How the use of blockchain can provide benefits to Supply Chain

Industry?

Table of Contents

Transformation in the supply chain due to blockchain technology. 4

Blockchain application in supply chain.. 8

Introduction

The supply chain industry operates via a network formed between a company and the suppliers of the company. The specific products are produced and after that distributed to the customer or final buyer. The network mainly involves entities, people, resources, information and several activities. The supply chain represents mostly all the steps that are involved in getting the product/service from the original condition to the buyer. A supply chain is developed in companies so that costs can be reduced and the business can remain competitive within the business landscape. The idea is to fasten the overall production cycle and optimise the production process. Blockchain is a type of technology that is useful in storing transactional records, alternatively known as a block within the public databases. These databases are also called a chain. The storage is alternatively known as the digital ledger. In this report, the usefulness of the blockchain technology in supply chain industry shall be explored. The consumer goods are mainly produced and using smart contracts; the industry can be benefitted. Recording product status and ensuring the accuracy of the end product can be considered as beneficial. The extent to which digital technology can enhance transparency within a supply chain shall be discussed as well.

Common issues in the supply chain

In a supply chain, various types of commodities, such as consumer goods, food products, equipment, and digital offerings can be produced. Therefore, the level of complexity is high. It is cumbersome to tackle payments that occur between the supplier and the manufacturer or a vendor and a customer. Moreover, payments-related issues can be resolved with the help of contractual agreements; however, the method might be expensive. Involvement of layers and bankers requires enormous costs. Moreover, tracing parts of a product or different products is a difficult task, and it can be challenging to eliminate the defects as well. Hence, within the supply chain friction is most likely to occur among the “go-betweens”. Creating a balance might be an issue. There is rising uncertainty, and it might create issues within the supply chain. There is a need for providers, clients and suppliers to interact. However, the interaction might occur with the help of a centralised third-party entity. Direct communication does not occur. Consequently, simple transactions might result in lengthy procedures. This is because multiple steps are involved in the process.

Transformation in the supply chain due to blockchain technology

The distributed ledger is a digital form referred to as the blockchain. Various transactions are recorded within a ledger. Multiple copies can be formed, and it can be distributed across multiple computers. The various copies are referred to as nodes. Moreover, the security of the ledger can be ensured because the transaction in each block can be linked with the previous block. The possibility of tampering is low as well. Again, the system is decentralised in nature. Therefore, a blockchain ledger is always independent of any entity such as a bank. It can ensure its safeguarding. Within the blockchain network, the nodes get updated to the latest versions every time a new transaction occurs. Hence, it can be stated that the multiple copies are regarded as the evidence of every transaction that occurred within the blockchain.

Figure 1: Blockchain integration in a step-wise manner in the supply chain

(Source: oliverwyman.com, 2020)

Reasons behind using blockchain

Companies are investing financial resources as well as huge time to implement blockchain and create the foundation for the businesses’ supply chain. The logistics industry is embracing the new processes so that it can operate in the digital era. Companies often compare blockchain technology with internet technology. Implementing blockchain can also remove the need for “intermediaries”. Regardless of the presence of intermediaries, it would be possible to verify the record and also coordinate transactions. Involvement of a third-party is not a requirement. Hence, blockchain reduces the complexities within global supply chains. Moreover, blockchain boosts transparency in global operations. Administrative operations can also be automated. Imagining the combination of artificial intelligence, IoT and robotics to facilitate and sync information with financial flows is an excellent reason for companies to implement the technology. It would ensure effective orchestration between the flow of goods (McKendrick, 2020). The real benefits behind the implementation of blockchain have been outlined below-

The driver of automation– Mainly paperwork reduces, and inaccuracy of data also reduces. The logistics industry thrives on data accuracy, and disputes or inefficiencies lead to delay. Hence, an automated process is a dire necessity. Automation would allow information storage in a digital format. Moreover, automation services can be extended to businesses that cannot function without the intermediaries such as settlement services, brokerage, insurance, legal services, normative compliance, delivery scheduling, route planning, fleet management or maintaining connectivity with the business partners. Again, tracking a product’s life cycle can become a possibility of using blockchain. Changes might be made between the wholesaler, manufacturer, logistic service provider and the consumer. The possibility of automating business transactions exists, and a direct relationship can be formed between the participants.
Establishment of business models- Business models such as digital identities and micropayments can be developed, and operations of the models can be improved with the help of blockchain-based services.
Ensure more excellent connectivity- The logistics industry is often characterised as fragmented, and it involves a lot of manual processes. Nevertheless, the logistics industry is competitive by nature, and its value should be recognised. Again, the industry is also characterised by a large number of stakeholders. This, in turn, leads to data losses, low transparency and unstandardised processes. Hence, the need for connectivity and thereby, transparency is also a necessity. Building trust among stakeholders is the only way of ensuring system security. The flow of error-free goods and products is vital and it is possible only with speed and connectivity.
Creation of a collaborative culture- Connectivity will enhance collaboration among stakeholders and success of the enterprise depends upon the degree to which a culture of collaboration is maintained. Moreover, collaboration occurs internally and various partners are involved during the process. As soon as an organisation signs up for blockchain technology, it is also making a collaborative endeavour. At this point, facilitating a trusted collaboration between private and public entities is a necessity as well. Here, entities such as industrial organisations, government agencies, partners, regulators or other competitors are involved.
Building capabilities and blockchain-related knowledge- Doing business effectively means ensuring consistent training as well as education for staffs. The process of doing business has also changed dramatically and it creates the need for education and training of individual partners and contributors using resources, time and tools.

Figure 2: Benefits of blockchain technology

(Source: sciencedirect.com, 2020)

The benefits of blockchain technology is multi-fold, however, it is necessary to manage the expectations because the technology is in its early stages. Reaching maturity within the software lifecycle can be a long-term process. Hence, the application of the technology at a large scale will surely take time. Moreover, realising the value of blockchain is a gradual process because a lot of individuals and organisations are involved.

Blockchain application in supply chain

The range of applications that might be implemented has been discussed below-

Automotive payments

With the help of blockchain, it is possible to transfer funds around the world and it diminishes the need for a traditional banking system. This system of transaction is referred as the automotive supplier payments. The payer can directly transfer the amount to the payee. The transaction process is simple as well as secure. Within minutes, the process gets completed. Due to the invention of Bitcoin, it is easier to transfer huge amounts within low fees. For example, Tomcar, the vehicle manufacturer based in Australia uses Bitcoin in order to pay the suppliers. At present, Taiwan and Israel based partners of Tomcar accept the Bitcoin payment. Moreover, Tomcar uses standard terms while forming supplier agreements. The vehicle manufacturer saves costs by using Bitcoin. Similarly, it is necessary to control the usage of Bitcoin due to its nature. National governments across the world consider Bitcoin as an opportunity. Companies can use Bitcoin to for investment purposes. This in turn, makes a company subjected to tax laws. Moreover, cash is regarded as an “uncontrolled payment system” and it involves the movement of high values at a faster and in an untraceable way to the supplier side from the demand side (Fiedler, 2015). Hence, the tax invaders and criminals often prefer this payment instrument. Hence, an electronic payment method can be the only feasible solution.

Traceability of products

It is possible for companies to use the ledger systems or blockchains so that product status can be recorded while it is undergoing stages within the production process. Moreover, the permanency of the record can be ensured. The source of the product can be traced using blockchains. For example, Walmart, one of the global retailers uses blockchain technology in order to track the sales of pork within China. The ledger system used by Walmart allows the company to locate the source of each piece of meat. The company can also trace the processing of meat as well as steps used while storing the meat. Lastly, the sell-by-date of the product can be traced as well. Moreover, it is possible for the company to recall the batches of meat that was affected. Hence, all these possibilities exist due to the usage of blockchain technology. More particularly, Walmart has used the blockchain solution devised by IBM to trace the mango production in America (Kamath, 2018). The company referred it as “complete end-to-end traceability” and therefore, it is evident that the implementation of blockchain within the food supply chain of the company in China and America is a feasible solution. Moreover, it has benefitted the company as waste has been reduced and safety in the global food ecosystem has been ensured.

Figure 3: Blockchain-based technology devised by IBM for food traceability

(Source: ift.org, 2020)

Monitoring of cold chain

Products manufactured in the pharmaceutical and food industry have storage needs. Moreover, companies are supposed to cater to the specialised needs of these products. Again, the distribution centres along with the warehouses should be shared so that these entities need not have to pay individually. Sensitive products are installed with sensors so that humidity, vibration and temperature can be recorded. Thereafter, it is possible to store the reading within the blockchain. The stored records are permanent as well. Moreover, in case, the storage condition is different from the agreed condition, then it is possible for blockchain members to see it. The situation can be resolved using any smart contract as it will trigger a response quickly. Thereafter, it would be possible to know whether a product is unfit or whether the need to exchange the product also exists. This is necessary particularly in the pharmaceutical industry because products are supposed to be distributed to the patients. Hence, cold chain management in the pharmaceutical industry should be done effectively. Research suggests that Hyperledger Sawtooth is a useful ledger framework that can be used to deliver relevant information to the stakeholders of a pharmaceutical company at the time of distribution phase (Hulea et al., 2018). The solution is effective as entities within the system can communicate effectively.

Application of blockchain in Internet of Things

The advent of the Internet of Things has allowed improvement in technology and it has fulfilled the needs of information sharing. Objects can connect with the help of IoT and therefore, the technology has unlimited benefits. However, the centralised client or server model is one of the limitations of IoT as the need to connect all devices and to authenticate all servers arises. Hence, it is necessary to transfer the IoT system towards a decentralised path. Here, blockchain technology can be useful because it decentralises computation, as well as the management processes that might resolve issues related to IoT and particularly, the security issues, can be resolved (Atlam et al., 2018).

Other examples of usage of blockchain technology in supply chain management

In case of trade finance, blockchain technology can be effective. It is a known fact that supply chain operates globally due to the timely funds received from banks or similar other institutions. Consequently, multiple copies involving useful documentation need to be generated. During a single shipment, 30 or more documents might be exchanged. Hence, the need for multiple revisions also arises. Consequently, fraud, delays or issues might arise during the process. At this instant, using a blockchain network might be effective in reducing the number of delays, eliminating excessive duplication errors, reducing the number of disputes and reducing late penalties.

Figure 4: Reasons for blockchain investment

(Source: IBM, 2020)

Similarly, blockchain technology is useful for companies because it needs to comply with the regulatory requirements. Periodic reports should comply with the trade laws. It also implies that periodic reports should be aggregated and presented in a government-mandated way. Here, blockchain technology can be useful for reducing compliance reporting issues. With the help of blockchain technology, companies can easily share its records with customers despite the fact that customers are not present within the company’s internal network. For example, while buying a life-saving drug, a patient goes to the pharmacist and before buying the drug, the patient might notice that the medicine must be kept below 20-degree Celsius. However, the patient might not be sure of the fact that the pharmacist has followed this direction while storing the drug. At that instance, the immediate solution could be adding microchip sensors that can be found on a shared ledger and regularly updated. This in turn, ensures that the medicine has been stored within the necessary environment only before it has been delivered to the patient. Hence, it can be claimed that blockchain is playing a vital role in today’s businesses. It is ensuring speed and saving time. The future is hyper-connected and blockchain can be regarded as a vital support structure.

The example of Walmart has already been used before to understand the traceability function of blockchain. The example of Chinese pork has been noted and it has been found that the retail giant continued to invest in blockchain technology by partnering with IBM. Recently, the company faced issues due to the E.coli outbreak that occurred in the United States. The company had to remove lettuce from its retail stores because tracing the source of lettuce was challenging. The company has taken this action in order to ensure food safety during the E.coli outbreak. However, the source of the product remained unknown. Hence, as a safety precaution, Walmart removed the lettuce immediately because tracing the source of the lettuce would have taken more than seven days. The company thereafter communicated with the suppliers and it now uses the IBM Food Trust blockchain in order to trace the shipment’s source within two seconds. Therefore, the Walmart project can be regarded as an important initiative. The company’s blockchain venture is such an initiative that will be copied by other retail giants in the near future. It can also be noted that entering the blockchain venture in a unilateral process. The involvements of multiple parties are necessary for a distributed ledger to function. The distributed ledger system can either be used for commercial transactions or for traceability purposes. Hence, companies are focused on considering the usage of these systems and persuading the supply chain partners to collaborate with them.

Blockchain is bringing rapid transformations across industries and ecosystems. Even banks are interested in using supply chain technology because the existing ones are rapidly going out of date. New opportunities can be exploited so that operations can be streamlined. However, transformation takes time and within the supply chains, it would be beneficial to use the smart contracts so that costs can be delayed and waste due to manual handling does not have a severe effect. Processes should be secure, fast, intelligent and swift. The businesses focussed on using this technology should have a basic understanding of economies and software requirements. Staff training is a necessity for businesses to meet its future aspirations regarding blockchain technology.

Figure 5: Creation of a blockchain transaction

(Source: mckinsey.com, 2020)

Further research suggests that the emergence of blockchain technology has enabled the verification of data and decentralisation of data. Different industries have been attracted towards blockchain technology. The case of Fintech can be considered and blockchain has the potential to overthrow the current payment handling system (Hackius & Petersen, 2017). Again, the logistics community has been realising the profound effect of this technology. The logistics professionals have also opined that blockchain acts as a facilitator, and most of the professionals are positive regarding this new and emerging technology. Nevertheless, further research is necessary to understand the real impact of the technology on logistics, one of the most conservative industries. Overall, improvements in efficiency and visibility can be ensured. The producers as well as the consumers gain confidence and they can restore the amount of trust within the system. Nowadays, customers have complete information regarding the source of the product and it has become a fairly reliable solution for the customers.

Conclusion

The theme of the research paper is benefits of blockchain in the supply chain industry. The supply chain industry is one of the major contributors of the economy and blockchain technology has the potential to revolutionise the industry by improving company models and focussing on transforming the company. Blockchain technology provides cost-effective solutions in a completely transparent manner. However, transformation requires time and an in-depth research is still required because blockchain is comparatively a new invention in the software sector. At the beginning, a brief overview of supply chain operations has been given. Following that, the common issues prevalent in the industry such as payment-related issues, product traceability issues and rising uncertainty due to lack of direct interaction between the stakeholders are common. Thereafter, few possibilities of the industry have been outlined after conducting research. It has been understood that in order to resolve issues between intermediaries and create synchronisation between the parties, blockchain technology can be used. It acts as a driver of automation, helps developing business models, fastens connectivity, and enhances collaboration between stakeholders and build trust. Application of blockchain as in automotive payment systems, product traceability, cold chain monitoring and IoT are prominent. Again, the application of the technology in trade finance, regulatory compliance and in Walmart, one of the retail giants has been explored as well.

References

Atlam, H. F., Alenezi, A., Alassafi, M. O., & Wills, G. (2018). Blockchain with Internet of Things: Benefits, challenges, and future directions. International Journal of Intelligent Systems and Applications, 10(6), 40-48.

Fiedler, M. (2015). Apple-pay, towards the acceptance of German customers. Asian Social Science, 11(22), 124.

Hackius, N., & Petersen, M. (2017). Blockchain in logistics and supply chain: trick or treat?. In Digitalization in Supply Chain Management and Logistics: Smart and Digital Solutions for an Industry 4.0 Environment. Proceedings of the Hamburg International Conference of Logistics (HICL), Vol. 23 (pp. 3-18). Berlin: epubli GmbH.

Hulea, M., Rosu, O., Miron, R., & Aştilean, A. (2018, May). Pharmaceutical cold chain management: Platform based on a distributed ledger. In 2018 IEEE International Conference on Automation, Quality and Testing, Robotics (AQTR) (pp. 1-6). IEEE.

Kamath, R. (2018). Food traceability on blockchain: Walmart’s pork and mango pilots with IBM. The Journal of the British Blockchain Association, 1(1), 3712.

McKendrick, J. (2020). 5 Reasons to Blockchain Your Supply Chain. Forbes. Retrieved 1 May 2020, from https://www.forbes.com/sites/joemckendrick/2018/03/19/5-reasons-to-blockchain-your-supply-chain/#3cc5d21c6fe1

How the use of blockchain can provide benefits to Supply Chain Industry?