Global supply chains today are more complex than ever – they consist of many parts and processes that need to work together in perfect harmony to ensure seamless business operations. Inefficiencies mostly exist because information doesn’t freely flow between systems and departments.
The resulting data silos lead to limited visibility and poor decision-making across the organization. Even though companies have started investing heavily in digital transformation, most still have trouble keeping track of the movement of goods across their supply chains.
While reasons for this gap can be cultural (intense rivalry between departments causing them to withhold data) and structural (complex hierarchy and many layers of middle management), the main reason, in most cases, is technological in nature – the systems and applications in use might not have been designed to talk to each other. As a result, some departments might not have access to important data points required for effective decision-making.
Efficient management of supply chains is crucial for smooth business operations and an inefficient supply chain can severely impact both company revenues and profits. The necessity to improve supply chains gives rise to some important questions.
How can an organization go about modernizing its outdated supply chain systems? How can it have complete end-to-end visibility of its goods and shipments? How can it track the journey of produce from source to destination? How can it ascertain the credibility of its vendors? Business leaders have to find answers to these questions if they want to successfully revamp their supply chains.
Today’s customers are more demanding, and with the proliferation of social media, they find it very easy to voice out their concerns over product quality and authenticity in public. This new consciousness among customers has contributed to the growing demand for greater transparency with regards to the source and journey of the product. Most organizations struggle with addressing these concerns because of the notoriously complex supply chain systems that they have in place.
While the task of modernizing the technology infrastructure and overhauling legacy processes can seem a bit overwhelming, the risk of deferring these improvements can prove to be too costly for businesses. Blockchain is one such technology that has the potential to revolutionize supply chains. Supply chain leaders today have started evaluating applications built on blockchain to improve operational efficiencies and bring in transparency and accountability.
What is Blockchain?
Blockchain is a relatively new technology that has steadily grown in adoption since it came into being roughly a decade ago. With blockchain being the underlying technology behind cryptocurrency, it is often seen with prying eyes. While both proponents and detractors of this technology have plenty to debate about, one thing that all parties can unanimously agree on is that when layered on the correct use-case, blockchain technology becomes a very powerful tool to solve complex problem statements.
Ardent supporters of this technology argue that it is the most significant innovation since the dawn of the internet. Today, blockchain technology has found adoption in nearly every industry, including retail, healthcare and manufacturing.
Blockchain technology started in 2008 as a platform on which cryptocurrencies, such as bitcoin, function. Since then blockchain technology has undergone continuous improvement, finding numerous use-cases and applications. Don & Alex Tapscott, authors of Blockchain Revolution (2016), describe blockchain as “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value”.
Utilizing sophisticated algorithms, it maintains an immutable log of information and is able to securely transfer digital assets between network participants. The distributed ledger is accessible to all nodes on the network and everyone is able to access the same information. New information can be appended but the original data cannot be altered. Transactions are recorded on the distributed ledger only with the consent of the majority of blockchain network participants.
Uses of Blockchain in Supply Chain
Most businesses have realized the importance of digitally transforming their supply chains and have started to see the benefits of these emerging technologies. Manual processes are inefficient, time consuming and prone to human error. Digitization and process automation are both prerequisites for an organization to think about adopting blockchain technology. Once the fundamentals are in place, it becomes easier to explore applications built on blockchain.
Shanghai, the busiest container port in the world, that handles annual tonnage of approximately 1 Million Kilotons, is using blockchain technology to streamline the process and keep track of all ships entering and exiting the port. According to the World Economic Forum, streamlining information through blockchain has the potential to increase trade by 15%.
Farmer connect and IBM is using blockchain technology and partnering with coffee manufacturers and brands to establish transparency and fairness in the coffee supply chain, and at the same time to address customer concerns related to the journey of the coffee bean from farm to factory. MediConnect, a blockchain solution in the health-care sector, has helped remove counterfeit medication from circulation and has simplified the tracing and sharing of data across the medical supply chain.
Blockchain-enabled industry solutions can not only help weed out inefficiencies in the supply chain but can also help address financial sustainability issues in the procurement department. The distributed ledger technology allows information to be appended almost instantly and it can be tracked in real-time. Separate points on the chain can reveal the exact location of a shipment along with its condition and size.
With real-time visibility and traceability, a vehicle can be booked, and storage space can be reserved within the warehouse to accept delivery of the shipment. Moreover, smart contracts can be programmed to manage the multi-step procure-to-pay process with suppliers. These contracts can be used to automate actions that need to be taken when certain conditions are met.
For example, using smart contracts, pay-outs to vendors can be automated once the three-way matching of purchase order, invoice and goods receipt is done.
Blockchain adoption is growing at a steady pace and it will only accelerate in the new decade. Blockchain technology can be a very powerful solution when applied to the correct use-case. However, this technology alone cannot be the answer to all issues that supply chain professionals face. Issues related to environmental sustainability and business ethics are some of the finer aspects of supply chain management that need a more nuanced approach.
The stigma associated with cryptocurrencies has to some extent slowed the adoption of blockchain technology in major organizations. Lack of standardization and interoperability are some of the other factors that have affected adoption.
To leverage the power of blockchain, it is imperative to first digitally transform the organization by retiring old systems and replacing them with scalable and stable ones. Post digitization of the supply chain, it becomes easier to deploy blockchain applications for different use-cases.
The author is Co-founder & MD, ShakeDeal