Blockchain is essentially a distributed ledger that holds the records of any data or events. Since it is distributed, any information recorded in the Blockchain network is entirely transparent.
Also, another essential property of blockchain is the consensus. This means the majority of the network has to approve the data that is being recorded. Additionally, the data once entered becomes tamper-proof. All the users present in the network can see, access, check, or add to the data that is currently present, but they can’t alter, change or delete the data what so ever.
Hence once the data is recorded, it leaves a permanent imprint on the Blockchain network. This is one property of blockchain that makes it THE most suitable technology for Supply Chain Management. But going further, let’s understand what Supply Chain Management is.
Supply Chain Management
SCM basically is the planning and execution of various processes that are involved in the supply chain. Managing the flow of goods, raw materials, all the other required products and finished goods from the manufacturing unit to the end consumer are involved in supply chain management.
SCM is essential to decrease the manufacturing cost of goods by also reducing the complexity trough streamlining the entire process. It also helps companies in accelerating the production and distribution of goods. If implemented correctly, SCM can increase sales, reduce frauds, curb over costs, and improvise the overall quality of products as well.
SCM can be easily implemented for smaller manufacturing units as everything can be controlled by the existing technology in the most efficient manner. But as the manufacturing process gets bigger and sophisticated, the supply chain becomes extremely inefficient as things won’t be in anybody’s control.
For instance, let’s consider Walmart’s supply chain. Walmart receives its products from thousands of vendors across the county. Imagine the complexity of its supply chain. It is impossible to track all the products to know where they are coming from.
Let’s understand the critical problems in the current Supply Chain Management system used by most of the companies as of today.
Lack of transparency is one of the major problems businesses face in the current SCM system. You won’t be aware of the actual value of the products you are using as a consumer. Also, companies won’t get a clear and accurate understanding of where their raw materials are coming from if the businesses are huge.
Corruption due to lack of transparency. It is tough for companies to curb corruption, as the entire vendor-buyer relationships depend on trust, and humans are not trustworthy.
Cross-border collaborations can make a company’s supply chain even more complicated. It gets difficult for businesses to coordinate and collaborate with the existing SCM systems, especially when the suppliers are in a whole new geography.
So the bottom line here is that SCM is absolutely critical for any business, and the current system of Supply chain requires a significant update as it is outdated. Now let’s see how blockchain can significantly improve supply chain management for any given business.
How could blockchain disrupt the supply chain industry?
Imagine a situation where the transactions could be recorded every single time a product changes hands. The history of the product could be permanently recorded and distributed from the place it got manufactured to the point of sale.
This could reduce time delays, human error and added costs. These are currently the biggest challenges in supply chain management. Below are some of the properties of blockchain that can revolutionize the supply chain industry.
Decentralization – The fundamental principle of blockchain is decentralization, which means no central authority owns the data. Any data that you enter in blockchain will get distributed across the global ledger.
The current SRM system doesn’t work that way. The information is manually collected and entered by procurement officers and is sent to the corporations. There are so many things that can go wrong in this process like incorrect entries, missing pieces of information, intentional frauds etc.
Transparency – Blockchain can eliminate all of the above-mentioned problems by making the transactions entirely transparent. Recording the journey of a product at every single point of the supply chain reveals the exact origin of the product and increases trust as everything is visible on the blockchain network. Thereby, it helps in eliminating the fraud that is currently happening in the current supply chain systems. This also helps the manufacturers in reducing recalls and costs by directly sharing these entries with inspecting managers and their clients.
Scalability – There is no limit for the number of participants that can access and add information to the blockchain. Any number of transactions can be entered at various places the product shifts hands. This is not possible with the existing SCM systems.
Security – A shared, immutable ledger can be way too secured than the existing supply chain systems. In the area of supply chain management, immutability becomes extremely valuable. Immutability means the inability of altering or deleting a record once it is entered. This will only enhance the security of the transactions that are already entered. Also, it can be cost effective as blockchain eliminates a lot of internal and external audits that are otherwise required.
Because of these fascinating properties, blockchain can reduce additional costs, human errors and time delays that generally occur in typical supply chain management systems.
Blockchain can definitely improve and enhance the recording, tracking and verifying functions in SCM, making the entire process more robust.
There are some companies like Walmart that have already incorporated blockchain to their supply chains. Walmart is currently using IBM’s Food Trust blockchain in order to increase the efficiency of its supply chain.
By this, we can say that blockchain has the potential to become a universal supply chain operating system in the near future.