April 5, 2017

There is nothing too new about the word Blockchain, isn’t it? You might have been reading or hearing about this technology term repeatedly for the past several months. But for the sake of the others, let us go through the basics of this exciting word.

So what is a Blockchain?

A Blockchain is plainly what it sounds like to us, a chain of blocks, except that the blocks are digital nodes (computers) of stored data connected to each other cryptographically. You may ask what is very exciting about this. The answer is that this chain of computers with data is a tamper-proof system nobody can mess with. The data can be anything related to a transaction, such as a contract, bank approval, invoice or certificate of origin. The information stored in one block cannot be altered without the same getting altered in the other blocks. This means that the chain is a very secure place for transactions involving assets of value.

Another feature of Blockchain is that there is no one centralized authority manning it. This makes the chain a more difficult one to manipulate. In addition, all transactions within the chain are permanent and cannot be changed or removed, so each block has a complete understanding of what transpires in the chain.

An interesting fact about blockchain is that the participants need not be known to each other. This is one aspect that allows business users to conduct their transactions with confidence using the chain. Basically, it is the permanency of the data, confidentiality of the participants and the transparency offered simultaneously, that creates such a confidence.

Why is Blockchain technology so refreshingly promising?

Blockchain technology does not isolate itself to a few industries such as fintech and banking, but is showing all the needed signs of being a universal application of technology similar to the internet. This makes it something to look forward to greatly.

Any transaction with value can be based on a blockchain model. Within the blockchain, addition of a fresh transaction will be considered as a new block and recorded as following the previous transaction. All industries will find a potential use for this technology, considering its enormous prospects for transparency, safety and security. Accountability is another added gain from the chain.

Challenges of the traditional supply chain

1. Transparency/visibility across the chain – A biggest traditional supply chain turn-off is the lack of a greater transparency throughout the chain. There is no guarantee for fraud prevention because of this absence of transparency. Delays cannot be tracked or controlled beyond a certain limit, leading to trust issues. Also, ways to know about the origin of a food item or produce is quite limited. When we buy organic food, do we know whether we are paying our hard-earned money to buy genuine organic material? The answer is a big no.

2. Unpredictability / Volatility – Supply chains are vulnerable to external environment changes, leading to delays and cost escalations. This too, is a big challenge for stakeholders involved.

3. Reduced customer experience/Mistrust – Supply chains, due to their volatile nature and lack of transparencies, creates mistrust among customers.

4. Financial Risks – Supply chains are most prone to financial risks involving pilferage, theft and other losses due to uncontrollable and controllable factors such as calamities, low shelf-life of goods and so on. This can be detrimental to customer confidence. Moreover, there are issues with payments. Paper based invoices, banks and such other components can greatly increase risks of fraud, non-payment and consequent delays that create significant losses for businesses.

5. Reduced efficiencies – Since the traditional supply chain is managed by processes that involve human errors, paperwork and other regulatory pressures, efficiencies are reduced to a great extent. Payments are dependent on processing speeds and document approvals, which escalates time to market.

How Blockchain can help overcome traditional supply chain challenges

Blockchain will grow to be the most promising technology for the traditional supply chain. Being decentralized, the chain does not owe allegiance to any single controlling authority. Each transaction (here a movement of goods, it’s receipt or delivery) is indicated as a new data block, and payments released automatically at the creation of these blocks.

Since the blockchain is a very transparent structure, fraudulent activities are a remote possibility. And since transactions are intimated to all participating blocks and reviewed by all relevant parties, trust is of the highest order. For this reason, this technology has the scope to become the numero uno choice of operation for future supply chains. Retailers and CPG businesses have already taken note of this point. Moreover, validation of individual transactions makes blockchain something to vouch for, though it may still be too early for us to assume that the technology is the ultimate answer to all supply chain woes.

Blockchain can provide the below benefits to supply chain participants

1. Enhance visibility and traceability– Often, there is no way that the shippers can access information on the whereabouts of goods they shipped. End users such as retailers are also at a loss to gain insights on the origin or quality of the goods purchased. This weakness of the traditional supply chain is mitigated when it is based on blockchain technology. The digital records in blocks allow individual participants to identify the exact origins of a particular product, be it food or otherwise. In a recent report, Business Insider stated that Walmart uses Blockchain technology to trace its individual goods back to the farm where the product was purchased.

2.Reduced Volatility – To an extent, the volatility and unpredictability involved in a supply chain is reduced significantly if it is blockchain-based. This is because the stakeholders are informed of changes if any, to transactions that are relevant to each of them.

3.Rise in Customer Trust Levels – Blockchain-based supply chains gain the trust of participants and enhance customer experience. This is obvious, considering the transparent nature of the chain as well as the enhanced security. Product traceability causes end customers to be well-informed about the product origins, which eliminates or considerably reduces incidents of counterfeit and fake goods as well.

4. Reduced Financial Risks – Risks involving loss of goods, delay, theft and pilferage are considerably reduced as timely warnings reach the participants who can consistently track the transactions involved over the chain. Blockchain payments are real-time, and invoices are digitally tokenized, leading to reduced losses due to duplicate invoices, non-payments or delays.

5. Savings on cost – Because of reduction in chances of delay and loss, costs involved in such cases is brought down significantly. This leads to huge savings for businesses involved.

Conclusion

All the above are important gains; however, the greatest gain is that blockchain provides accountability in a large measure to supply chain owners/participants. It might take time for the technology to establish deeply. There may be delays in closing certain gaps and loopholes, but it is certain that blockchains are here to stay. Supply chains are luckily, to benefit from all this.