Blockchain is tagged as one of the up-and-coming technologies that will bring disruption to many industries and business functions, including supply chain management. So what is blockchain, and how and where can it be used?
Blockchain: What it is & how it works
Blockchain is mostly known as the technology behind the cryptocurrency Bitcoin. In the financial services sector, it has created huge buzz, and many established banking and brokerage institutions are experimenting with it. Going one step further, blockchain is a much more general technology that organizes a distributed digital ledger. Simply stated, it facilitates the decentralized and tamper-proof storage of transactional or contract data, which, obviously, can be leveraged in the supply chain realm.
Here’s how. Blockchain’s distributed nature eliminates the need for a central trusted party or broker. This allows companies to build completely new approaches to business networks. The blockchain protocol builds transactions in a cryptologically-secured sequence with timestamps. These records are then stored, decentralized, and replicated to deliver audit-proof trails, after which the transactions can be verified by all parties at any time. As result, a principal trusted third party is no longer required. Transactions are executed directly between two entities, and don’t need to pass through a main authority.
[Sensors, Blockchains Meet Tomatoes.]
Potential use #1: Tracking goods and their characteristics
One potential use for blockchain for supply chain management purposes is to track goods and their characteristics. Where today’s serial numbers and/or lot numbers identify goods, they are often managed by the intermediary who currently possesses the product. Throughout the supply chain, numbers get changed, and the relationship between number and product is not always publicly visible. This lack of visibility is caused by multiple gaps that exist between the different systems within and across companies. Blockchain can do better: it can simplify, automate, and create trust throughout the process.
With specific products, having a publicly traceable and verifiable product genealogy is extremely valuable. For example, consumer packaged goods (CPG), medical devices, and pharmaceuticals are excellent candidates. The ability to provide proof of origin and guarantee non-tampering throughout their products’ lifecycle is key for companies in these sectors. Or consider the diamond industry, in which tracking the origins and lifespans of gems is critical to the fight against the sale and distribution of blood diamonds. Blockchain could also be deployed to battle counterfeit stones.
Potential use #2: Managing all that paperwork
Companies can also use blockchain to manage the tons of complex documentation related to international supply chain operations. Customs declarations, bills of lading, tax returns, packing lists, and safety and environmental summaries, and the list goes on and on can all be stored, certified, and accessed in a blockchain ledger. Even better? Blockchain can make these records easily accessible to managers around the world, reduce shipment waiting times, and even help prevent fraud or theft.
Potential use #3: Improve Visibility, Collaboration and Communication
Blockchain also has the potential to improve visibility, collaboration, and end-to-end communication in multi-tiered supply chains. In simpler terms, the technology can provide supply chain managers with a complete view of his suppliers of the suppliers of his suppliers. As global supply chains become more complex and incorporate additional intermediaries as companies scale their respective operations, this benefit can be particularly useful and insightful.
In all three of these cases, blockchain promises to deliver a secure, tamper-proof, and decentralized transaction network that can be easily accessed by all authorized participants. Additionally, these distributed supply chains become ecosystems with multiple parties coordinating activities between one another, but without a definitive authority or middleman.