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Blockchain Applications Can Revolutionize Supply Chain Management: Here is How

Blockchain Applications Can Revolutionize Supply Chain Management: Here is How
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Supply chain and logistics management in today’s globalized world economy can be a daunting task. Millions of products, from garments to gadgets, are manufactured in the emerging market countries, such as China or Vietnam, and then shipped to places all over the globe, where they are sold. The networks and parties involved in the production and distribution of these goods and services are complex and lack transparency.

The unique attributes of blockchain make it a perfect fit for the challenges typical of supply chain management and logistics. From enhancing supply chain transparency, traceability and accountability to increasing efficiency and preventing fraud, the new technology is expected to transform the industry and add to the bottom line. It is not surprising then that in the spring of 2019, a hundred organizations joined the World Economic Forum blockchain supply chain initiative with a goal to ensure that blockchain is deployed in an interoperable, responsible and inclusive way.

Transparency

Blockchain technology allows for more secure and transparent tracking of all types of transactions, presenting a variety of possibilities all across the supply chain. Every time a product changes hands, the change is documented, creating a permanent history of the product’s journey from manufacture to sale. True origins and touch points are revealed, increasing trust and dramatically reducing time delays, added costs, human error, and improving the industry’s reputation, which is often criticized for being opaque.

Many overseas shipping and cargo companies are already using the blockchain-based digital tracking system developed by Maersk and IBM. Image courtesy of Maersk

Accountability

There is no need to dispute transactions, since the records on the blockchain are visible to all and cannot be erased, ensuring transparency and accountability. A good example are the three largest overseas shipping companies already using a blockchain-based ledger to track their vessels and cargo containers around the globe. More than a hundred shipping and cargo companies are now using the TradeLens supply chain platform – a product of Maersk’ and IBM’s collaboration, which allows members to hold each other accountable for transactions.

Traceability

Food safety is a major issue of concern to consumers, government agencies and grocers alike. Image courtesy of City of Columbia, MI

Blockchain-based platforms allow the verification of products’ provenance, identifying if the product is sustainable or authentic as advertised and can point to the labor used to produce it. The origins of food, for example, are increasingly important to consumers with sustainability concerns. At the same time, public health officials, such as those from the FDA, worry about quickly identifying food-borne illness outbreaks and other issues affecting food safety. In this environment, grocers such as Carrefour, Kroger, and Walmart, among others, have been experimenting with the IBM Food Trust solution, which is a blockchain-based technology that helps trace different food items through their supply chains. Offering consumers an opportunity to track if the organic avocado they picked up at the grocery store has indeed been grown in the Dominican Republic or the coffee they like is actually fair-trade have paid off, with participating grocers seeing a rise in their sales.

Protecting authenticity of luxury goods, in times when global markets are flooded with good-looking fakes, is a huge issue for luxury fashion brands. Blockchain technology based databases offer an opportunity to connect brands and retailers, which would allow sellers and buyers to verify items’ authenticity and track materials to ensure that they were produced by ethical manufacturers. The world’s largest luxury conglomerate, LVMH, is already developing a blockchain based platform to authenticate merchandise, while Kering and Richemont are collaborating with a non-profit Arianee, which is working in the same domain.

In 2008, De Beers used blockchain tech to track 100 high-value diamonds from the mine to retailer to ensure their quality and conflict-free status. Image courtesy of De Beers

Similarly, the dominant players in the precious stones industry are looking to blockchain for solutions that would help eradicate conflict diamonds and other industry issues, like child labor. In 2018, De Beers, world’s largest diamond producer, began to track its diamonds to ensure they are not from conflict zones, using blockchain technology.

Efficiency

Blockchain technology offers greater supply chain efficiency. Digitizing supply chain and logistics related records cuts down on paper trails and processing times and allows for real-time action. It is easier to identify bottlenecks and other issues with reliable data, making businesses’ operations more efficient. The new technology can help track the quantity and transfer of assets, from pallets to containers, as they move between different supply chain nodes and parties.

Fundamentally a distributed digital ledger, blockchain can be used for any transactions, exchanges, contracts, or payments. The ability of the blockchain technology to transfer funds anywhere in the world without the use of the traditional financial services industry bodes well for globalized supply chains. Companies can pay their suppliers via cryptocurrency, as a growing number of businesses accept cryptocurrency payments.

Fraud Prevention

According to KPMG, supply chain fraud is widespread and is increasing global risk for businesses. Considering the vast amounts of money flowing through supply chains across the globe, fraud is something all companies want to avoid, and are likely to use blockchain technology to help them detect. Thanks to immutable supply chain tracking, blockchains are expected to reduce costs associated with fraud and audits for companies, potentially increasing their margins.

It is clear that as with all new technologies, blockchain use in logistics and supply chain management may face challenges, but if different parties within the industry work together, there is a potential upside that can be offered by the innovative solutions.

Text by Maria Birger and Crypto Accountant