Have you ever wondered why your online orders took longer than expected to arrive? Or where do the goods you order come from? Shipment delays affect customer retention heavily. According to a report, 69 percent of customers are less likely to purchase from a retailer if their item is not delivered on time. As per an estimate (numbers may vary by industry), businesses spend anywhere between five to twenty-five times more to acquire a new customer than retaining an existing one.
Shipment delay is one of the many factors contributing to the supply chain inefficiencies globally. In a typical supply chain, there are more than 40 points of contact between different entities. In the present scenario, shipping a package from point A to B involves several intermediaries and hundreds of pages of documents. All these factors contribute to the inefficiencies in the global supply chain. But how big is the magnitude of these inefficiencies?
Supply Chain Crunch
According to a study by the World Economic Forum, reducing supply chain inefficiencies could increase global GDP by 5 percent and total trade volume by 15 percent. This translates into a $2 trillion boost to the global economy. Another study suggests that supply chain disruptions may have caused up to $4 trillion in lost revenues.
The global supply chain crisis has magnified amid the pandemic. According to some reports, the supply chain crunch may extend beyond 2022, SMEs and small businesses are the first ones to get affected. Shifting from obsolete practices to automated operations is mandatory to tackling the supply chain crunch and blockchain is playing a key role in this transformation.
Several leading businesses across industries have adopted blockchain to cut their losses by transforming their supply chain. According to Forbes, FedEx has integrated blockchain to improve traceability and transparency. DeBeers is using the blockchain’s tracking technology to monitor the source and progress of natural diamonds. Walmart is also using blockchain for tracking shipments and improving supply chain visibility.
What is Blockchain?
The increased adoption of blockchain is fuelling the transformation of supply chains globally. To understand the impact of groundbreaking technology on the global supply chain, we must understand the technology first.
Blockchain is a distributed digital ledger used to record data attributed to transactions. Blockchain is decentralized in nature and is powered by distributed ledger technology (DLT). DLT is immutable – meaning, the records stored on the blockchain can’t be altered or tampered with. In a nutshell, blockchain is a ledger to store transaction data in such a way that makes it impossible to alter or hack.
Transforming Supply Chain with Blockchain
An effective supply chain management system requires integrating various processes and automating them with the help of emerging technologies like blockchain and IoT to trigger processes automatically. Replacing intermediaries with automated smart contracts is the need of the hour and blockchain technology plays a catalyst in the transition from obsolete practices to automated triggers.
Here’s how blockchain makes supply chains more efficient
Transparency and Traceability: Do you know where the raw materials for your clothes, shoes, or other products you use are sourced from? Can you say with complete certainty that no cheap labor or animal abuse is involved in sourcing those products? Probably not. That’s because the current state of the supply chain is not entirely transparent. Blockchain can enable end-to-end tracking of shipments to make supply chains more transparent. Businesses across the world are integrating blockchain and other emerging technologies like IoT with QR code scanning to enable end-to-end tracking of shipments. Using such an advanced solution, businesses can easily deploy fraud detection mechanisms to ship authentic products to consumers.
Secure Transactions: Cross-border payments are a major part of global transactions. In the present scenario, if party A has to send money to party B in another country, it will go through the concerned bank in the country of party A to the concerned bank in the country of party B. This is a very time-consuming process. Blockchain replaces traditional transaction mechanisms with automation using smart contracts. Also, the transactions, once initiated, are stored in the distributed ledger, making it impossible for hackers to alter or change anything.
According to some reports, frauds account for nearly 50 percent of business failures. Companies have suffered losses worth billions of dollars due to fraudulent transactions and cyberattacks. Blockchain is significantly removing these problems.
Dealing With Counterfeiting: Counterfeiting is a menace that needs to be wiped out from the global supply chain. According to a report, counterfeit goods caused an estimated $323 billion of damage to the global economy in 2018. According to Forbes, counterfeiting was the largest criminal enterprise in the world. The counterfeit industry is predicted to grow to $2.8 trillion and cost 5.4 million jobs by 2022. So how can blockchain solve this menace?
Blockchain helps tackle counterfeiting by identifying the proof-of-origin of a product. The tracking system that a blockchain-powered supply chain management system provides makes it easy to track the entire journey of a product right from the manufacturing unit to the end-user. Such a system can be used by both businesses as well as legal enforcement agencies to clamp down on those involved in counterfeiting.
Startups like Morpheus Network are integrating blockchain technology with QR code scanners and RFID tags to track the journey of a shipment. Using a customized supply chain management solution, companies can simply scan the QR code on a package to get detailed information about its entire journey right from the production unit.
Smart Contracts: Paperwork and documentation is an added burden in logistics. Something as simple as sending a bulk shipment of flowers internationally can generate over 200 physical documents from dozens of sources. These documents not just add to operations costs but also take a lot of time. Paperwork involves dependence on intermediaries and this brings along the chances of tampering or fraud. Smart contracts are an effective replacement for paperwork. Smart contracts are events written using programming languages that can execute automatically if a certain set of requirements are met. Smart contracts eliminate intermediaries in the supply chain, making operations faster and more efficient.
Bottom Line
As the real-world adoption of blockchain technology increases, more and more businesses are joining the bandwagon across industries. According to research by CB Insights, blockchain could transform 58 big industries, including financial services, banking, travel, transportation, aerospace and defense, hospitality, and health. Blockchain is helping businesses save billions by reducing delivery time, increasing operation speed, detecting fraud, securing transactions, and increasing transparency. Giant port operators like Gulftainer have adopted blockchain for tracking shipments.
The technology has proven its worth in the foods and beverages and healthcare sectors as well. Blockchain is helping food companies solve the problem of food quality with improved traceability. Nestle uses blockchain to trace their milk from farms and the production house to the factories. The technology is being used by Carrefour to trace its chickens, tomatoes, eggs, milk, salmon, and cheese.
It is important to note that blockchain is still an emerging technology. We can perceive the rise of blockchain as the rise of the internet in the late ’90s and early 2000s. As the adoption of blockchain increases across multiple industries, we will see a more refined version of the technology. With further refinements and integrations with other groundbreaking technologies, blockchain will spearhead the supply chain disruption in this decade.
