How will Blockchain technology transform the Supply Chain?

International Container Cargo ship top down photo

Supply Chains have grown in scope and scale alongside the globalisation of marketplaces. The manufacture, assembly and shipping of goods and raw materials are now complex operations that span continents.

Technology has transformed these processes and the rate of change is increasing at an exponential rate. A successful supply chain is paramount to creating superiority within any chosen marketplace and thus form a fundamental investment pillar for any large business.

Distributed platforms running on the cloud have made supply chain processes more global, optimized quality and allowed economies of scale. They have also introduced complexities, inefficiencies and fraud, leading to more regulations and a demand for heightened monitoring.

The modern-day supply chain is a vast ecosystem with many product variants and contract manufacturers cutting through a supplier network and diverging to different distribution models – traditional retail and online consignment. The supply chain is also a lot more dynamic than before, with shorter product lifecycles and more extreme ramp-up and ramp-down periods.

The technology powering supply chain management is due for an update. The good news is that supply chains are one of the key areas where blockchain comes into its own. Blockchain technology ensures provenance, offers visibility across the full supply chain, boosts safety, and provides a holistic view of the value chain.

Large distribution hub, trucks and trailers - aerial view

A successful supply chain is paramount to creating superiority within any chosen marketplace and thus form a fundamental investment pillar for any large business.

What can a blockchain-driven supply chain achieve?

The blockchain architecture offers certain inherent advantages:

  • Decentralization: All the information in the block is copied to every node and there is no single point of storage.
  • Data integrity: As records are cryptographically secured, data is immutable and its integrity is therefore maintained.
  • Security: Encryption, decryption and permissions for participants ensure robust security.
  • Permissioned and private: Strong permissions to participants and third-parties can be created as required for the application.
  • Scalability: Blockchain can scale to billions of transactions a second and does not require synchronized networks.

How these characteristics translate to tangible advantages for the supply chain.

  1. Tracking volumes across various partners on the supply network is a time and effort intensive activity. Large companies may engage a big team to audit orders and gain a full-fledged view into purchase activity. Blockchain can save companies manpower and man hours by capturing data from all the company’s partners and view the total volume without the need for users to share their operational data with one another.
  2. Batch processing of large amounts of data slows down operations driven by the data, resulting in excess inventory, higher logistics costs and other problems. By enabling near real-time data transfer, blockchain creates a digital supply chain with a single version of the truth.
  3. Companies purchase extra inventory to address uncertainty surrounding materials/products at different locations. While this strategy helps protect sales, the added expense on company books can be quite substantial after factoring in cost of capital and depreciation of products. Blockchain’s ability to track and manage inventory at the ecosystem level helps make better forecasts, minimizing the need to maintain extra inventory to deliver similar service levels.
  4. The average days sales outstanding (DSO) is over 60 days despite receipts specifying that payment shall be made within 30 days of delivering the product. Invoices are emailed to customers who then decide to pay sooner or later; it is not uncommon for customers to lose invoices. Smart contracts – code that execute transactions on a blockchain network by storing all applicable terms and conditions without requiring third-parties – trigger automatic digital invoicing and payments through customers’ banks upon receiving proof of delivery. In doing so, they plug the oft-long gap between customers and suppliers (and protect supplier’s cash flow and bottom line).
  5. Blockchain creates unalterable and undeletable records. As the hash of the previous block in a chain is also stored in every block, it is extremely difficult and futile to attempt altering data on a blockchain. Changing the hashes simultaneously and linking the whole blockchain once again is impossible. That makes blockchain an incorruptible ledger and a vastly better solution than paper records and traditional ledgers. If any participant on the blockchain tries to manipulate the system, the ledger automatically moves out of alignment with the rest of the ecosystem.

Hyperledger Fabric in the supply chain

Hyperledger Fabric supports distributed ledger solutions on permissioned networks where participants’ identities are known. Its modular structure ensures fewer levels of trust and verification, while optimizing performance and scalability.

Hyperledger goes beyond cryptography to secure information by providing data-partitioning capability where only entities that need to be aware of the data can view it. The Fabric architecture also enables companies to plug-in their preferred implementations for components.

Companies are increasingly exploring Hyperledger use cases in supply chain management. Hyperledger distributed ledger technology can track every step in the supply chain, following a product from inception to delivery while ensuring the availability of information and control to network participants.

It introduces greater accountability for the three components of supply chain traceability – end-to-end traceability, product’s physical characteristics and regulatory compliance.

The Hyperledger Fabric architecture enables companies to plug-in their preferred implementations for components.

Blockchain and middleware

So far, we have talked about how ‘the blockchain’ will optimize the cost, efficiency and quality of supply chains.

But blockchain isn’t an application or a web browser; it is its own peer-to-peer network without a central backbone. That means you either have to integrate with blockchain infrastructure or run a blockchain client on your supply chain.

Plugging a layer to supplement your existing ERP is complex and comes with its own set of security and governance requirements. A blockchain creates new events continuously without a central database, requiring you to access, visualize, correlate and act on these events to actually extract the advantages of the technology.

A middleware layer such as Omnitude can overcome these challenges, allowing companies to adopt blockchain quickly and efficiently without needing to replace current systems.

Middleware features include:

  • integration of various data sources in real-time
  • combining different blockchains
  • gateway and API management
  • data discovery to identify patterns in historical data
  • correlating blockchain and non-blockchain events in real-time
  • offering crypto services for high levels of governance and security across the enterprise architecture.

By working in Hyperledger Fabric, Omnitude can help companies bring more transparency and efficiency to their supply chains. For perishable products, blockchain can be leveraged to verify journey from origin to market and provide buyers comprehensive access to the products’ provenance. It can also help companies trace contaminated products to their source quickly and prevent a mass recall. In the automotive supply chain, blockchain offers benefits for inbound plant logistics as well as outbound distribution.

Omnitude offers consulting and discovery sessions to help you understand the potential impact of blockchain for your supply chain. We also build and deploy solutions alongside ongoing development.

Engage our supply chain specialists and retail specialists for comprehensive assistance and support.

Get more info on how blockchain can help your supply chain.

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