Have you ever wondered where did the clothes that you wear, or the food that you eat come from? Before these products even hit the stores, there is a whole other chain of different interlinked elements that work on delivering these products to you. This connected sequence of processes involved in the production and distribution of a commodity is known as the Supply Chain.
Let’s take the example of a clothing supply chain. The supply chain in the clothing industry can be broken down into
-Sourcing of raw materials
-Facilitating the process to convert these raw materials into final products.
-Distributing these products to the consumer.
Globally, the clothing supply chain consists of millions of people along with tonnes of cotton crops, chemicals, water, oil, and other materials. This makes it difficult for manufacturers to keep track of where the different parts of their products come from. The true value of a product remains unclear to the customer because there is a significant lack of transparency in the current system. Due to this, it becomes extremely difficult to investigate supply chains when there is a suspicion of illegal or unethical practices.
What is Supply Chain Management?
Supply chain management (SCM) is the broad range of activities involved in planning, controlling and executing a product’s flow, from acquiring raw materials and production through distribution to the final customer, in the most streamlined, efficient and cost-effective way possible.
In more clear terms, a supply chain within the SCM is a network of individual entities, organizations, businesses, resources, and technologies that work together in the manufacturing of a product or service.
Any supply chain begins by delivering the raw materials from a supplier to a manufacturer and eventually ends by delivering the final product to the consumer. Correct utilization of supply chain management can result in benefits like increased sales and revenues, decreased frauds and overhead costs and quality improvement, along with accelerated production and distribution of the respective product.
While things seem to be simple in theory, practically maintaining a supply chain is a challenging task even for small businesses. In the world of modern and massive businesses, supply chains are becoming increasingly complex and such complexity increases as supply chains spread across multiple countries and involve multiple interfaces with third parties.
Risks involved in supply chain management
Supply chain is all about the distribution of commodities and most organizations will seek to adopt efficient distribution practices. For a large organization, distribution occurs both upstream and downstream. Upstream are the suppliers who create goods and services used in a company’s own operations, such as the raw materials. Whereas the downstream supply chain efficiently distributes a company’s products or services to its consumers. Each stage, both upstream and downstream, needs proactive management so as to minimize quality, financial, operational, reputational and legal risks.
It is important that the manufacturer performs a risk assessment, which can involve:
-Understanding which products are to be transported and to where.
-Stepwise break down of the transportation chain
-Assessing each step from sender to recipient to study the impact of delays in any one of the stages in the transportation chain.
-Assessing the transit duration of the cargo at each stage.
-Assessing the effectiveness of anti-counterfeiting measures and how these can be achieved.
-Considering environmental conditions at each stage depending on seasons and weather changes.
-Understanding the impact of temperature and humidity on the product in transit.
-Assessing the suitability of the container.
-Analyzing the impact of shock and vibration on the goods and the packaging used.
How blockchain can help?
To address the above issues, many companies are turning to blockchain technology. A blockchain is a form of distributed or shared ledger which functions as a database that is held, controlled, and updated by each of the users that have access to it. In simpler words, blockchain can be used for creating an unalterable, trusted record of transactions.
Speaking of addressing supply chain risks, the presence of blockchain enables the transmission of data and information to all users of the supply chain network on a real-time basis. This means that when goods move from point A to point B of the supply chain, all those involved are made aware of the progress. Should a change or a delay occur, every participant is made aware and the system can be configured so that each party remains informed and in consensus.
Big companies and organizations have a lot of elements in their supply chains and blockchain technology helps to a great extent to keep track of these elements in real time. Blockchain can be especially useful in linking physical goods to serial numbers, barcodes and digital tags like RFID.
● Cost reduction
The real-time tracking of a product in a supply chain with the help of blockchain eventually reduces the overall cost of moving products in a supply chain. Most people in the industry consider cost reduction to be the topmost benefit of application of blockchain in supply chain management.
When blockchain is applied in the supply chain, it speeds up administrative processes thereby reducing extra costs occurring in the system while still guaranteeing the security of transactions. The elimination of the middlemen or intermediaries in the supply chain means reduced risks of frauds and product duplicating. Also, payments can be processed by customers and suppliers within the supply chain by using cryptocurrencies.
● Establishing trust and security
The cryptographic nature of the blockchain builds in security into the information exchange within the supply chain. This means the secure transmission of correct information between the participants of the supply chain network. The immutable nature of blockchain in the supply chain is designed to prevent tampering of data thereby establishing trust in the business.
Based on these benefits, some distributors are researching how to leverage blockchain innovations to increase profits and strengthen relationships across the supply chain.
Benefits of blockchain implementation in the supply chain
One of the most appealing benefits of using blockchain for data manipulation is that it allows the data to be more interoperable. Therefore, it becomes easier for companies to share information and data with suppliers, manufacturers, and vendors. Transparency in blockchain data helps reduce delays and disputes. Also, it prevents goods from getting stuck in the supply chain. The chances of misplacements also become less as each product becomes trackable in real time.
Blockchain offers scalability of large databases enabling information to be accessible from multiple locations from around the world. Moreover, blockchains can be customized in a private manner too which will allow the data to be shared explicitly between the parties who have the permission for it.
The properties of transparency and immutability of blockchain technology make it useful for eliminating frauds and malpractices thereby maintaining the integrity of the whole supply chain system.
So to summarize, the benefits of adopting blockchain technology would be
-Reduce or eliminate errors
-Better inventory management
-Minimized shipping costs
-Reduced delays from conventional paperworks
-Faster Identification and addressing of issues
-Increased trust in the brand by consumers and partners.
Examples of blockchain in supply chains
● Automotive industry
Since blockchains allow for the transfer of funds anywhere in the world without involving a bank, it’s very convenient for a supply chain that is globalized. That’s exactly how Australian vehicle manufacturer Tomcar started paying its suppliers through bitcoin in a move to make international transactions easier. Exchange rates and high credit card fees will not be an issue anymore while transacting through Bitcoin.
● Food industry
In the food industry, it’s crucial to have clear records to trace each product to its source. Retail chain Walmart uses blockchain to keep track of the pork it sources from China. The blockchain records where each piece of meat is sourced and processed from, where and how it is stored and its expiry date. Unilever, Nestle, Tyson and Dole also use blockchain in their supply chain.
Product status at each stage of production which is recorded using blockchain is permanent and unalterable. These companies see blockchains as an opportunity to enhance their data management processes across a complex network involving a large number of participants including farmers, brokers, distributors, processors, retailers, regulators, and consumers.
A potential benefit: In an event of a product recall, the company will be able to retrieve details of concerned batches and who bought those, in a very short time and with less effort. Investigations into food-borne illnesses which takes weeks on a conventional supply chain system will only take a few minutes in a blockchain based system.
● Electric power microgrids
The blockchain is not just for the big players. Entities of any size can use blockchain. Smart contracts in blockchain technology are being used for redistributing excess power from solar panels. The Transactive Grid is a Microgrid Intelligence System for energy built on Ethereum platform. This application runs on blockchain to monitor and redistribute energy in a neighbouring microgrid. The program automates the buying and selling of green energy thereby reducing costs and pollution.
● Pharmaceutical Industry
With different stakeholders involved in the manufacture and distribution of a single drug, the pharmaceutical industry has a particularly complex supply chain. WHO reports an increased sales of fake drugs globally. So it is vital for pharmaceutical companies and distributors around the world to improve the security and traceability of the drug supply chain. Implementation of blockhcain to this scenario will simplify the logistical process and enable quality control throughout the supply chain.
While implementing a database capable of meeting FDA requirements is not necessarily difficult, updating changes and communicating them down the supply chain could remain a challenge as product and system changes occur frequently. Blockchain provides a solution to the issue of interoperability across suppliers and systems, while providing a verifiable change log, held in a secure and real time electronic environment. Pfizer and Genentech are already working on a blockchain-based solution to meet their requirements.
● Cold chain monitoring
Special storage is often important for food and pharmacuetical products. Enterprises usually share warehouses and distribution centres, instead of each one paying for its own. So the challenge is to ensure that the drugs or food items are stored in optimal conditions so as the quality is not compromised. The readings of temperature, humidity etc can be recorded on each product sensor and can be stored on the blockchain. These are permanent and tamperproof. If a storage condition deviates from what has been set, each member of the blockchain will know it. A smart contract can trigger an action to alert and correct the situation.
● Diamond industry
Diamond miners and traders, De Beers announced that it will create the first blockchain ledger for tracing diamonds from the point they are mined right up to when they are sold to consumers. This will ensure that the company avoids ‘conflict’ or ‘blood diamonds’. This is seen as a hugely important step, in a scenario where consumers are increasingly becoming aware of issues surrounding conflict diamonds, and demanding reassurance that the stones they are buying as jewellery have been ethically sourced.
As blockchain technology is supported by highly sophisticated computer encryption, only those with permission, in this case, those overseeing the mining, cutting, and retail of precious stones, can enter or edit data on the blockchain database. This gives the strongest proofs of the authenticity of diamonds and their mining process.
Blockchain can play a vital role in transforming supply chains, industries, and ecosystems. Interestingly, even organizations like banks are considering blockchain to streamline their business. Full-fledged transformation of supply chains is not bound to happen overnight. However, supply chains can think of using blockchain for small portions of their operations initially. Smart contracts will help reduce operational delays and wastage currently due to manual handling of paperwork. Once you get there, the door is then open to smarter, faster and more secure supply chain from one end to the other.