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Blockchain in Supply Chain: Values, Benefits and Challenges

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07th Sep, 2023
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    Blockchain in Supply Chain: Values, Benefits and Challenges

    To manage the supply chain more efficiently, parties can keep track of price, date, location, quality, certification, and other pertinent information using a blockchain in supply chain management. The availability of this data within blockchain can improve visibility and compliance over outsourced contract manufacturing, increase traceability of the material supply chain, reduce losses from gray market and counterfeit products, and possibly strengthen an organization's position as a pioneer in ethical manufacturing. 

    Supply chain partners may find it easier to overcome some of their difficulties if they have a complete, transparent, and tamper-proof history of the information flows, inventory flows, and money flows in transactions created by blockchain, the digital record-keeping system designed for cryptocurrency networks. To get certified in Blockchain, you must opt for Blockchain technology certification course. 

    Understanding Blockchain Technology

    Blockchain is an internet-based technology coveted for its capacity to disseminate transactions in immutable, encrypted ledgers and publicly validate, record, and distribute transactions. The system was developed to allow bitcoin transactions, a digital currency that runs without the help of a central bank.  

    Fundamentally, blockchain for supply chain management offers a platform for building and disseminating the ledger, or record, of each bitcoin transaction to thousands, if not millions, of computers connected to networks throughout the globe. 

    Blockchain supply chain technology promises more security than the banking paradigm due to the encryption of transactions and ledgers. Its immediate transmission via the internet eliminates banks' two- to three-day clearing process and associated fees for transferring money from one account to another. 

    Value of Blockchain in Supply Chains 

    Most of the time, supply chains function at scale without using blockchain technology. Nevertheless, the supply chain and IT industries are buzzing about technology. It has also sparked numerous publications and spurred both well-known IT companies and up-and-coming ones to launch fruitful pilot projects, including: 

    • To authenticate transactions and test the precision and effectiveness of record-keeping, Walmart used an application that tracks pork in China and produces in the US. 
    • Working together to improve process efficiency, Maersk and IBM are developing cross-border, cross-party transactions. 
    • For managing samples internally and externally from various vendors, BHP is launching a blockchain solution that will take the place of spreadsheets.

    3 Areas of Value Addition

    We examined three potential areas of value addition for blockchain and supply chain management industry: 

    1. Replacing Labor-intensive, Manual Operations  

    Although big, complicated data sets can already be handled by supply chains, many of their procedures, particularly those in the lowest supply tiers, are slow and only rely on paper—such as is still frequently the case in the shipping industry. 

    2. Improving Traceability 

    Change is already being fueled by rising consumer and regulatory demand for provenance information. Additionally, increasing traceability offers value by reducing the high costs of quality issues, such as recalls, reputational harm, or the loss of sales from products sold on the black or grey markets. A complicated supplier base can be made simpler to increase potential for value generation. 

    3. Lowering IT Transaction Costs in Supply Chain 

    This benefit is currently more theoretical than practical. In addition to requiring those who propose a new block to include a fee in their request, Bitcoin pays users to validate each block or transaction. Given the enormous scale of supply chains, such a fee would probably be unaffordable. For instance, simply to its tier-one suppliers, a single vehicle manufacturer would routinely issue 10 billion call-offs during the course of a 90-day period. Certified Blockchain professional salary is greater than any other domain in the present scenario. 

    Benefits of Blockchain in Supply Chain Management 

    1. Increased Supply Chain Transparency 

    The fact that more customers want to contribute to the process is increasing the importance.  

    Consumers in this survey liked learning about how workers were treated across a product's supply chain and the seller's attempts to enhance working conditions. This expanding group of savvy consumers is interested in learning about the materials and substances used to make items and their origins. 

    The reputational risk for firms from media and NGO campaigns has grown along with these expectations. Numerous scandals over the past ten years have seriously harmed the reputations of businesses. 

    Additionally, transparent supply chains lower risk to the company's brand and strengthen its reputation as a reliable business. Bringing in and keeping workers eager to work for ethical businesses is the third advantage. Due in part to their reputations as ethical businesses, Patagonia and Nike receive extremely high applicant rates and very little staff turnover. Patagonia points to their annual employee turnover rate of under 4%. 

    2. Enhancing Traceability 

    Pharmaceutical firms are required by the U.S. Drug Supply Chain Security Act of 2013 to identify and trace prescription pharmaceuticals to safeguard consumers from fake, stolen, or dangerous goods. A significant pharmaceutical business in our study is working with its supply chain partners to embrace blockchain because of that obligation.  

    Electronic product IDs that correspond to GS1 standards are used to identify drug inventory. Each inventory item is scanned and recorded on the blockchain as it moves from one company to the next, producing a history of each product from its origin to the final consumer. 

    The information exchange required by these applications is minimal: It is not necessary for purchase orders, invoices, and payments to be stored on the same blockchain. As a result, businesses that are hesitant to provide information about their rivals are more open to using the platform. 

    The blockchain enables a company and its supply chain partners to trace a product in the event that it is found to be defective, identify all suppliers involved, identify the production and shipment batches connected to it, and recall it quickly.  

    The blockchain enables participating organizations to continuously check product conditions if something is perishable, as fresh fruit and some medications are: Any dangerous temperature swings can be recorded on the blockchain by a refrigerator that has an internet of things (IoT) device to monitor the temperature. 

    3. Increasing Efficiency and Speed and Reducing Disruptions 

    The sharing of inventory flows on a blockchain by participating organizations is a more workable option that enables each company to make independent judgments based on complete, shared data. A Kanban system would be used by businesses to control production and place orders with one another.  

    The created things would be given Kanban cards, and the blockchain would store digital tokens that represented the Kanban cards. This would improve the visibility of inventory flows between businesses and increase the predictability of lead times. 

    The fact that these applications, like those for increasing traceability, only require participating organizations to share limited data—in this case, just inventory or shipment data—is part of the appeal of utilizing blockchain to improve supply chain efficiency and speed. 

    Furthermore, even in huge firms with numerous ERP systems, these apps are beneficial. 

    4. Improving Financing, Contracting, and International Transactions 

    A blockchain helps businesses to settle purchase orders, invoices, and payments considerably more efficiently as well as track the status of a transaction with counterparties by connecting inventory, information, and financial flows and sharing them with all parties involved in the transaction. When a supplier receives an order, a bank with access to the blockchain can give the supplier working capital right away, and when the customer receives their order, the bank can quickly get paid. Conflicts between the bank and the borrowing company are eliminated since an audit trail is easily accessible and reconciliations can be performed using intelligent applications that rely on blockchain data. 

    5. Streamlined Supplier Onboarding 

    Our day is one of unending change and development is now measured in weeks and months rather than years. Every cutting-edge company has a procurement department at its center, working behind the scenes to ensure smooth business operations. However, the process of authenticating and onboarding new suppliers is a severe pain point for almost any business that buys or sells goods and services, and it is fraught with inefficiencies and even fraud.  

    In many businesses, onboarding a new supplier might take up to 30 days, and getting a vendor paid can take just as long.  

    Problems with Blockchain in Supply Chain

    1. Ensuring Data Quality

    What sets the blockchain apart from other data processing platforms is the immutability of the data. However, supply chains are full of data that has been manually input by individuals, and humans are prone to error. Additionally, compared to non-blockchain applications, it may be more difficult to repair erroneously entered data when using a blockchain. 

    Every data-related action is treated as a transaction on a blockchain. Data on a blockchain can only be updated; it cannot be corrected traditionally. The number of transactions and resources required to handle them increases directly to the number of updates you make. 

    2. Granting Data Access to the Right People 

    Granularly granting data access privileges is one method of addressing the prior issue. It is crucial to share your crucial data with the appropriate parties and under the appropriate circumstances to prevent data leaks and monetary losses. 

    Establish several data confidentiality levels to ensure that no unauthorized individuals, including your third parties, can access any information they shouldn't. Additionally, you can decide on a set of roles and their corresponding access privileges, then assign roles to each user who will interact with your supply chain management system. 

    3. Ensuring Smooth Integration of a Blockchain-Powered Solution 

    First, not all applications and third-party systems support blockchain technology. The architecture of your solution, including all the APIs, containers, and microservices you employ, must be carefully planned. Additionally, give data security, both in transit and at rest, considerable consideration. 

    Second, it's probable that not all of your suppliers, partners, and clients will accept to use of your platform if it uses blockchain technology. Regarding the utilization of a shared environment, they can have a variety of worries, ranging from data security concerns to system integration overhead. 

    Fact Checks Before Adopting Blockchain in Supply Chain 

    Blockchain technology can provide trust, transparency, and traceability to supply chains where the players are unknown or unreliable. These supply chains work in a regulated environment that necessitates a higher level of traceability, and they are complex almost by definition. 

    However, a centralized database strategy is typically more than suitable for supply chains with well-known and reliable actors. This does not imply that all of these supply chains currently use an actual end-to-end methodology; in fact, many of them make use of compartmentalized databases with scantly traceable data. As a result, many of these supply chains can utilize current technologies that are better suited to handle their high volume of transactions, either independently or in partnership. 

    Many businesses are investigating the advantages of utilizing blockchain technology in related fields, like the introduction of smart contracts, tightening up the payment process for purchase orders, or demand chains where "real demand" signals can spread more quickly along the upstream supply chain. While we applaud the strength and the potential of blockchain technology, we advise the supply-chain community to carefully compare it to other, perhaps more suitable and less expensive solutions. 

    Conclusion

    Supply chains can be significantly improved in terms of coordination, end-to-end traceability, speed of product delivery, and finance. As the businesses we looked at have demonstrated, blockchain can be an effective solution for fixing flaws. The time has come for supply chain managers who have been watching from the side lines to evaluate blockchain's possibilities for their companies.  

    They must participate in efforts to create new regulations, test out new technology, run trials with multiple blockchain platforms, and create an ecosystem with other businesses. While resources must be committed, this investment should yield a healthy return. You can opt for KnowledgeHut Blockchain technology certification  to understand the basics of blockchains and receive certification. 

    Frequently Asked Questions (FAQs)

    1What is Blockchain in the supply chain?

    Blockchain possibly reduces communication or data transfer errors by giving all participants in a given supply chain access to the same information. More time can be spent on delivering goods and services, either by increasing quality or decreasing cost, or by doing both, rather than spending more time validating data. 

    2How does blockchain improve supply chain? 

    By enabling quicker and more economical product delivery, strengthening product traceability, enhancing partner coordination, and facilitating access to funding, blockchain can significantly enhance supply chains. 

    3How do FedEx and DHL use blockchain and how?

    FedEx and DHL executives made the unprecedented decision to share a stage and reached an understanding regarding how blockchain technology can change the global supply chain. 

    Profile

    Dr. Manish Kumar Jain

    International Corporate Trainer

    Dr. Manish Kumar Jain is an accomplished author, international corporate trainer, and technical consultant with 20+ years of industry experience. He specializes in cutting-edge technologies such as ChatGPT, OpenAI, generative AI, prompt engineering, Industry 4.0, web 3.0, blockchain, RPA, IoT, ML, data science, big data, AI, cloud computing, Hadoop, and deep learning. With expertise in fintech, IIoT, and blockchain, he possesses in-depth knowledge of diverse sectors including finance, aerospace, retail, logistics, energy, banking, telecom, healthcare, manufacturing, education, and oil and gas. Holding a PhD in deep learning and image processing, Dr. Jain's extensive certifications and professional achievements demonstrate his commitment to delivering exceptional training and consultancy services globally while staying at the forefront of technology.

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