Chip Off The New Block (Chain)

Chip Off The New Block (Chain)

Does blockchain technology really apply to supply chain management? Can it solve supply chain problems and increase profitability of an organisation? To answer these questions, it is important that we understand what the blockchain technology is, how it is different from current transaction systems, the benefits of blockchain for supply chain and the constraints involved.

Blockchain is an internet-based technology which enables secure, fast and low-cost transactions through public validation, secured record keeping and distributing transactions in immutable and encrypted ledgers. The technology was invented to enable transactions in bitcoin, a digital cryptocurrency that operates independently from a central bank. The blockchain helps provide a platform for creating and distributing the ledger of transactions to all the computers linked in the network. Encrypted transactions and ledgers offer more security than the current banking models, almost instantaneous transfer of data via internet eliminates banks’ two-to-three day clearing process and some block chains offer extremely low transaction costs for any size of transaction. 

Blockchain’s value addition in supply chain

Three major value additions by blockchain to the supply chain are:

Improved Traceability: The real-time, verified, immutable data of the blockchain helps organizations improve their operational efficiency by mapping and visualizing supply chains and providing consumers with the sourcing information of the products they buy. Counterfeiting can be greatly reduced by immutable record-keeping and validation present in the blockchain.

Increased Transparency: The transactions in the blockchain are visible to all the authorized parties in the system and the transactions cannot be modified or tampered with. Real-time information availability and sharing in blockchain enhances corporate governance compliance and enables improved regulatory compliance and reporting.

Increasing efficiency, speed and reducing disruptions: The distributed information mechanism can be used to share real-time authorized data along the supply for better planning, execution and forecasting. This can improve the efficiency of the supply chain end-to-end and will reduce disruptions significantly. These main properties of the blockchain technology are used in cases like vaccine distribution – where blockchain provides traceability in every step to assure manufacturers, hospitals and the public, food supply – where food safety and freshness is assured through traceability and transparency, visibility in oil and gas industry – where blockchain provides transparency to oil and gas supply chain participants for quick response demand spikes.

Constraints in adoption of blockchain for supply chain management

Size of the network: The blockchain technology uses distributed consensus mechanism for validating transactions in the network. The larger the number of participating entities in the network the more secure and accurate is the validation. For cases where the number of trusted parties in the network is small the consensus mechanism may not be completely valid for all transactions.

Absence of Standards: No comprehensive supply chain standards are in place for blockchain solution providers. This leads to problems in solving consensus and choosing the type of encryption.

Data Accuracy: Not all the participants in the supply chain maintain complete data and the amount of data produced in supply chains are huge.

Although blockchain has its constraints, it is a useful tool for addressing the deficiencies in the current supply chain processes There is considerable scope for improvement in the current supply chain in terms of end-to-end traceability, speed of delivery and transparency, and blockchain technology can help in tackling some of these challenges.

Please get in touch with me at aswin.kumar@Lntvalves.com for more details.