be documented on blockchain systems, from the procurement of raw materials to the delivery of the final product. Additionally, it will allow for precise product tracking in the event of recalls or quality problems, enhancing brand recognition and lessening the impact on consumers.
4. Mining Supply Chain
An important resource in the manufacturing sector is intellectual property, or IP. Patents, trademarks, and copyrights might be safely recorded and managed with blockchain supply chain solutions. Blockchain will lower the danger of illegal access and intellectual property infringement by offering an unchangeable record of usage and ownership rights.
Every element, including production procedures, supplier details, shipping records, and quality checks, may be documented on blockchain systems, from the procurement of raw materials to the delivery of the final product. Additionally, it will allow for precise product tracking in the event of recalls or quality problems, enhancing brand recognition and lessening the impact on consumers.
Challenges of Blockchain Supply Chain
Even while this technology has benefits like automation, traceability, and transparency, it’s important to take into account any potential disadvantages. Businesses may have difficulties while using blockchain in supply chain management, ranging from the difficulty of deployment and related expenses to the possibility of erroneous data and human error.
1. Implementation Complexity
The financial ramifications of implementing blockchain technology are among the primary obstacles. Higher costs may result from planning, licensing, maintenance, and the initial expenditures of employing specialised blockchain developers.
Another crucial factor to take into account when implementing blockchain in supply chain management is security. There are still factors to consider even though blockchain technology has built-in features that support data security. Human error or deliberate wrong doing may result in the introduction of inaccurate or fraudulent data onto the blockchain, posing a danger to data integrity.
2. High Operating Cost
Blockchain implementation can come with hefty initial fees. The initial costs are increased by hiring experts in blockchain development and consulting. The whole cost also includes planning, licensing, and maintenance charges. For some supply chains, these upfront expenses could be a deterrent to adoption, particularly for smaller businesses with tighter budgets.
Ongoing costs are another issue with blockchain network maintenance. Frequent network maintenance and updates call for specialised knowledge and resources. Furthermore, running and hosting the blockchain network might be very expensive.
3. Data Security Issues
Blockchain technology offers a strong basis for data security, but breaches can still occur. Like any technology, there’s a chance of data breaches and illegal access. Similarly, because of blockchain’s transparency, sensitive data privacy is a worry. To solve privacy concerns, access and control over data must be carefully managed, even if private and permissioned blockchains can preserve secrecy.
It can be difficult to guarantee the integrity and authenticity of data on the blockchain. Blockchain authentication is based on cryptographic techniques, which are susceptible to intrusions. Strong authentication procedures must be put in place to stop unwanted changes to the data.
4. Potential Human Error
Blockchain technology does not stop fake data from being added to the chain, even if it offers a strong foundation for data security and immutability. Although it cannot stop initial fraudulent or incorrect inputs, it enables users to verify the integrity of the data. This implies that malicious actors have the ability to alter data, which could cause problems for the supply chain.
Future of Blockchain in Supply Chain Industry
The supply chains of businesses across a broad spectrum of industries will immediately benefit from blockchain’s ongoing growth as a $825.93 billion industry by 2032, with use cases expanding well beyond the financial sector.
For the companies that are prepared to harness the power of technology, this will allow them to take advantage of additional growth prospects.
Benefits from process standardisation and automation can be realised here, enabling more organisations to automate time-consuming tasks and become more effective and compliant.
Importantly, in addition to increasing trust, the era of smart contracts will enable more companies to make long-term ESG pledges and thoroughly screen their suppliers with never-before-seen ease.
Conclusion
Blockchain technology is changing the game when it comes to supply chain management by offering unparalleled transparency and security. It’s addressing challenges such as fraudulent behavior and breaches of trust by streamlining processes with smart contracts, tracking data in real-time, and establishing data integrity. As a result, the food and drug industry, for instance, has started employing blockchain to increase operational productivity and consumer trust.
Nonetheless, implementing blockchain incurs substantial expenses and raises the possibility of human mistakes in addition to posing data protection challenges, which pose a barrier to using it. Nevertheless, these barriers will likely decrease as technology matures and becomes more widely adopted. Moreover, the market value for blockchain is increasing, and as such, early adopters will have an edge through improved processes and enhanced ESG targets. However, making supply chain operations more effective, leaner, and sustainable will require the use of Blockchain technology.
