In this article, we are going to dive deep into the various components interoperating throughout the supply chain work line. Plus, we’ll look at how integrating blockchain in supply chain management systems in each stage can be advantageous. Also, we will evaluate how an increase in transparency may influence consumer behavior.
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Why Use Blockchain in Supply Chain?
So, why would you want to use blockchain in supply chain management? Further to the attractive public relations (PR) of introducing cutting-edge technology, blockchain can offer a range of benefits. Moreover, including blockchain in supply chain management systems can offer advantages to all the parties involved in the work line.
Advantages of Blockchain Technology
A core feature of blockchain technology is decentralization. The technology itself operates across a global network of computers (or nodes). Nodes work together to secure, validate, and manage the blockchain network. This removes risks that may occur with the centralization of management systems, such as downtime, censorship, and fraudulent behavior. Also, using blockchain in the supply chain allows multiple parties to securely access the same database simultaneously with real-time updates.
All nodes across the network must agree that a transaction is valid prior to confirmation and storage on the blockchain. Moreover, each transaction is cryptographically linked with the previous and prospective transactions. This means that once a piece of information enters the blockchain, no one can remove or alter it. In the highly unlikely chance that this will occur (called a 51% attack), a clear trace will be evident. As such, blockchain in supply chain management systems would ensure that all data available is valid and not the result of malicious or cohesive behavior.
Blockchain technology incorporates a global network of users with the community goal of decentralization, trustlessness, and security. Nodes in the network operate using cryptography, mathematics, and computer science. Accordingly, each transaction is mathematically provable to be valid.
Thanks to the technology’s permissionless, borderless, and public characteristics, blockchain can offer full transparency throughout the supply chain. Accordingly, anyone anywhere can access transaction histories and information through a public block explorer. For different parties involved in a supply chain, this is an invaluable improvement on the current “siloed” permissioned databases.
Benefits For the Supply Chain Industry
In itself, the supply chain industry is an intricate balance of communications and services across a range of different fields. Often, each aspect of the supply chain can operate independently. However, it’s critical for different elements of the supply chain to interact with each other with minimum friction. Below, we will discuss how introducing blockchain in supply chain management systems can benefit the seven primary functional areas of the supply chain industry.
This area of the supply chain is responsible for purchasing relevant goods an organization requires to accomplish its targets. As such, this area includes quality control, management of the inflow and outflow of goods, and maximizing inventory control efficiency.
Blockchain technology could increase the time and cost-efficiency of purchasing new goods. Purchasing departments could drastically increase their inventory management efficiency and a consistent balance of the flow of products backed by cryptographic algorithms. For example, a business could generate an algorithm using smart contracts and internet of things (IoT) devices to alert when the inventory reaches a certain level. Also, this could incorporate a “backup plan” to automatically trigger an order following a further “x” amount of sales if another order had not yet been placed. Or, it could trigger new orders of products after an abnormally large order.
In addition, the transparency of blockchain means that multiple parties within the purchasing team can securely access the same database of information simultaneously. Plus, this database can seamlessly interoperate with the rest of the supply chain work line, thanks to blockchain technology.
The manufacturing stage includes the development and production of stock, transforming raw materials into finished goods for sale or use. Typically, manufacturing involves a combination of labor and tools or machines. The physical manufacturing process ranges depending upon the services or stock in production.
Introducing blockchain into the manufacturing element of the supply chain offers a more secure, reliable, and accessible database for managing the movement and development of goods in produce. Moreover, this makes communicating with other departments such as purchasing (for raw materials), transportation (dispatch management), and customer service (for product feedback) easier than ever before.
This element of the supply chain presents a difficult balance, ideally optimized through technology. Inventory management involves ensuring that there is enough of each product available to facilitate a frictionless sales experience for customers at minimum cost to the business. As such, inventory management involves accounting for holiday seasons, popular-selling items, and low-selling stock.
Blockchain in supply chain inventory management systems offers full transparency for multiple people within the inventory to communicate clearly. Plus, all information is immutable and, with the inclusion of internet of things (IoT) sensors, can automatically update the database with each item sold. In addition to this, blockchain will enable full communication interoperability and transparency of other parties involved in the supply chain.
Demand planning is a process of projecting the demand of products and then ensuring that the execution of this demand is possible and met. Often, demand planning involves looking at previous sales statistics and the success of inventory management.
As already mentioned, blockchain technology can facilitate smart contracts to automatically trigger orders for stock upon reaching a certain level. Moreover, using a combination of blockchain and artificial intelligence (AI), computers could accurately predict when to place a big order of an item if it’s suddenly popular across social media. Conversely, an algorithm could stop purchasing a particular item if it appears to be causing online social unrest.
Most supply chains involve a warehousing process at some stage along the line. Warehousing can sometimes be seen as an interim step and can prove to be of great convenience to businesses. With this said, unless the warehouse is run optimally, it can also lead to significant financial losses through “lost” stock. The general routine of processing goods in a warehouse begins with the receipt and identification of an item. Then, it is often inspected and verified before being put into storage prior to retrieval upon sale.
There are several different ways blockchain in supply chain warehousing can be of benefit. First, businesses could use internet of things (IoT) devices and non-fungible tokens (NFTs) to identify and locate items within a warehouse. This would drastically reduce the amount of lost inventory. Also, blockchain makes accounting a really simple and easy process since all necessary information is available on the blockchain.
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Another broad field of the supply chain industry is transportation, as this can apply to various vehicle types, business infrastructures, and operations. Moreover, this could apply to the transportation of goods, animals, or people. Transportation is one of the most vital elements within a supply chain. It could be facilitating the final step of the customer journey taking the product to a customer’s front door. Alternatively, transportation could apply to the movement of goods from the manufacturer to the warehouse.
Blockchain technology and smart contracts can play a massive part in ensuring the quality control of goods in transit. For example, IoT sensors could monitor the temperature of goods. If the temperature fell below optimum en route and the goods became spoiled, this would be registered on the blockchain as it happens. In addition, this could trigger a smart contract to automatically void the current order and place another immediately alongside alerting the relevant parties. As such, a spoiled order of goods can be recognized and replaced before it even has arrived at its destination. Moreover, with the immutability and transparency of GPS tracking, the locations through which goods have traveled cannot be falsified.
The final stage of a supply chain work line is the customer service department. Customer service interacts directly with customers and is responsible for ensuring complete satisfaction throughout the customers’ journeys. The customer service team will frequently take customer feedback alongside carrying out a transaction for the customer. This could involve either making a sale or making a return.
Customer service departments often need to communicate with other teams in the supply chain to answer questions or resolve complaints about the service or goods. As such, using blockchain in supply chain management systems would allow for more transparency in the lifespan of a product. In addition, blockchain can aid in frictionless communication between departments. Moreover, all calls or emails that come through to a customer service department will be immutably stored on the blockchain. This provides proof with timestamps of how frequently a customer has contacted the department. Accordingly, it would be far more difficult for email or digital correspondence to get “lost” or go missing.
Overall, if the end customer is happy, they are far more likely to return and make a purchase, impacting the entire supply chain. Furthermore, a good customer service department will ideally make the customers want to return, even if there has been an issue or mistake. Using blockchain in supply chain management systems will drastically increase communication between departments and time efficiency for resolving any issues for customers.
How Will Blockchain Transparency Change Consumer Behavior?
As many consumers become more eco-conscious and aware of exploitative corporations, integrating blockchain in supply chains drastically aids in operational transparency. As such, this may present a change in the overall consumer market behavior.
For example, clothing tags on items could display a QR code that could inform the consumer:
- The origin of the raw materials used in the garment.
- The factory in which the garment was made (and local working conditions).
- Carbon footprint impact: precise GPS-tracked milage that the item has traveled prior to receipt with the customer.
In addition, with users able to register each garment on the blockchain as a non-fungible token (NFT), this offers cryptographic proof of true authenticity. Moreover, as this becomes the norm, consumers will begin to lose trust in the companies that are unwilling to be transparent about their product life cycles.
Blockchain is an adaptable technology that can even benefit the car and automotive industry. When purchasing a new car, consumers would be able to view the different factories and locations for each part of the car. Also, using blockchain in supply chain systems for cars could display precise carbon tracking, showing consumers their CO2 impact with a particular vehicle.
The immutability of blockchain means that as data gets entered using IoT devices during testing, car companies cannot lie about testing results. This would ameliorate situations such as Volkswagen advising incorrect data surrounding carbon impacts to consumers. Moreover, when purchasing a second-hand car, blockchain in supply chain management systems would offer reliable and valid data about the prior use and ownership of a vehicle.
In the food industry, blockchain in supply chain systems can offer consumers the reassurance of the quality control made of food throughout the process from farm or factory to plate. In addition, butchers could sell meat with a QR code that would advise consumers of the GPS location of the farm an animal was raised. It could potentially include animals’ biometric data throughout its life, clearly advising consumers of the life and conditions of an animal before slaughter. In turn, consumers may prefer to buy meat and animal products that are verifiably free-range and have had a good life. Also, blockchain in food supply chains will advise consumers of meat from battery farms and poor living standards, who may then subsequently choose to abstain from purchasing such goods.
Exploring Blockchain in the Supply Chain Industry – Summary
Introducing blockchain in supply chain management systems would benefit all parties and users of services within the supply chain work line. This includes everything from purchasing and manufacturing to warehousing and customer service. Plus, using blockchain technology in the supply chain industry would largely benefit the end consumers. Blockchain makes every financial transaction and movement of goods fully transparent and secure for anyone to see. Thus, blockchain in supply chain management systems increases both cost and time efficiency.
Also, integrating this cutting-edge technology may influence a change in consumer market behavior. This is due to this increase in transparency of the life-cycle of products that can affect consumers’ purchasing decisions. Further, each item can be tokenized as non-fungible tokens (NFTs) using blockchain that would ensure public ownership and authenticity. Retailers could operate their own decentralized applications (dApps) for consumers to verify and register their items. To discover more about NFTs and dApps, check out our “What are NFTs?” and “What are dApps?” articles next! Or, see our “Bitcoin ETF Explained” article to see how to gain price exposure to Bitcoin without the need for investing in cryptocurrency! However, if you would like an industry expert-led video guide on creating an exchange account, see our Crypto for Beginners course! Check out the leading online blockchain and Web3 development education suite, Moralis Academy, today!