Blockchain is one of the key innovative technologies revolutionizing digital supply chain management. As supply chains become more complex, involving various stakeholders and relying primarily on a number of external intermediaries, Blockchain has emerged as a strong competitor to unravel all the exchanges of data, documents, communications that occur within the supply chain ecosystem.
Let us recall the four most distinctive features of Blockchain that make it highly applicable for supply chain managers:
Transparent and controlled transactions. Blockchain has no intermediaries (for example, a bank). Results in faster and more transparent settlements as the ledger is automatically updated. Payment terms can be automatically pre-programmed, including the visibility of a transaction, so that it can only be seen by authorized participants.
Pre-approved transaction fees. When making cross-border payments with Swift, the transaction fee is deducted only after the completion of the transaction or, to be more exact, going through a whole number of intermediary banks that have been executing this transaction. In the case of Blockchain, know the fees in advance.
Auditability. All transactions are immediately visible to authorized parties, which means that no one can alter, delete or hide the information added to the blockchain.
Trustworthy. Due to its distributed nature, Blockchain does not have a single point of failure. Additionally, all transactions processed on the blockchain are immutable and irrevocable, further eliminating fraud risks.
While Blockchain supply chain use cases are still emerging, several successful pilots suggest that managers can reap huge benefits from Blockchain, ranging from cost savings and increased efficiencies to new operating models, specifically in the following supply chain management areas:
Improved provenance and traceability
Payments and digital contracts
Blockchain can act as a “single source of truth” for all entities (subsidiaries, partners, etc.) that make purchases on their behalf and negotiate different terms with suppliers. A Blockchain-based database can store relevant data from all of its partners, giving your company a 360 view of total purchase volume, regardless of who managed the purchase activity. It will not be necessary for individual users to constantly share operational data for someone else to verify it; audits will be performed automatically, eliminating resource-intensive processes such as additional price verification.
Here is a quick example to illustrate this further. Your organization wants to negotiate a procurement agreement based on the total volume of the ecosystem, a figure that includes purchase data from both you and your partners. Storing data in a Blockchain-based system means you can effortlessly calculate the exact volume discount based on the total purchase and prove mathematically that it is correct. The best part? You can do this without revealing the individual volumes of each company.
In addition, Blockchain technology can have a significant impact on almost all elements of the complex Procure-to-Pay (PTP) process.
The food supply chain is likely to be the first to suffer a major blockchain, especially when it comes to the distribution of fresh produce. Market withdrawals have been a major and costly problem of industry for years. Thus, several major outbreaks of foodborne bacteria, which have recently occurred in the U.S.. are encouraging more and more companies to consider Blockchain as a new method to increase the visibility and traceability of products.
Consumers are also putting pressure on businesses to provide more information on the provenance, authenticity and "shelf life of products before they reach the shelves". Most consumers are willing to pay more for products that are sustainable and ethically manufactured. According to Nielsen, 49% of buyers will pay more for products that have the highest quality/safety standards.
Walmart is a pioneer in this domain, partnering with IBM since 2016 in a Blockchain-based traceability solution that would apply across the company's food supply chain. The tested system allowed the retailer to track incoming food supplies from the “farm to store” almost in real time. In addition to increased visibility, the company also explores how Blockchain technology can be extended to monitor and control the spread of foodborne diseases and help minimize costly withdrawals. In 2019, the food chain giant was planning to implement its Blockchain-backed traceability program, mandatory for all lettuce growers.
Other companies are exploring how Blockchain can be used to certify the origin and routes of goods sold and provide data on their authenticity. For example, OriginTrail in partnership with TagItSmart has recently tested the IoT and Blockchain combo to prevent wine fraud.
In China, nearly 30,000 counterfeit bottles of wine are sold every hour. Some of them contain dangerous additives which can cause serious health problems among consumers. The companies' Blockchain-based protocol allows each bottle of wine to be traced from the vineyard to the shops. Its anti-counterfeiting technology, which uses photochromic ink along with unique QR codes, helps verify the provenance and authenticity of each bottle.
As early pilots show, managing Blockchain and the supply chain can be a powerful combination. So much so that, in the next six years, 20% of the world's top 10 supermarkets will adopt Blockchain for food safety and traceability to increase their visibility of production, quality and freshness.
Beyond the food industry, other traceability-based Blockchain projects are also catching up:
IBM has ongoing collaborations with various leaders in the gold and diamond industry (Asahi Refining, Helzberg Diamonds and others), helping them create new solutions to track and authenticate their products with Blockchain throughout the supply chain. The startup Everledger is trying to do the same.
LVMH Conglomerate plans to launch a crypto-provenced Microsoft blockchain platform for its portfolio of 60+ luxury brands.
UPS has a pending patent application, which describes a Blockchain-based solution for planning and tracking package routes globally, across multiple carriers.
Even the most successful businesses have to deal with days of sales outstanding (or even payment upon receipt).
This problem is due in part to the fact that current billing processes are largely inefficient. Most invoice processing is still done manually by teams on both sides, with companies typically spending between €5 and €25 per invoice.
Smart contracts designed on blockchain can automate the billing process and "patch" costly gaps between purchase and payment. Payment terms can be encrypted and cash can be obtained immediately after the transaction has been executed and proof of delivery has been provided by a logistics company.
Smart contracts in supply chain management can help reduce data redundancy between trading partners and eliminate costly errors. For example, if a supplier submits a duplicate invoice, the Blockchain-based system will analyze all elements of the contract: contract terms, blanket purchase orders, or existing invoices. If the processes "don't finish", the system will reject the invoice and return it to the seller for further verification.
In essence, smart contracts on the Blockchain act as an independent third party, reviewing all aspects and clauses of the contract, and only accepting inputs that match all pre-programmed values. This means no errors, questionable or "lost" invoices can be entered into your records.
In summary, smart contracts can:
The logistics industry still relies on a lot of paper documents, especially when it comes to the customs process. This greatly reduces the visibility companies have into the status of shipments as they travel through the supply chain. Blockchain can do several things to solve this problem:
In particular, the shipping industry stands to benefit greatly from Blockchain adoption. Specifically, it can improve all commercial documentation and administrative processing of ocean freight shipments. Today, a sample of refrigerated products from East Africa to Europe can pass through almost 30 people and organizations, with more than 200 different interactions and communications between these parties. A Blockchain-based system can effectively replace current means of communication, acting as a "single source of truth". All entities will be able to seamlessly add the necessary data, resulting in less delays and greater visibility.
In 2018, IBM launched TradeLens, a Blockchain initiative with 94 participants including CEVA Logistics freight forwarder, Pacific International Lines (PIL) ocean carrier, and a network of 20 port and terminal operators spanning 234 maritime gangways. Together, they are testing how Blockchain can be used to reduce delays and minimize freight documentation errors. An early pilot test showed that the transit time of a product shipped to the US . could be reduced up to 40%.
Alibaba subsidiary logistics company Lynx International is actively exploring another Blockchain use case, tackling cross-border logistics processes. The company's new Blockchain-based system now stores and operates all important information about imported shipments, including details about production, transportation methods, customs, and third-party verification. So far, more than 30,000 imported products have been successfully registered in the system.
IoT and Blockchain are possibly the most promising business opportunities in supply chain management, as stated by 63% of SAP respondents. Both technologies combined offer several important benefits for the supply chain in the manufacturing industry:
Producers, responsible for transforming raw materials into final products, can achieve greater control over incoming flows from suppliers, automate compliance to some extent, and gain better control over production.
Freight forwarders can automatically ensure products are transported in the right conditions, as IoT sensors can be programmed to capture data on temperature, humidity levels, etc., during transport. They can also achieve better visibility into overall logistics.
IItaca Technologies Iberia, as part of the IBM Blockchain Platform, can help you in the design, development, start-up and maintenance of your solutions in Industry. We are delighted to help. We look forward to your contact.