Breaking Down Blockchain's Impact on the Supply Chain

Breaking Down Blockchain's Impact on the Supply Chain

This article will explain what blockchain is and its effect on supply chain and distribution.

What is Blockchain?

Blockchain is emerging technology that permits companies to make and verify any transaction on networks in near real-time without a central point of control. Also known as Distribution Ledger Technology (DLT) the information can be public or private. It’s transparent, time-stamped, decentralized information about a transaction that nobody can remove. One blockchain contains the entire logged history of an asset. Everyone that participates with the asset has that transaction added to the blockchain.

For example, let’s consider how blockchain could work in the cheese industry. A cow is born, and the farmer adds the date of birth, the place it was born, the food the cow eats to the blockchain. After the cow is milked, a truck picks it up and transports it to a cheese factory. The truck driver adds the trucking information, the date it was picked up, the date it was delivered to the blockchain. Then, the cheese factory adds the date the milk was received, the temperature of the room it was in, the ingredients added to it… and on and on. Eventually, a few days later, when you’re at the grocery store, you could access the blockchain for the cheese and see exactly where the milk came from and all the information about the cow including the foods it ate and the vaccinations it received.

Algorithms are used to keep every blockchain copy in sync so the information is constantly distributed and shared, hence the term “distributed” or “shared” ledger. A blockchain can be created for an asset; an asset being anything capable of being owned or controlled to produce value. Assets can be tangible or intangible, such as a building, food product, mortgage, patent, or cash. With a shared block, any technology can report to the chain people, computers, IoT, VR, and so much more.

By design, no one party can modify, delete, or even append any record to the ledger without the consensus from others on the network. When someone wants to add to it, participants in the network—all of which have copies of the existing blockchain—run algorithms to evaluate and verify the proposed transaction. If most nodes agree that the transaction looks valid—that is, identifying information that matches the blockchain’s history—then the new transaction will be approved, and a new block added to the chain. Due to the consensus required to add a new block as well the multiple participants in the blockchain, there is no central point of control for the information.

How Will Blockchain Impact Supply Chains and Distribution?

With a blockchain’s decentralized network, all transactions are present in one chain. Everyone in the process can view all transactional data and ensure compliance at every level, making it easier to track specific orders and reduce operational inefficiencies. Blockchain will also produce detailed information about a product’s lifecycle such as supplier information and manufacturing details in near real time. It will improve supply chain security.

The cryptography-based nature of blockchains makes it impossible for a single entity to control the data involved, which means it’s nearly impossible to compromise the data without leaving a signature. For example, if an individual goes into the system to change a transaction (for fraudulent purposes or to cover up an error they made) it will alter the coding of the event. The altered coding will appear very different and it will be easy to notice. Because an altered code is easy to recognize, it is also easy to recognize fraud or inconsistencies almost immediately, further driving down costs from poor employee practices or even potential fraud attempts by customers. While it is true that blockchains are highly transparent to users, it is also possible to create Permission Blockchain, after that a digital ID would be required to access the blockchain at any time.

It will be easier to manage data errors. It is common for a large-scale database to have inaccuracies and errors. However, identifying and rectifying errors takes a large amount of time. With blockchain, this could be a thing of the past. Since errors will be carried over from a single block to all other blocks in the chain, it is possible to identify the issue more efficiently with a finite paper trail involved.

It will optimize the supply chain and increase customer satisfaction. Once blockchain technology is extended to frontend applications, customers can be part of the blockchain. Customers will be able to view their orders in near real-time from production to supply and track the performance of the supply chain. Transparency would not only improve the entire process but also bolsters customer-client relationships and instill a sense of trust within the consumers. Feedback from clients and customers would also be in real time, which could be fed back into the supply chain engines through blockchains to improve the market forecast. The scalability of supply chain operations would improve scalability and be in sync with market trends, which would help a business grow in parallel.

Imagine a customer opens a new bottle of pain relievers and notices the seal isn’t completely adhered to the bottle. In the future, it may be possible for the customer to enter this information directly into a blockchain, immediately notifying everyone involved in the production and distribution of the pain reliever that this lot may not be sealed correctly.

How Blockchain Will Intersect with the Wholesale Distribution Industry

Business continues to become more global, making it important to optimize each process of the supply chain. Wholesale distribution plays a key role several times throughout the total end to end value chain, and the blockchain is promising to facilitate and safeguard the end-to-end process in the world.

For example, non-payment, counterfeit, or simply bad quality business transactions happen. Wholesale distribution engages with multiple stakeholders including suppliers, inbound transportation, customs, insurance, co-packers, outbound transportation, and banks. These stakeholders represent a kind of eco-system which will be the foundation of a private blockchain environment. This blockchain will have the following shared blocks: contracts, orders, deliveries, stock movement, invoices, payment, return, credit notes. These blocks act as a mirror in the inbound supply chain with suppliers all enrolled in the same private distributed ledger (the blockchain.) All activity that happens in wholesale distribution will be auditable and provide proof of provenance that will guarantee against, for example, counterfeit products. At the same time, having registered each part of the supply chain means this is also a full track and trace system. This track and trace capability is available to the relevant tiers in all sub-segments of wholesale distribution like food and pharmaceutical, but also industrial and high-tech segments where counterfeit is a real risk.

Because bitcoin is at the origin of blockchain, the ability for blockchain to make easier finance payments needs a special shout-out. Financial transactions can be through a private blockchain from a bank, which will accelerate payment transaction and slightly reduce them. These payment transactions could be done in one day free of charge if the wholesale eco-system choose one-day guaranteed public blockchain. Even though banks are investing massively, public blockchain could replace some banking services.

Wholesale distributors have assets like computers, trucks, warehouse pumps, and refrigeration systems that they need to track the use of. The life cycle of the asset is key for the safety of the chain. Each step in the life of an asset, like a maintenance operation, change of location, assignment to a driver, as well as un-forecasted breakdowns, could be managed in the private blockchain. If the asset is sold, a report can be run on the actions of the asset to the benefit of all -eliminating long discussions and researching in case of conflicts.

Imagine that all the spare parts of an asset and their provenance, all the technicians subcontracted or not having been involved, will each be memorized in the life cycle. In connection, the spare part itself will have its life cycle and variant creation in a connected, but different blockchain. This, for example, will allow a technician to know which spare part, between numerous variants, is necessary for an asset’s repair.

Blockchain will be used for hiring. Wholesale distributors need to innovate and attract the best talent. Here, public blockchain will soon be able to certify an applicant’s CV on university and work experiences, again by a distributed ledger where tiers will automatically confirm the CV’s point.

Blockchain will remove the middleman. If public blockchains have been designed to cut the middlemen and billions of dollars of expenditure at the same time, banks and wholesale distributors are both at risk. Banks have started to create private blockchains, claiming they are much more secure when the banks own them. Blockchain adaptation has not yet happened in the wholesale industry which still looks at it from a futurist perspective.

The right response will certainly come from a consortium where a group of entities or companies will own the Blockchain. Wholesale distribution must wake up otherwise their business will be squeezed into a logistics provider.

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