The supply chain is getting complicated. It takes days for a payment to be made between a manufacturer and a supplier, or a client and a vendor. Contractual arrangements allow attorneys and banks to provide services, each of which adds additional costs and delays. Goods and components are also difficult to track back to manufacturers, making defects impossible to remove. Friction is a major issue in the supply chain. So many go-betweens still exist. There’s too much back and forth in there. The growth in confusion prevents supply chains from working well. Suppliers and consumers must communicate with each other through central third-party agencies rather than directly. Simple transactions become lengthy multi-step procedures.
Blockchain supply chain development may be the solution to many of those problems. What powers so-called cryptocurrencies is this new technology. It goes much further. Blockchain can administer any form of the process of exchange, agreement, or tracking. It can refer to everything in a supply chain, from self-performing supply contracts to automated cold chain management.
A blockchain is a decentralized, distributed ledger. The ledger records a sequence of blocks of transactions. It occurs in multiple copies distributed through multiple machines, usually called nodes.
Since the blockchain ledger is decentralized, it does not depend on any single entity (like a bank) to safeguard. Any time a new transaction takes place, the nodes linked to the blockchain network get modified versions of the ledger.
The numerous ledger copies are the “truth” about every transaction that has been made in the blockchain network so far. Any attempt of counterfeiting means having to manipulate all copies at the same time. In blockchain networks of any useful size, the chances of being able to do this are negligible.
All chain entities accept any transaction is legitimate. For Bitcoin, that is a transfer of a bitcoin number. Payment, warehousing, storage, or distribution maybe for the supply chain.
The chain entities know where each asset came from. You even know who previously owned it, and when. Assets can be anything for the supply chain, from iron ore and wheat to cash, machines, and copyrights.
No person can exploit an entry inside the distributed ledger. With blockchain, a supply-chain payment transaction or inventory data, warehousing conditions, distribution times and dates, and so on, cannot be falsified.
The shared ledger copies hold the same version of transactions. What works for a crypto network also works with every other, supply chain included, blockchain network.
The following examples are currently in use or can be introduced using emerging technologies today.
Blockchain enables funds to be exchanged anywhere in the world without the need for conventional banking transfers because transactions are made directly between payer and payee. It is also safe and fast; taking minutes, for example, in comparison to days, for automated clearing house payments.
Specifically, crypto transfers also incur lower fees. Australian automaker Tomcar uses cryptocurrency to pay its suppliers. Three partners in Israel and Taiwan currently accept Tomcar payments using cryptocurrency.
Supplier agreements signed by Tomcar use standard terms. The benefit lies in the cost savings. On the other hand, the company takes care not to carry on too much cryptocurrency. Although crypto is foreign, it is seen by some national governments as a way for companies to invest. Consequently, companies may be subject to taxation on crypto holdings.
Companies may take advantage of distributed ledger systems (blockchains) to record product status at each production level. The records are permanent and unchangeable. They allow every product to be traced towards its source. Global retailer Walmart uses blockchain to keep track of pork sales in China. The program lets the company see where each piece of meat comes from, every stage of processing and storage in the supply chain, and the sell-by date of the items. The organization will also see which samples are affected, and who purchased them, in the case of a product recall.
This example demonstrates how blockchain can be used to organizations of any size. To put it another way, blockchain is not just for the big players. Smart contracts are used for the recycling of surplus electricity from solar panels. The Transactive Grid is a programming platform on blockchain to supervise and reallocate energy in a micro-grid in the neighborhood. The software automates renewable energy purchasing and selling to save both costs and emissions. The method takes advantage of the Ethereum blockchain network, specifically designed to create and execute smart contracts.
RFID tags are widely used for storing product information within the supply chain. IT systems can automatically read the tags and then process them. So the logic goes; why not use them in logistics for smart contracts?
The setup may be as follows. RFID tags for cartons or pallets store information about the place and date of delivery. Logistics partners are running applications to search for those tags and bid for a contract for delivery. The company gets a partner who provides optimum price and quality. A smart contract then monitors the status and efficiency of the final delivery.
Medicinal products also have different storage requirements. Businesses see the benefit of sharing warehouses and fulfillment centers, rather than each paying for their own. Sensors can monitor temperature, humidity, vibration, and other environmental factors on sensitive items.
You can then store those readings on a blockchain. These are stable, and immune to exploitation. If a condition of storage deviates from what is agreed upon, it will be seen by each blockchain member. To correct the situation, a smart contract can trigger a response. For example, the response can be to change the storage based on the size of the deviation. It may, however, also apply to adjust “use-by” dates, making goods unfit or enforcing penalties.
The use of blockchain and IoT are other bold concepts. One idea to handle driverless car rentals is for smart contracts. An intelligent contract may search for rent payments. When no payment has been received, or the rental agreement reaches the end of its term, the smart contract locks the car and tells it to drive back to the premises of the hiring company.
Every management should evaluate the legal issues that could arise when using blockchain to manage the logistics/supply chain. Some of the laws to be followed by organizations are:
Blockchain can change supply chains, economies, industries, etc. Ironically, even organizations such as banks that seem to be missing out on the latest technology, can see ways to leverage it in streamlining their operations.
A profound transformation of supply chains won’t occur immediately. Supply chains can however already begin to use blockchain in some areas of their operations. Smart contracts can help reduce costly paperwork delays and waste created by manual handling. From there, new doors will open for quicker, smarter and more efficient processes across the entire supply chain.