Understanding Blockchain technology
Blockchain technology has revolutionized and disrupted several industries over the past few years. Blockchain can record, validate, and distribute transactions in secure ledgers, and that cannot be altered. It was primarily created as the underlying technology behind bitcoin, but further developments have widened the use cases of Blockchain. This article is going to focus on Blockchain in supply chain.
Since transactions stored in blockchains are highly encrypted, the technology can offer maximum security compared to other forms of storing data and information. Additionally, transferring data on the blockchain is much faster as middlemen are generally being cut off.
What is supply chain?
Supply chain is the process through which goods are moved from one point to another, not necessarily in geographical terms. It describes how raw materials are sourced, processed into final products, and then supplied to the consumers.
Supply chains require constant management for there to be a smooth flow of operations in a company.
In companies, it takes days to process payments between buyers and sellers. Apart from the manufacturer and the supplier, there are situations where lawyers and bankers may be involved, especially when contracts are required.
These additions create a longer chain and increase the costs incurred in the process of delivering goods. The longer the chain, the more complex it becomes and the more time it takes.
Distribution and creation of links in supply chain management can be quite complicated and tedious. Depending on the product being dealt with, a supply chain can have tens of stages, in different geographical locations, payments and several parties being involved.
Blockchain in supply chain
The complexity of this industry raises concerns on how blockchain can be used to simplify the processes involved in the supply chain.
Blockchain could solve the major problems facing the supply chain and logistics. It can facilitate payments, contracts, and track the movement of goods.
Since it is a decentralized system, safekeeping of records is not done by a single entity. Rather, nodes present in the blockchain are updated every time the ledger is affected by a new transaction.
As already stated, it is impossible to change information on the ledgers, and that will ensure that the usage of blockchain in the supply chain is transparent.
Applications of Blockchain in supply chain
1. Facilitating payments
Blockchain allows direct transfer of funds from the payer to the payee without involving a third party such as a bank, and the payment can be made to any part of the world. The technology ensures fast, secure, and rapid processing of payments made.
Additionally, using cryptocurrencies to make payments is quite cheaper compared to traditional methods, which saves on costs.
Sending money by companies to international business partners could some time takes days or even weeks. With the blockchain, this could be done in a matter of minutes
2. Creating tractability of goods
Blockchain technology can allow companies to record the status of products at every stage of the supply chain using a distributed ledger system. Since the records are immutable and permanent, it becomes easy to trace the source of the products.
Walmart is an example of a company that’s been able to trace goods using blockchain by tracking the sales of pork in China. The system allows them to track where the pork has been obtained from, the processing steps as well as expiry dates.
In case of a product return, the company can be able to trace the exact products being returned and the buyer that had purchased the product.
3. Cold Chain Monitoring
Goods such as pharmaceutical products and food often require special storage facilities. Such facilities are usually costly to acquire, and that’s why most companies opt to share the available few cold storage facilities.
In the storage facilities, there are special sensors that record changes in temperature, humidity, and other environmental conditions.
Companies can use blockchain technology to record the readings made by the sensors. The records are permanent and accurate. In a case where the conditions inside the storage facilities deviate from what’s agreed every user will notice and appropriate changes can be made.
4. Inventory management
There are instances when a company can lose its inventory, which leads to poor practices and also creates room for fraudulent practices.
Through the use of distributed ledgers, companies can manage inventory records at different locations, and the data can be shared with all parties involved hence eliminating any chances of fraud.
5. Identity verification
Blockchain identification technology is a popular use case in several industries. Since blockchains are universal, there is no need to have a third party for purposes of identity verification in the supply chain when handling international interactions.
Companies in supply chain can enter into contracts without having to worry about the identity of the other party as the immutable ledgers can be used authenticate identities.
Benefits of blockchain in the supply chain in a Nutshell
Regardless of the nature of the company, blockchain in supply chain will have the following advantages to offer:
Enhanced transparency: Blockchain in supply chain allows companies to track the entire process, which increases the level of trust between the parties involved and that eliminates the bias found in traditional opaque supply chains.
Improved scalability: It is possible for any number of users to access a supply chain at any stage if it is recorded on the blockchain.
Improved security: Shared and immutable ledgers with highly encrypted blocks may eliminate the need for audits on the systems used and processes followed on the chain.
Elimination of fraud: Blockchain in supply chain allows users to certify items at every stage, which reduces the chances of counterfeiting products or fraud. Counterfeiting goods is one of the primary reasons that lead to the loss of millions by companies.
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