Many businesses know that supply chain management is vital to their success and can provide competitive advantages. During the last decades two transformations have swept through global supply chains. These new realities mean that the old ways of managing the supply chain simply can’t keep up.
New supply chain, old technology
First, supply chains do not longer just consist of networks of suppliers and manufacturers. But today, they compromise a wide ecosystem, with multiple parties and links involved in creating and distributing goods, from raw materials to finished product, interconnected with the financial supply chain.
Currently, these global supply chains can span over hundreds of stages, dozens of different locations and parties, which makes it very hard to trace events, gain sufficient transparency, finance trade, and reduce disruptions. Secondly, supply chains and operations have become increasingly dynamic. Product lifecycles have never been so short, and ramp-up periods are becoming more intense. This can have significant implications in terms of cost, speed, and efficiency requirements.
Although, there is transformation within global supply chains, the underlying technology for managing them has not changed. For instance, today the majority of corporates run dedicated supply chain management software and enterprise resource planning (ERP) solutions. From connecting the manufacturing stage to shipping the goods to the client, products are tracked on computerized systems through the whole supply chain lifecycle. Yet despite this, most companies have only limited visibility and insight into where all their products are at any given moment and there are still too many manual intensive, paper-based processes required on a deal-by-deal basis.
Identifying the problem
The key issue is the lack of standards and interoperability in trade today, giving rise to fragmented, disconnected systems, and pipes that do not speak to one another. Current systems lock trade data in silos, making data hard to get and verify. This creates time delays, costs, potentially fraud, compliance, and audit risks as trading parties have little to no visibility into critical transactions data. In addition, there are analog gaps between the systems of the various supply chain constituents and also within their own organization. There might be a digital record from production, but when shipping goods through logistic carrier, in most cases, a PDF document is created and printed. The logistic company has its own tracking system and database, which is in most cases not communicating with the production system of the manufacturer, the sales team or external partners. All these proprietary, disconnected systems were created for an era of big, vertically integrated companies with large, but mostly static supply chains with little interconnectivity. They were very relevant 30 years ago, but not for today’s supply chains.
The blockchain revolution
Blockchain has the potential to transform the supply chain and disrupt the way we produce, purchase, consume and finance goods. By introducing blockchain supported by complimentary solutions, companies can rebuild their approach to supply chain management at the ecosystem level and can counter these inefficiencies and add new value. Blockchain technology is frequently being described by words like ‘disruptive’, ‘game changer’ or ‘revolution.’
But what is blockchain exactly, and which role will it play in supply chain management? Technically speaking, blockchain is a protocol for a digital, distributed ledger enables proof of ownership and the transfer of ownership from one entity to another without the need for a trusted third-party intermediary. In essence, blockchain is a technology for decentralized storage of transactional data. This means that transactions can be verified by all members of the trade ecosystem at any time. A trade network based on blockchain technology can take over functions which, until now, could only be enabled by centralized databases or platforms.
Beyond the distributed database, there are other definite advantages that result from the crossover of blockchain technology and the supply chain.
- Enhanced transparency. If blockchain technology allows us to more securely and transparently track all types of transactions, imagine the possibilities it presents across the supply chain. A product’s origin and touchpoints could be tracked, documenting a product’s journey across the entire supply chain revealing its true origin and touchpoints, which increases trust and helps eliminate the bias found in today’s opaque supply chains. Every time a product changes hands, the transaction can be documented and shared, creating a permanent history of a product and its life cycle, from manufacturing to sale. This could dramatically reduce time to support a product issue, respond proactively to quality issues, reducing time delays, added costs, and human error that plague transactions today. For supply chain management, blockchain has tremendous potential. Tracking of orders, shipments etc. would be improved, and sharing information about production process, delivery, and maintenance of products with suppliers and vendors would become easier and more efficient.
- Greater scalability. Any number of players within the trade ecosystem can be seamlessly integrated into the blockchain without losing data consistency. In addition, blockchain is independent of adjacent and legacy systems, making implementation quick and fairly simple.
- Improved efficiency. Blockchain means less administrative work, which lowers transaction costs and improves efficiency. It saves time, paper and money and is less prone to errors or manipulation. The value that is transferred can also move through an extended supply chain while ensuring that what occurs at each point in the chain can be chronologically recorded.
- Smart contracts. In combination with Smart Contracts, the potential of blockchain is even larger. Automation of payment executions is just one of many examples of the use of Smart Contracts. Smart Contracts, are ‘electronic’ rules based on automated actions that are triggered through predefined events. Such contracts can be used to take care of financing opportunity, for example early payments to suppliers from banks automatically, at the same time deliveries are made.
- Innovation. Opportunities abound to create new, specialized uses for the technology in supply chains. One such innovation is led by TradeIX, an open platform for trade finance leveraging open communication standards and blockchain technology. The company provides participants in the trade ecosystem, corporates and their supply chain, financial institutions, logistic companies, and technology providers, a smarter, more connected, and more secure technology platform for facilitating the movement of goods, assets, and credit around the world in support of global trade.
Ready for today
At the time of its inception two centuries ago, the supply chain was a revolutionary concept that improved visibility and control on products moving from point A to point B. However, the old technology and processes can no longer support today’s fast moving evolving supply chains, which have become extremely fragmented, inefficient and geographically dispersed. As a fact, the supply chain is now an opaque and faulty process that is extremely hard to manage.
Todays, many of global supply chain challenges can be solved with blockchain, in bringing transparency and efficiency to a number of different industries. Blockchain provides the foundation for a radically new approach to supply chain management and experts suggest that it could become a universal “supply chain operating system” before long.