Does Blockchain have a Place in Supply Chain Management?
- What is Blockchain?
- Is Blockchain Overhyped?
- How Blockchain Applies to Supply Chain Management
- Who needs Blockchain for the Supply Chain?
What is Blockchain?
Blockchain, or Distributed Ledger Technology (DLT), is a virtual electronic ledger. However, unlike other types of electronic ledger such as spreadsheets, there is only one copy.
The single copy of the ledger is duplicated throughout a peer-to-peer (P2P) computer network where each computer “node” shares information without the need for a central server. Access is available through any of the nodes in the network.
As the ledger is updated with “blocks” of new transactions, it forms a “chain” of updates, each with an unalterable timestamp. Each “link” in the chain also carries an encryption code which is drastically altered with each update, no matter how minor.
The lack of a central server and the encryption means that it is impossible to hack the network from a central point; each node acts as a server as well as an access point. Furthermore, the encryption means that it is impossible to translate without access to an unfeasible amount of decoding power.
This system means that the virtual ledger can be updated simultaneously by any number of involved parties, with all transactions being traceable to their original point.
Is Blockchain Overhyped?
Yes and no. As with all new types of software, DLTs are touted as a panacea that will instantly solve any and all business-related problems. Like almost all technologies, it is complex in its workings, yet relatively easy to use. The fact is, not everyone will need a DLT. In local, centralised businesses operations with a relatively low number of transactions, there are many types of ledger software that are sufficient.
However, where DLTs come into their own is in global and highly complex distribution networks with many different players. Distributed ledgers reduce the incidence of human error during data input, and also reduce exposure to risk through moral hazards owing to the immutability of the system.
How Blockchain Applies to Supply Chain Management
There are a number of key benefits to using Blockchain in supply chain management:
It eliminates the need for intermediaries
Elongated global supply chains mean that there are many players, and there is a potential for mistakes or distrust. Many distribution chains need to employ trusted intermediaries to ensure that transactions are fairly processed throughout the chain. Distributed ledgers accessed throughout the distribution chain perform crosschecking automatically, ensuring the truthfulness and accuracy of the data supplied by all parties.
It ensures the accuracy of inventory management
The complete lack of scope for duplication inherent in the distributed ledger chain ensures that no single item of inventory can exist in two different places at the same time. Similarly, once an item of inventory is logged to the inventory management system, it is visible at both ends of the distribution system, eliminating the possibility of it becoming lost in the distribution chain.
Scope for negotiation in procurement
The fact that the entire distribution network is visible means that there is a greater scope for negotiating discounts based on volume. Where there is a guarantee of high volume based on accurate data, there is a visible benefit to all parties in striking the best deal.
Many companies are testing distributed ledgers. De Beers, the diamond distributor, is using the system to trace diamonds from the point at which they are mined to the point of sale. This has reduced the amount of “blood diamonds” in the distribution chain by ensuring the traceability and legitimacy of each item.
Walmart is also using the technology to trace all produce back to its source to ensure ethical sourcing and quality. It is also able to track it through the distribution system to ensure freshness.
Who needs Blockchain for the Supply Chain?
Not all businesses need DLT. The need for this technology is based on a number of factors:
Number of players & level of cooperation in the distribution chain
The more individuals and entities involved in the chain, the greater the number of transactions and the greater the scope for error. Blockchain ensures that the entire chain is visible to everyone, and transactions are updated in real time, maximising efficiency.
Geography of the distribution chain
A distribution chain that is global will be more likely to need a single point of reference for all the individuals and entities involved, making blockchain an ideal platform for sharing data.
Level of trust between members of the chain
It is necessary to establish a high level of trust at all levels of the distribution chain. If there is a question concerning the reliability of data produced by other parties in the chain, a DLT may be the solution. There are three types of DLT: public, private and hybrid. Hybrid is the most common as it enables real time access with certain “Chinese walls” to protect privileged data.
Existing advanced technologies in managing supply chain
Wholesalers and distributors already have a process in place for managing the supply chain. While some of these processes are very inefficient (think: one person trying to keep track of all the moving pieces manually), many companies already have advanced technologies implemented to keep the supply chain running smoothly (think: ERP software or specialised integrated SaaS). For companies that operate smoothly, blockchain isn’t a priority.
Basically, blockchain is the future of the supply chain – but you don’t need to hop on this hype train just yet. However, while blockchain might not be in the cards for your company just yet, it is important to make sure that the pieces of your supply chain are running as efficiently as possible – starting with your inventory management. Think you’re operating at optimum efficiency? Take a look at your inventory management with our 12-question guide and evaluate where you could be missing out on savings and benefits!