When you think about blockchain technology, you may picture cryptocurrencies like Bitcoin. But blockchain has plenty of other applications as well, particularly for supply chain management.
Think of blockchain as a type of digital ledger. This ledger records transactions in blocks, and multiple copies are stored over multiple computers (called nodes). Ledgers are secure because each transaction is linked to previous blocks in a way that prevents tampering. This makes blockchain an excellent option for supply chain management. Here are some of the ways blockchain will revolutionize the industry:
1. Increased Transparency
Deloitte recently surveyed more than 500 procurement leaders from 39 countries. The survey found that one of the biggest problems they face in the supply chain is transparency, with 65% of procurement leaders saying they have no visibility (or limited visibility) beyond their Tier 1 suppliers.
With multiple suppliers across multiple countries and states, it can be difficult to pinpoint issues. This is where blockchain can make a massive difference. Blockchain records and tracks transactions, making it much easier to see what’s happening in real time.
2. Greater Trust
Before blockchain technology, it was difficult to get a large number of supply chain partners to agree on a shared set of data. The only way to make this happen was to use an impartial intermediary which would process and reconcile all transactions. Blockchain removes this problem, synchronizing all transactions and data. Each organization can then verify the calculations and work while removing extensive amounts of cross-checking and redundancy.
The Deloitte survey found that procurement leaders around the globe have indicated a desire to focus on building partnerships and collaboration with key suppliers to improve innovation within their organizations. Two-thirds of respondents said “generating trust and win-win situations” are a key approach to do this.
3. Increased Customer Satisfaction
Customers are increasingly interested in the journey that products take before they reach their hands. Millennials, in particular, are known for “conscious consumerism.” They’re happy to pay more for eco-friendly products, and want to know as much as possible about a product and where it came from before they decide to buy. Blockchain presents an opportunity to engage these consumers. Organizations can be increasingly transparent with potential customers, demonstrating that their products are cruelty-free every step of the way.
Global startup Everledger is already using blockchain technology. The company has uploaded data identifying a million diamonds to a ledger system. This ensures jewelers are not inadvertently purchasing blood diamond products. It also helps prevent insurance fraud and fencing.
Walmart is working with Tsinghua University in Beijing and IBM to use blockchain to follow the movement of pork within China. As sensor and chip technology continues to improve, this traceability will be increasingly powerful when it comes to customer satisfaction.
4. Improved Data and Analytics
Companies usually end up compensating for uncertainty around how much product is sitting in different locations. They do this by adding extra inventory to ensure they don’t run out of those products. While this extra inventory is often a better option (and cheaper) than losing sales, it’s not exactly free. In the technology industry, keeping $1 of stock costs between 20 and 40 cents each year when you consider how rapidly technology products depreciate and the cost of capital.
Blockchain solves these problems, with better data leading to better outcomes. Since blockchain allows businesses to track and manage their resources every step of the way, this leads to greater accuracy, better forecasts and less inventory being stocked unnecessarily.
5. Decreased Delays Between Procurement and Payment
Many businesses have a large gap between when they deliver a product or complete a task, and how long before they’re paid. Products are sent or work is completed, and invoices are generated and sent to customers. Those customers then have the ball in their court and can choose how and when to pay those invoices. This often leads to a dance as suppliers send invoice reminders and call customers while customers process invoices slowly, occasionally losing them completely.
Blockchain can end this, by integrating payment and delivery in digital contracts. These would integrate with banks and logistic partners. These smart contracts would immediately send proof of delivery, triggering automatic invoicing and payments. That removes the payment gap between suppliers and customers, directly impacting the bottom line and ending procure-to-pay gaps.
6. Fewer Mistakes
In 2015, 55 people who dined at Chipotle Mexican Grill were infected with E. coli. The company’s stock dropped by 42%, and its reputation still hasn’t recovered.
Unfortunately, Chipotle has also experienced a Norovirus outbreak (from one of its stores) and a salmonella outbreak (associated with tomatoes). If Chipotle had used blockchain technology, these outbreaks could have been prevented and contained. The company could have seen their ingredients’ journey at every step, tracing the origin of the outbreaks immediately.
Blockchain is an excellent opportunity for businesses to track supplies throughout their journey and prevent reputational damage.
Blockchain: Meeting Today’s Supply Chain Challenges
Supply chain management has many challenges. These include planning and risk management, cost control, lack of end-to-end visibility and partner/supplier relationship management. Blockchain will increase efficiency, decrease costs and ensure greater transparency for both businesses and customers. However, this revolution won't happen without an agreement between stakeholders to invest in blockchain and IoT technologies. The regulatory environment also needs to evolve to support this implementation. One thing is certain: Companies that invest in blockchain technology early are sure to gain a competitive edge.