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.