Why Blockchain Matters to Supply Chain

Blockchain has enormous potential to deliver clear business benefits to supply chain and logistics providers, offering industry unprecedented levels of transparency, cost-efficiency and speed.

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In 2008, the anonymous Satoshi Nakamoto introduced Bitcoin to the world as a global, borderless virtual currency. Underpinning that currency is blockchain, an encrypted digital ledger that records all transactions publicly and chronologically. While its ability to transform financial transactions is being extensively explored, various industries are looking into innovative ways to use blockchain aside from peer-to-peer monetary exchanges.

So far, companies across various industries are working to apply blockchain to improve business processes, in fields from education to voting to land records. Major corporations, like Microsoft, Intel, and JPMorgan, are even teaming up to build open blockchain frameworks, which can be applied to increase speed and efficiency in nearly any business. 

Supply chain is an industry that stands to reap vast benefits by adopting blockchain. Supply chain transactions are significantly more complex than most financial exchanges, involving more data, asynchronous processes, and potentially hundreds of companies in a single supply chain. In fact, they can more accurately be referred to as networks, consisting of companies and service providers that “wrap” back on one another, with each produced item consumed by another supply chain, serving as an input to the next supply chain’s product. The fact that there is no single system to manage all supply chain processes and transactions has caused rampant problems in terms of data latency and accuracy. 

Supply chains also are global in nature and subject to uncontrollable factors, like political and social conflict and natural disasters. As a result, supply chain managers worldwide are increasingly facing issues in terms of customer service, cost control, risk management, supplier relationship management and talent supply. Additionally, the numerous players in the system often use disparate record-keeping systems, in both paper and digital formats, making it difficult to synchronize systems. These disadvantages have created many inefficiencies for supply chains, making it difficult to orchestrate multiple parties to produce a product and deliver it on time and on budget.

Blockchain can provide a seamless solution to many issues in supply chain. By creating a digital ledger that cannot be altered, blockchain eliminates the need for a central authority or third parties to verify their legitimacy. Blockchain enables smart contracts that enforce agreements digitally and automatically. Blockchain potentially records transactions far more quickly than current systems and can reduce costly data entry and paperwork errors. 

Transparency is another key benefit that could result from supply chain adoption of blockchain technology. By using immutable shared contracts, documents and transactions, companies can improve accuracy, transparency and compliance. Blockchains can help discourage organizational siloes within parts of a supply chain and can aid C-suite executives to better understand issues of efficiency and production. 

Blockchain also can increase consumer security and trust by providing product visibility, provenance and fraud detection. If customers can verify a product’s origination, they are can develop more trust within a supply chain. Not only will blockchain let customers see a product’s provenance, but they also can view other valuable information, such as landed cost and arrival times. 

A blockchain-based supply chain system also can enhance communication between managers, companies and customers to allow all parties to receive real-time feedback and responses. This will speed up customers’ response to products and connect companies more closely to feedback, allowing them to make more accurate forecasts and product adjustments. Real-time feedback also improves scalability. For example, suppliers can use the blockchain data to identify customers’ trends to grow and scale operations. 

As relationships between companies, suppliers and customers become more transparent, supply chain managers will better utilize both talent and capital assets. Incomplete and out-of-date information increases friction between participants in the supply chain, with assets often remaining “locked” (and unutilized) within a company. Through a combination of blockchain, big data and machine learning, people will be able to match talent and capital assets with projects that require their skills or resources, to create a more efficient, valuable supply network.  

Real-time payments between buyers and suppliers will improve financial liquidity and capital performance within supply chain networks. Blockchain will verify and validate these payments quickly and efficiently to provide almost instant liquidity to suppliers and allow for an increased capital flows throughout the supply chain. This will spur a higher amount of industry activity and trade, and ultimately, increase economic value for all participants.

Blockchain has enormous potential to deliver clear business benefits to supply chain and logistics providers, offering industry unprecedented levels of transparency, cost-efficiency and speed. Blockchain’s opportunity is to transform global supply chains that account for two-thirds of the world’s approximately $75 trillion in GDP. However, the full impact of this innovative technology will be most fully realized when the world’s supply chains are able to liberate their capital, assets and human resources to achieve their best and highest use, by providing customers with the products they want, at a fair and honest price.