Knowledge Center

What about: Blockchain for supply chains

Lately blockchain has been gaining more and more traction among businesses. True, the same could have been said a year, or even two years ago; but today we’re at a much further stage toward adoption. And while enterprises are still cautious about distributed ledger technology, continuous educational efforts by evangelists such as Deloitte, greatly improved development tools from IBM, JP Morgan, and the like, as well as the increasing fear of missing out are spawning pilot projects throughout a range of industries.

However, none has garnered so much attention as supply chains—the driving force behind much of today’s physical economy. And for good reason: a modern supply chain is an intricate web involving dozens, sometimes hundreds or even more participants across several geographies. By the time an item reaches the consumer, it has already changed many hands; and each step has to be carefully documented to make businesses profitable and consumers happy.

Aren’t they now? They are, to a point; but the status quo of supply chains leaves things to be desired. Depending on your affiliation, you could describe its state being anywhere from improvable to broken. Case in point, there are problems.

Problems with supply chains today

Let’s take this article as an example. In 2008, Chinese officials found that some baby formulas had in them extreme levels of the chemical melamine. By that point it had caused the deaths of six infants, and 300,000 had fallen ill. Not only was it now known where exactly in the supply chain the melamine had appeared, but traders were even able to buy some of the tainted milk that should have been destroyed. After the incident came to light, it caused outrage and severely undermined people’s trust in baby-formula manufacturers.

This is but one example of the many recalls occurring each year. The confusion throughout the chain makes it hard to swiftly pin-point and contain the bad batches. The resulting measures are either slower or more far-reaching—and expensive—than they could be.

It doesn’t have to be so dramatic. Everyday inefficiencies surreptitiously hack away at companies’ bottom-lines, hidden behind the complexity of the chain. Record keeping is still surprisingly often done in paper, making it slow and prone to loss of data; where it’s been digitized, interoperability is lacking, causing incongruities and preventing a clear narrative of a product’s journey to the consumer; payments, especially large scale and cross-border, also make their claim on valuable time.

Blockchain to the rescue

How can blockchain help? It’s not without reason that blockchains and supply chains are so often paired together. They seem to complement each other perfectly.

By nature, blockchain is a collectively shared digital ledger of data that holds a singular version of truth accepted by all of the participants. The latest entry is connected to all the previous ones in a traceable chain. Once entered, it cannot be retroactively modified, or else the whole chain will be compromised.

Let’s translate that into supply chain terms.

A collectively shared digital ledger means that every participant in a supply chain can write their data to a single database, which is always synchronized and belongs to no one stakeholder. This starkly contrasts with the current approach, where parties store relevant information in separate disjointed silos, and where bridging them to make sense of the tangle is an art in itself. Instead of playing chinese whispers with one another, with blockchain the stakeholders can simply append their part directly to the ledger. Not only does it save time, but also removes superfluous intermediaries.

The fact that all entries are connected allows blockchain to document the journey of products with unparalleled transparency. From its first picking in the field to the supermarket stall, the lifecycle of a vegetable can be captured in minutiae detail. The ability is further enhanced with Internet of Things devices, such as RFID tags, which automatically append relevant information onto the chain. Deloitte goes so far as to call blockchain-powered food supply chains radically transparent and entertains new business models that such extreme micromanagement could propel (such as dynamic pricing based on food freshness and quality).

Transparency can also be treated as a selling point for consumers, who require increasingly more knowledge about what they are getting; in fact, retail giants like Starbucks have already started putting it into practice. And if a batch goes wrong, extensive documentation about each product helps to swiftly track down the offender and remove from the market no more than is necessary to resolve the situation.

The transparency of distributed ledgers, coupled with the inability to alter already established entries, can also markedly cut into fraud. Corrupt suppliers will no longer be able to slip counterfeit products into the supply chain (which is a big problem in pharmaceutics) by retrofitting the records, while any unwelcome physical additions will be easier to identify and lead to their source.

Another possible, though perhaps slightly more far-fetched, benefit of distributed ledger technology comes in the form of digital payments. Blockchains, even the relatively slow public ones, are able to move money quickly and at low cost. The difference becomes especially pronounced in the case of cross-border money transfers, which currently can take days to complete, resulting in lost time and frozen money. Digital payments face no such problem. Moreover, thanks to smart contracts, funds can be held in escrow until predefined conditions are fulfilled, whereupon they are automatically released.

Conclusion

Overall, when it comes to supply chains, blockchain has much to offer, and companies of all sizes are starting to explore the best ways to capture those benefits. Due to gigantic effort from blockchain proponents, awareness is turning into interest, and that—into pilot projects, which will one day graduate to full-fledged replacement solutions for the current infrastructure.

Here at Monetha, we have built our own development platform to let businesses quickly start experimenting with blockchain, so that they could verify whether the technology is fit for their individual needs. With our expert team and accessible development tools, we can launch a functional PoC in as quickly as four to eight weeks.

If you would like to try out blockchain at your own company, collaborate with us, or simply ask a question, we’d love to hear from you at [email protected].

Thank you for reading!