5min read
Published on: Mar 13, 2024
#Blockchain
Most often associated with cryptocurrency (we aren’t complaining 😅), the application of blockchain technology now pervades a wide range of industries.
Remember that at its core, a blockchain is essentially a distributed ledger where events are submitted, verified, and added to form a chain. The whole process is such that the entries on the blocks are immutable, i.e. they cannot be changed.
The infrastructure of a blockchain makes it perfect for use in supply chain management (SCM). Each step of a SCM can be added in a verified manner, making tracking and delivery processes simpler, quicker, cost-effective and decentralised.
As far as the question of employing the technology in SCM is concerned, a lot of supply chain solutions are contemplating it, a lot of them are in pilot stage, and some are already using it.
In this article, we will have a look at if the blockchain technology can fuel supply chain management.
At first, we must understand the basics of SCM.
SCM is the long series of steps involved in the entire production flow:
At first, a company plans how it can match supply with the demand of the product in the market. At this stage, the company studies the product market, customer behaviour, raw material costs, staff requirements etc.
At the next step, the company procures the raw materials from suppliers and vendors. The company needs to ensure that it is sourcing the raw materials with appropriate specifications and quantities as per the manufacturing requirements. In addition, it also needs to ensure that the total cost of raw materials is within budget.
Next begins the most critical step of the SCM. The company now begins to manufacture products where the labour of staff and the efficiency of tools comes together to convert the raw materials into final products through various steps. The key to successful manufacturing is judicious use of resources and timely completion of tasks.
Then, the company delivers the final products to the customers through the market. The whole process involves marketing, distribution, sales and transport of the products.
At the last step of the SCM, the company engages in customer support. This step involves returns, replacements and refunds of the products as per the customers’ requests. The step helps a company address the defects of its products in the next phases of production flow.
Note that the above steps form the basic steps of a standard SCM. Each supply chain solution has its own customised SCM depending on its sector, customer base, distribution line, market size etc.
You can guess that SCM is a complex process, and it requires a lot of resources, time, and skills to execute it efficiently.
The application of blockchain technology in SCM can be helpful in updating each step of the process automatically. In particular, it becomes much easier to trace the production flow along the (block)chain network with the application of this technology.
It must be mentioned at this point of time that such a blockchain might not be completely public. Instead, it will be private, accessible only to the participants engaged in production flow.
The whole SCM process becomes subject to a smart contract on a blockchain. On a blockchain, the contract is virtual and immutable.
A smart contract is similar to a traditional contract among different actors in a production blow but it’s only on a blockchain this time.
Unless one step is not completed properly as per the agreed upon conditions in the smart contract, the product doesn’t proceed to the next level. This way, each participant in the process becomes devoted and accountable to the product quality.
It also makes the entire SCM process transparent as each step is traced and verified by all the participants who can access the blockchain.
Recommended Read: What Are Layer-1 Blockchains?
At any step of the production flow, anyone accessing the SCM blockchain can check the product’s:
Quality
Quantity
Location (current)
Cost (until)
Time since first step
While there are several industries where the blockchain technology can be applied for SCM, we identified 5 key industries for the purpose.
1. Transport Supply Chain
Since transport is a logistics-focused industry, the blockchain technology can enhance the process due to the transparency and traceability it offers. As and when the goods are moved and change hands, anyone accessing the blockchain can check and audit it.
2. Food Supply Chain
Since food items are quality-driven and perishable, the industry is very time-sensitive. In this regard, the application of blockchain technology can enhance the chain as food auditors can check the quality of the product at each step and keep any potential health crisis in check.
3. Pharmaceutical Supply Chain
It is critical to ensure that the drugs being manufactured consist of correct ingredients in right quantities otherwise it can lead to a health crisis. Thanks to its transparency and traceability, a blockchain can help a health official identify specification violations, malicious actors and counterfeiting.
4. Mining Supply Chain
The lifeline of all the major economies, the mining sector can gain a great deal with the application of blockchain technology. It can help ensure that raw materials are sourced from designated mines, the miners are working in a safe working environment, and waste disposal is being taken care of.
5. Apparel Supply Chain
Everyone embraces fashion. Even those who don’t call themselves fashionable have embraced fashion one way or another.
The apparel industry is huge and the application of blockchain technology can help it negotiate better traceability, costs, distribution etc. Traversing the globe, the industry can manage its costs better and become more efficient with the adoption of blockchain.
While the blockchain technology brings transparency, traceability and tradability, the benefits come at a huge cost. In addition, the technology is new and still evolving.
The few supply chains that are using blockchains are doing it on a rather experimental basis. In fact, many of them are still studying its effect on their processes and revenues.
In 2020, the Harvard Business Review published a study of the application of blockchain in supply chain management. The team studied seven large U.S. corporations exploring the technology in their SCMs and concluded,
“There is considerable room to improve supply chains in terms of end-to-end traceability, speed of product delivery, coordination, and financing.”
This article is for informational purposes only and not intended as investment or financial advice. It contains opinions and speculations that are subject to change without notice.
The author and publisher disclaim any liability for decisions made based on the content of this article. Readers are advised to conduct their own research and consult a financial advisor before making investment decisions.
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