Blockchain Technology for Supply Chain

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Blockchain - The next of everything
Blockchain Technology for Supply Chain

Covid-19 pandemic is the term of the year 2020 and the most widely used word across all content starting from articles, publications, podcasts, videos, and webinars. It has challenged all conventional best practices of the world. The entire world’s resources mainly manpower was locked in-home quarantine and everybody understood the need for digitalization rather we can say there is a serious hype of Digitalization across industries in the entire world. Now, we are in 2021 – A year of hope for a fresh start of industries and business in the new normal and also check out a few possibilities of adopting digitalization technologies on a larger level rather than a smaller elite group of companies.

So, where to start? Let’s check out which is the most susceptible function that requires immediate digitalization? Every industry or business has better control over internal processes but a very limited influence on the operations which are dependent on outside stakeholders. i.e. Supply Chan Function for movement of materials and finished products from upstream to downstream. So, Supply Chain is the most important segment where we need digitalization on top-priority to have better control and encryption.

Digitalization of the Supply Chain is possible by using a combination of technologies like Artificial Intelligence (AI), Machine Learning (ML), the Internet of Things (IoT), Industry 4.0, and Blockchain Technology. Let’s check out the most revolutionary Blockchain technology which empowers the most popular crypto-currency namely Bitcoin. But, being a Supply Chain folk, do you know what is Blockchain?

It’s a data structure that contains transactional records with complete security and transparency at a decentralized level (Block Level). It is a chain of immutable blocks and cannot be controlled by a single authority. It is an amend-only, distributed, and decentralized ledger technology that is operated by a peer-to-peer network mechanism that records and validates data by retroactively referencing a list of previous records using hash functions. You may find complete details on Blockchain in our previous article “Blockchain – The next of Everything!!!”

You can understand the basics of how the temper-proof and secured Blockchain transaction happens in the below picture.

Source : McKinsey.com

Without going into further details, let’s check out the current challenges in traditional Supply Chain function irrespective of pre-post pandemic situations.

  • Missing Latest Management Tools.
  • Data Management Function Efficiency – How to share and manage information between entities decide the efficiencies in the operations.
  • Lack of Visibility in SCM Operations
  • Inadequate and delayed information flow
  • The trust deficit between Buyers and Suppliers
  • Fraudulent activities
  • Logistics and Transportation Optimization – Addressing the same is a key variable to efficient supply chain management.
  • Final Customer Feedback on Quality Improvement
  • Building Long-term Stability

Blockchain brings the following native key benefits to any industry where it is implemented correctly and customized properly as per the need of the particular functions.

Supply Chain is also not an exception and can be highly benefitted by customization of Blockchain technology and use in combination with existing systems as well as ERP systems. Blockchain can be useful in the following ways for Supply Chain.

Fast and Reliable Transactions Processing

Blockchain is a distributed ledger and accessible to all stakeholders directly, hence eliminates any middle-level layer, and improves the speed and reliability of the process. It gives visibility to all stakeholders for complete transactions and there will not be any duplication of work as every stake-holder is responsible to make its entry. It also provides a facility to carry out a transaction with anonymity and privacy, to prevent any data breaching.

Further, it is self-regulated and doesn’t rely on a central point of governance. It’s completely automatic due to consensus mechanisms are self-governed, and smart contracts follow the same principle, blockchain itself is capable of automating transactions that take place within supply chain processes.

Low Cost

Blockchain uses internet and mining capabilities for making a transaction, however, it is under complete digital setup and reduces dependency on manpower as well as eliminates middle level agents/banks which reduces the chain of levels that directly affects the costing of transaction. Further, any interruptions or extra charges will not be deducted from the transfer.

Transparency and Audits

Blockchain being a distributed ledger and accessible to all stakeholders in the Supply Chain gives visibility to all stakeholders about the complete transaction. Further, it’s an append-only and non-editable secured process, so it creates trust amongst all stakeholders and end-consumers as well. In case of any disputes, any stakeholder can track its origin and journey. It creates trust and reputation amongst the stakeholders. It applies to both public and private Blockchain. Further, auditing will become very easy and convenient due to real-time transaction and inventory data available throughout the chain. A Digital ledger consolidates data from all parties and saves resource costs with automated audits

It’s immutable and secure because it is appended only, this means data recorded on a ledger cannot be erased, changed, or falsified once it’s entered.

Tracking

Multinational Supply Chains use sensors, IoTs, RFID tags, and barcodes to keep close monitoring and conditioning of the consignment throughout the Supply Chain. Real-time traceability and tracking of history are the most important parameters particularly in the B2C market where the lack of transparency leads to cost and customer relations issues which ultimately dilutes the brand name. It facilitates the tracking of purchase orders, detailed specifications, PO amendments, Materials or service receipts, shipment notifications, and other trade-related documents throughout the Supply Chain.

Smart Contracts

Smart Contracts management is considered as Blockchain 2.0. It enables the automation of the purchasing process as well as ensuring the quality, authenticity, and availability of goods. It can be used at any process like Procure to Pay (P to P), Source to Pay (S to P), or Logistics order fulfillment with pre-defined logics and detailed terms and conditions programming where automatic action triggers based on event happens.

Smart Contracts can handle all tactical and transactional levels of activities ranging from receipt of PO, dispatch of materials, materials movement, and fund transfer based on predefined specifications match and commercial conditions fulfillment which was written under a smart contract.

Such smart contracts will help to simplify the transactions and reduce working capital by establishing transparent Procure to Pay transactions. Smart Contracts also allow promoting dynamic efficient pricing based on certain conditions. Smart contracts can manage micro metering and micro monetization as well which can run a gigantic scale structure like Amazon Fulfilment services. It enables access to a diverse population and locations

Fraud/Theft Elimination

Blockchain’s public ledger technology offers transparency and allows tracking of the ownership history of various precious items. i.e. Diamonds By this, it can prevent any unauthorized, illegal, or fraudulent transactions.

A single ledger version is shared with all parties. Any manipulation is red-flagged or marked as suspicious and documented which establishes “Single Version of Truth” and avoids any fraudulent activity.  Further, it removes intermediaries for conducting transactions as blocks are immutable and directly connected without limiting by any boundaries of countries, currencies, banks, etc.

Data-driven outcomes

Blockchain enables the collection of real-time data across the entire supply chain which helps for better forecasts and control inventories at all levels of the Supply Chain.

Highly Customizablility

Another notable feature of blockchain that appeals to supply chain enterprise systems is the ability to integrate into existing technologies. It can work along with existing Supply Chain Systems as well as ERP systems to provide better control and enables automation in transactions. It also allows keeping the system public and open or private and restricted based on the need of the organization.

Based on the above features, E&Y has defined the following blockchain opportunities across Supply Chain Ecosystem in their E&Y Global Blockchain Summit.

Blockchain opportunities across the Supply Chain Ecosystem

“With Blockchain, there shall not be two versions of Truth” which generates trust and reliability in the Supply Chain.

Looking to its effective and efficient applications with a wide range of industries, leading Supply Chain Consulting Firms proposes Blockchain in Supply Chain Design, Rewamp, and Optimization Projects.

Author: Chirag Kalaria

Procurement professional working at AMUL with a decade of versatile experience in Materials Procurement, Supply Chain, Contracts Management, Warehousing, Logistics and Project Management. Business Development and Financial Operations were also fields of expertise. Started “Sourcing and Supply Chain” to share knowledge and business expertise for strengthening the procurement process and agile supply chain.

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