Updated: Jan 19, 2021
If you work in a factory or a logistics firm, the word "supply chain" should be a jingle in your workplace—but "blockchain" might be novel to you or any other person you meet during your day to day activities. The aim of this article is to discuss the connection between both fields.
Supply chain refers to the relationship between vendors, manufacturers, distributors, and retailers to deliver a final product or service to consumers. Due to its importance, many industries require supply chain managers to oversee the activities of their supply chain system; if managed effectively, it can help reduce cost and increase productivity. The job of a supply chain manager is to monitor the flow of resources in a supply chain by controlling its elements.
Elements of a supply chain
1. Product development—this means transforming raw materials into finished products.
2. Vendors—these are individuals or businesses that supply materials to manufacturers.
3. Logistics—this is the storage and transfer of goods from one point to another in a supply chain.
4. Marketing—this process draws in potential customers to your retailers and e-commerce websites.
5. Retailers—these are stores or malls, online or physical, where consumers can buy.
6. Customer service—this function makes the supply chain complete by receiving feedback and suggestions.
Raw materials, transportation, distribution networks, customers, and the list goes on, depending on the complexity of a supply chain.
Challenges of the traditional supply chain
Sustaining an effective supply chain system is not a rollercoaster ride. Top manufacturers face a lot of challenges because they operate very complex supply chains; in fact, sole proprietors of small businesses are caught in this web, quarreling with their vendors at length on the phone. Why are these challenges common in supply chains? To answer that, we need to know what these challenges are.
Difficulty in tracking inventories; traceability is the process of tracking inventory, at any point in time, in a supply chain. When there is a defective lot in a supermarket or broken equipment in a multinational manufacturing company, tracing the origin of the defect is herculean.
Lack of transparency; transparency is to the communication of info about a company's supply chain to internal and external parties without concealing any information. Competitors, low ROI, and erroneous supply chain information are some reasons for lack of transparency in many industries.
Dishonesty; for example, procurement officers frequently purchase materials from vendors due to personal relationships or individual gain. The costs associated with the supply chain are transportation cost, inventory cost, procurement cost, etc.
Scalability; as a company grows, it serves different countries and becomes international. It can be difficult for a company due to the geographical location of consumers and vendors.
The challenges companies and supply chain managers encounter can be overwhelming, but this is taking a turn due to the impact of blockchain in the supply chain.
The future of supply chain with blockchain
If you have ever come across bitcoin—the cryptocurrency with the largest market capitalization—on the internet, supermarkets, or the jersey sleeve of your favourite football club ( like Watford F.C.), you have probably heard of blockchain too. Blockchain, the powerhouse of bitcoin, is simply a connection of recorded data secured by cryptography. It is different from cloud computing (a centralized system of storing data). This feature is known as "decentralization."
Decentralization allows everyone in a blockchain network to store all the records available in that network. With this, supply chain managers can assess records like procurement cost, distribution cost, and transportation cost. But what stops corrupt workers from acting dishonestly by tampering with the records? The next feature is pertinent to blockchain.
Consensus ensures everyone in the blockchain network agrees to the data recorded therein. Since no single authority controls the network, nodes (computers) in the network verify and validate records using a protocol e.g. proof of work, proof of stake, proof of burn, etc. Consensus ensures that the data in the blockchain is authentic and free from errors. A strong mechanism that works in tandem with consensus is Hashing (hashing protects the data in each block).
Transparency is another BIG feature of a blockchain. You can view all the records of an organization using a public address, and a blockchain explorer. This feature prevents the misappropriation of funds by corrupt workers because anyone can verify the recorded data.
(Note: it is different from privacy. Blockchain networks provide pseudonymity/anonymity to its participants, thereby ensuring their identity is secured and private).
Real-life use cases
In a newsletter from Volkswagen group, the German car manufacturer, joined the IBM blockchain community in order to source for strategic minerals. This collaboration will help Volkswagen increase sustenance, efficiency, and transparency in its global mineral supply chain.
The American retail giant uses blockchain tech in its food supply chain. The efficiency of blockchain has been tested by researchers from Walmart, and the results were astonishing. It took about 2 seconds to trace the sources of pork meat sold in Walmart stores in China. This is a drastic improvement compared to the conventional time of 7 days.
Boiling It Down To The Supply Chain
In this section, we will consider the topic of discussion on, "how blockchain impacts supply chain." From the features of blockchain, it is deductible that blockchain;
Strengthens traceability by keeping track of payments, receipts, inventories, quality and quantity of products, etc, with zero alterations of the records. It can efficiently monitor the activities in the network, starting from the procurement of raw materials to the delivery of finished goods.
Saves cost and time by providing a permanent and immutable record of all the activities in the supply chain.
Gives room for transparency by ensuring proper documentation of all activities of the supply chain. Anyone can spot alterations of data and trace it to the culprits, thereby prompting participants to act honestly.
Scales easily because their codes are open source. Blockchains like ethereum allow developers to create decentralized applications (Dapps) that can be used by anyone, anywhere in the globe. These applications and the blockchain itself, supply chains can easily operate irrespective of the location and the number of its participants.
Since the inception of bitcoin, the blockchain tech has changed how we transact business. For example, a smart contract makes joint ownership of real estate properties possible without any intermediary or the owners knowing themselves. The door is open to everyone to test, build, and scale this tech to make our lives easier and more comfortable.
Dibia is an industrial engineer who aims to leverage technologies to simplify processes across industries. This passion has also drawn Dibia to the potential of blockchain technology and he envisioned to use his knowledge to help others learn about emerging technologies and ways that could improve and create value for businesses.