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How Blockchain is Changing Supply Chain Management

How Blockchain is Changing Supply Chain Management

The impact of blockchain technology on supply chain management Many companies are facing challenges in the course of Digital Transformation. Established business processes must be critically scrutinized and adapted to changing requirements. Supply chain management also has to face this change. Modern technologies such as Robotic Process Automation help with optimization. Nevertheless, supply chains are

The impact of blockchain technology on supply chain management

Many companies are facing challenges in the course of Digital Transformation. Established business processes must be critically scrutinized and adapted to changing requirements. Supply chain management also has to face this change. Modern technologies such as Robotic Process Automation help with optimization. Nevertheless, supply chains are characterized by a high degree of opacity. Blockchain technology presents itself as the solution to this challenge, contributing to a fundamental change in the entire supply chain and supporting companies with digital change.

Supply Chain Process Management

  1. Management
  2. Analysis
  3. Logistic
  4. Time To Market
  5. Plan
  6. Distribution
  7. Procurement
  8. Profit

How blockchain technology works

The blockchain technology, which belongs to the distributed ledger technologies, is a decentralized register. All transactions are stored in this register and verified using a consensus mechanism. All completed transactions can be found in the corresponding blockchain and can be viewed by the participants. By generating blocks, technology also guarantees a high level of security. Each generated block contains a certain number of transactions.

By generating the block, the distributed network also generates a so-called nonce. This is a unique value that contains the result of the block. If the data in the block is changed, the nonce also changes. However, the lining up of the blocks ensures that the new blocks contain this unique value so that subsequent changes to the data or manipulation can be traced for the entire network. In addition, this technology enables the participants in the network to carry out transactions.

What advantages does the technology offer in logistics?

In addition to the basic advantages, the blockchain also offers specific advantages in supply chain management. Due to the distributed nature of this network, all participants always have the opportunity to understand the status of a transaction. Accordingly, technology creates another level in the use of the Internet. In the past there was communication first, followed by an interaction. The distributed ledger technologies (DLT), however, now open up a level in which contractual partners can easily and directly carry out transactions due to the distributed structure of the technology. The security is continuously given for all contractual partners.

As a result, with the use of this new technology, there is no need for an intermediary who traditionally acts as a central broker. The use of blockchain-specific smart contracts also enables further automation of transactions. Accordingly, the cooperation partners have the opportunity to automate complete business processes with the help of the technology. However, these technological advantages can only be realized if those involved also have an opportunity to interact.

The blockchain as a central element for digitizing the supply chain

Audit security is also an important property of blockchain technology. In addition to transparency, this represents the most important advantage and is also one of the greatest distinguishing features of classic track and trace systems. Furthermore, all network participants have the option of enriching the data provided with further information and thus realizing new sales potential.

In addition, the revision security contributes to the fact that in the future complete business processes can be automated with the help of the DLT, which today are characterized by a high manual effort. Accordingly, the invoice processing could be carried out automatically in the course of the delivery confirmation. Alternatively, smart contracts can be used as intelligent contracts for automatically issued guarantees across multiple companies.

Especially in logistics, blockchain technology enables the digitization of freight documents, the automatic clearance of customs goods, or digital proof of transfer of liability. The possibilities are manifold, but the acceptance of this technology by market participants is a prerequisite for a successful implementation.

The prerequisite for the successful introduction of the blockchain

Basically, however, the question arises as to how the blockchain can be implemented in today’s supply chain. According to industry experts, the benefits of the technology are very promising. However, technology must also be implemented in order to realize these advantages. A trusted network is required for a successful implementation. The contractual partner must also ensure that the process changes and implementation are financed. Especially companies that are at the beginning of the supply chain cannot achieve any particularly large, immediately realizable advantages. Nonetheless, the introduction of DLT must start at this point. In addition, the participants in the network must also agree to provide data and contracts for the products. For this reason, a step-by-step introduction of the blockchain in supply chain management is advisable.

As a first step, experts recommend implementing an internal blockchain database. Above all, this lays the foundation for the further introduction and familiarizes those involved with the new technology. The introduced solution can then be extended to the upstream and downstream partners in the supply chain. This approach can promote trust among partners and stimulate the exchange of data. The last step is a holistic introduction of the technology that extends to the end-user. This benefits from the high degree of transparency, more efficient processes, and the associated cost reductions.

Examples of the successful implementation of blockchain systems

At the current time, the distributed ledger technologies are not yet enjoying market-wide acceptance. However, more and more companies are focusing on this possibility of process optimization. In the following, we present some successful blockchain projects in supply chain management.

IBM Food Trust – Blockchain for the food supply

Food Trust is a DLT solution from the US technology group IBM. The main focus of this system is on the supply chain in the food sector. This supply chain is characterized by a high degree of complexity because the food goes a long way from the farm to the end consumer. Numerous companies and individuals are involved in these transactions.

With Food Trust, IBM creates a new level of transparency and accountability in the food supply chain. In addition to improved transparency through automated processes, this blockchain system also creates trust among the participants. Especially, end-users are given the opportunity to trace a product back to its origin and check the growing conditions. In addition, there is a new standard in the security conditions of the market. If the tracing of a contaminated product took several days in the past, this decentralized database enables direct identification of the origin and thus quick problem-solving.

Blockchain in the Primary Sector

The primary sector also benefits from the potential of blockchain technology. The use of technology can contribute to fair working conditions when mining raw materials. In particular, the mining of relevant raw materials such as cobalt is the focus of this business model. Accordingly, manufacturing industries rely on DLT solutions to promote fair and sustainable mining methods. This approach can be observed in various industries. Food manufacturers also rely on the blockchain to prevent unfair production conditions when mining food or coffee.

Blockchain in the Energy Sector

The energy transition in particular poses challenges for companies and households. At the current level, market participants only have the option of drawing energy from the power grid and paying for their own consumption. But here, too, the supply chain is facing a fundamental change, because intelligent power grids have the potential to revolutionize the market. The use of technology makes intermediaries obsolete. Instead, households can use intelligent systems to trade with their available resources and thus provide energy when needed. For the market, there is maximum transparency and efficiency.

Conclusion

Even if technologies such as artificial intelligence, RPA, or machine learning are currently changing the everyday life of companies, blockchain technology is already emerging as the next key technology of digital transformation. Above all in the supply chain, there are many possible uses. These can effectively transform the market and sustainably increase transparency, security, and efficiency. Companies are already researching the possible uses of the technology and are successfully completing test phases. For the sustainable breakthrough of the technology, however, an adaptation in the entire supply chain is required.

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