Use-cases and applications of blockchain technology in supply chain management.

From farming to finance and art to automotive - applications of blockchain technology are extensive. One of the industries that blockchain shows promises to disrupt is supply chain management.

The global supply chain market valued at $15.85 billion in 2019 is expected to reach $37.41 billion by 2027, registering a CAGR of 11.2% from 2020-2027. Another study reveals that the supply chain industry is expected to reach $19 billion by 2021. While the scale of the supply chain industry has exploded, it has become increasingly complex to manage. The current infrastructure does not support the supply chains of tomorrow.

The current supply chain and logistics industry incorporates multiple stakeholders, spans over hundreds of stages, requires a multitude of documents, includes various entities at multiple geographical locations, and lacks any substantial system for management and coordination. The sector lacks tools and technology designed to build efficiency, transparency, cost-effective, and integrated networks. Blockchain is one of the tools that can be deployed to provide the infrastructural needs to suffice the requirements of global supply chains.

Use-Cases of Blockchain in Supply Chain

The fundamentals of blockchain technology can be leveraged to build robust supply chain networks. We examine the flaws in the current infrastructure of supply chains and how blockchain will reduce these frictional points.

Reduce Counterfeit Goods

As per a report by the Organisation for Economic Co-operation and Development (OECD), counterfeit and fake goods account for nearly $450 billion each year. PWC claims that global counterfeiting revenues contribute more than 2% of the global economic output. An estimated 10-30% of pharmaceutical goods sold in developing countries are counterfeit products.

The blockchain facilitates a ledger that records data across the entire supply chain network in a transparent and traceable manner. The history of each product, from its origin to the end-customer, can be recorded on an immutable ledger. Each product through its unique ID is traced with the help of IoT devices throughout its shipment. The decentralized ledger records the data at each step including its procurement, manufacturing, handling, and delivery. The end-consumer accesses the data to gather information on the entire life-cycle of the product.

As the data is stored on a transparent ledger, it is impossible for a single entity to manipulate it. Furthermore, the ledger is tamper-proof and hence the data once entered cannot be deleted or modified.

Streamline Supply Chain Processes

The current process of supply-chain management lacks coordination between different participants of the same network. This results in time delays, the disparity in information, and an inefficient process of management across the supply chains. The current infrastructure lacks tools to effectively manage data such that it is uniform across all the stakeholders of a supply chain. As per a survey, around 39% of supply chain managers accounted for inadequate technology and software as the cause of costing valuable information.

Blockchain ledger provides a ‘single truth’ of information across the entire network. All the stakeholders have access to the same data without the need to coordinate between different participants. The ledger holds a single system of records of products or shipments and all the stakeholders have the same replica of the data.

The database provides a 360-view of storing all the relevant data of a company’s revenue and purchases. The top leaders in an organization have the access to this database holding information on volume, suppliers, purchases, revenues, etc. Moreover, the data is constantly updated in real-time across all the copies. Hence the leaders have a real-time view to effortlessly calculate and analyze their company’s sheets.

With better access to the data, companies with complete information on the inventory of product flow help businesses in making better decisions. A recent study conducted suggests that blockchain could save businesses $450 billion in logistics-related costs.

Accountability in Operations

Organizations have incurred heavy costs pertaining to compliance with safety standards in different products. Moreover, end-consumers lack trust in the organization in conducting fair practices. A report’s findings suggest that 70% of CEOs believe that gaining and maintaining the trust of consumers have become more difficult today than before.

The blockchain provides a trustless network for corporations and end-consumers to engage in an optimized experience. With the decentralized ledger, a consumer can verify the authenticity of the products that a company supplies. This reduces the loopholes for companies to engage in unfair practices. Moreover, it also gives accountability to businesses operating in a socially responsible way. It increases the trust of an end-consumer and thereby brings credibility to an organizational entity.

The blockchain also helps in promoting the integrity of a business by acting as a source of data for regulation and compliance. Various factors are monitored to provide easy compliance between corporations and compliance authorities.

Eliminate Human Errors

The supply chain sector incorporates a multitude of players at each step in a chain. Even today, most of the operations are performed manually by humans. This eventually results in errors in different operations like inventory, finance, accounting, invoice, etc. A report by IBM suggests that companies incur an 11% increase in costs, a 14% increase in inventory, and a 7% decrease in sales due to human errors in the supply chain.

Blockchain technology provides a significant tool to efficiently manage transactions and data. It reduces the possibility of human error by eliminating the need for intermediaries to audit ledger and data.

Blockchain-enabled smart contracts also provide an infrastructure to promote automation and reduce the dependence on manual work. The smart contracts have predefined conditions coded inside the software to automatically execute an action as soon as an event is triggered. Using smart contracts reduces the need for human monitoring, automates the process of inventory management, invoices, payment systems, and more. Smart contracts provide ways to deliver increased visibility and control over a company’s supply chain operations.

Final Remarks

Gartner considers blockchain technology to be one of the top ten trends that will have a major impact on businesses and the World. Blockchain is one of the solutions to providing a resilient infrastructure to manage the supply chains. It facilitates companies and organizations with innovative tools that facilitate a reduction in operational costs, eliminates human errors, promotes efficiency within supply chain operations, and builds trust in a corporation. Research suggests that blockchain technology can reduce supply chain-related costs for businesses between 0.4% and 0.8%.

Furthermore, major corporations including IBM, Walmart, Starbucks, Maersk, BMW, Tesla, Mercedes, and a number of others have already started exploring blockchain to effectively manage their supply chains. The current market size of the blockchain supply chain is $310 million. This figure is expected to increase to $10 billion in 2025 due to the growing number of businesses incorporating blockchain within their supply chain framework.