What Blockchain can do for Supply Chain Management?

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Today’s consumers live in a riskier, but also more privileged world of products and services than what was available just decades ago. On one side, they have access to millions of goods that can be delivered to their doorstep from the other side of the world within 48 hours. On the other, as local and regional markets expand to a global market, they have limited knowledge about the goods they ordered online or picked up locally. Supply chains that, at one point, involved trusted local grocery stores and neighboring farmers turned into a variety with sometimes questionable product quality.

Consumer awareness is on the rise. Businesses do work with people from other businesses they’ve never met, yet plenty of supply chain solutions lack transparency. Companies with protective business policies that don’t reveal the origin and the quality of the intermediary and final products, raw materials, and by-products, don’t stand a great chance with their consumer ethics. 

Regardless of whether a business is delivering to the ethically conscious consumer or trying to find fair business partners, it’s important to disclose the ingredients of the process used in the creation of goods from the point of origin to the point of consumption and be as transparent when running a business. And blockchain is a method that can help companies develop ethical, transparent, and fair supply chain solutions, as well as act in good faith in business contracts.

Current Supply Chain Solutions

At the moment, companies use various technologies as supply chain solutions, including different software for recordkeeping, accounting, inventory, and payment tools. Payments go through dozens of banks and financial institutions. Consumers pay with cards as well as in cash in a variety of currencies. 

In an extended supply chain, for example, in one that takes months to deliver goods from the point of origin point to the point of consumption, it can take thousands of separate transactions that need to be reconciled, made in hundreds of tools, platforms, institutions, and payment processors. With that many participants in the supply chain, we can safely assume that consumers have the right to be concerned about the variety of information behind the goods they consume. Further, businesses have the right to protect themselves against fraudulent business practices from other participants in the supply chain. With blockchain, all that is possible, but how?

When set up on the blockchain, the supply chain solution treats everyone equally without making hierarchical distinctions between consumers, vendors, manufacturers, suppliers, and producers. To be precise, there is no distinct method for recording and managing transactions in the distributed ledger on the blockchain. The distinction in the role each participant has taken remains. However, the ledger is universal, decentralized, immutable, and open for transactions to anyone in the supply chain.

How Blockchain Transforms the Supply Chain

The blockchain is obviously a type of chain, which means that it can be adapted to serve as a supply chain solution for businesses. 

Since it provides a central database/distributed ledger in which all transactions must be confirmed by all parties, it’s almost impossible to distort records that have been once confirmed. 

Transactions are recorded via decentralized applications (dApps) that are somewhat dissimilar to conventional web applications. Think of dApps as web platforms that are not run by a single company but by a distributed network of computers. Although the software architecture behind dApps can be generated by key technology service providers, dApp developers who build the blockchain have an identical amount of say in its development. Blockchain exists on a network of computers that verify each new step by adding a new block to the already existing code chain. 

Despite using similar wording, it’s important to distinguish between supply chain and blockchain. The supply chain happens in the physical environment and the blockchain transactions are recorded in digitally distributed ledgers. 

The blockchain is technology, and, although it has ideal immutability, transparency, and visibility of records, it is still vulnerable to human errors and frailties. For example, a transaction recorded in a blockchain ledger can confirm that exotic fruit is from a desirable origination point, but it cannot determine if it was picked up there unless the supply chain provides a way to record that. 

However, there are solutions to that, too. Since we already rely on sophisticated methods to record sensory insights from the environment, such as video cameras, GPS tracking, face, voice, and image recognition technology, and smart sensor technology, dApp developers can back up the blockchain with these methods for additional verification of the transactions.

Supply chain solutions can be complex. However, blockchain is powerful enough to drastically decrease delivery times, assure quality, eliminate fraudulent activities, reduce operational costs, eliminate unnecessary intermediaries from the process, and even set up payments. With blockchain, companies can create an overarching supply chain management system that is more effective than what’s currently in use. A good starting point is to identify weak points and bottlenecks in the supply chain, create simplified transaction systems and scale from micro to macro management of the supply chain.  

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