Have you ever wondered where your favorite shoes, hoodies, furniture, or food came from? All these products follow a supply chain and are tracked every step of the way, from the raw materials origin to distribution in stores worldwide. There is data for every single part of the process.
But modern supply chains deal with some severe problems, which need to be solved. At this point, blockchain technology comes into play. This article will discuss the potential of distributed ledgers (such as blockchain) in the supply chain world and which difficulties could hinder a successful and fast mass adoption.
We are already witnessing growing interest and demand in provenance information, not only by customers but also by regulatory frameworks. People want to know what kind of product they are consuming. Blockchain technology shows a significant advantage compared to modern supply chains: all data is stored in a transparent and decentralized way on a ledger. Why is that an advantage? Because there is no censorship of information! Furthermore, centralized authorities can not delete specific data because of decentralized storage on many devices and servers.
Blockchain technology offers even more advantages! Think of the cultivation of vegetables, for example. The parties involved are not always known. Supply chains source from thousands of growers and farmers. They move goods through multiple distribution points before they reach retail shelves. A permissionless blockchain is a good solution for tracing and verifying the grower or farmer who supplied the produce.
2. Replacing manual processes
Many supply chains today run their operations through digital processes. Still, several economies document critical supply chain processes through paper and pen (e.g., the shipping industry). Manual documentation is not only slow but can be inefficient in handling large transactions at scale too. Blockchain technology could be implemented right away and solve all those problems at once.
3. Providing fast and efficient transaction processing at a low cost
As already emphasized above, blockchain technology provides a transparent and fast way of transacting data. Blockchain runs without the need for intermediaries like banks and other payment service providers. Because of this, users can complete payment terms almost instantaneously through the usage of smart contracts. Especially in the logistics industry, many processes could be accelerated and simplified through smart contracts.
Blockchain could enable the digitization of freight documents, the automatic clearance of customs goods, or digital proof of the transfer of liability.
4. Obstacles for implementing blockchain technology in supply chains
One major obstacle to the broad implementation of blockchain technology in supply chains is that it relies on distributed ledger technology with open access to all users. Why? Because many users of supply chains nowadays don’t want to reveal proprietary details, such as demand, capacities, orders, prices, margins, at all points of the value chain to unknown participants.
These users are not interested in a permissionless and open supply chain. When all parties in extended supply chains are known and trusted, there is no need for a blockchain solution, as these known and trusted parties can be relied upon to provide a single, real-time version of the truth. In this case, a cloud solution or similar constructions would be sufficient.
Weighing the pros and cons of implementing blockchain technology into modern supply chains, it becomes clear that blockchain could contribute massively to a more transparent, traceable, and fair distribution of data. Not only do customers benefit from this technology, but companies and users, as documentation can be digitized easily. Other processes become more efficient as there is no censorship of information but more complete data in general.