Supply chain is riddled with intermediaries, time-consuming payment processing procedures, and inability to trace products. Blockchain is the only sure remedy.
It is impossible to overlook the complications that currently plague the supply chain when considering the possible uses of the blockchain technology. First, there are so many intermediaries in the system that it is almost impossible to trace goods to the initial supplier. Then there is the long wound payment process, which has to involve banks and lawyers.
Lack of direct dealing between the supplier, the client, and service providers has made the supply chain functionally ineffective. Fortunately, there seems to be hope of bringing back sanity to supply chain management, thanks to the development of the blockchain technology.
What makes blockchain a suitable technology?
The blockchain has three features that make it suitable for sorting the current mess in the supply chain.
A distributed ledger: Each block in the chain carries specific information about the ledger. However, the digital ledger does not have central storage. It exists in several copies that are distributed over many volunteer computers over the world.
Tamperproof: Multiple copies of the ledger is stored on the nodes (volunteer computers). Each new record of a new transaction (block) is added to the previous blocks. The ledger is updated accordingly in the nodes. As a result, falsifying information in the system requires changing each of the a-thousand plus ledgers in different nodes.
It is public: The information on the chain is available to all those who have access to the network. However, each person can only adjust a specific part of the edger. Besides, the new blocks carry timestamps showing when they were created, where and if necessary, by whom.
How the blockchain can be used in the supply chain
1. Direct dealing between stakeholders
The blockchain eliminates the use of intermediaries. Consequently, the client, supplier and service providers can deal directly through the network. It will not only reduce the cost of the product on the client’s end but also increase the supplier’s profit margin. It also increases customer satisfaction as well as feedback.
2. Faster supplier payments
The current payment system is tedious, slow, and sometimes unreliable. Intermediaries such as banks and money-transfer service providers are time-consuming. Not to mention the service fees they charge. Some companies have started paying their suppliers directly using bitcoins, which is blockchain’s leading cryptocurrency. Such payments attract lower transaction fees.
3. Product Tracing
Data entered in the blockchain is not only public but also immutable. It makes it possible to trace every product back to the source. Wal-Mart currently uses the technology to track the source, storage, processing, and sale of mutton in China. It will also come in handy in case of a product is recalled as the supplier can trace it to the final buyer.
4. Smart contracts
It is becoming a common term in describing the effectiveness of the blockchain technology. It is because of its outstanding ability to streamline the execution of contract terms. The software works on a contract template considers the inputs and the corresponding events. It then executes these without further involvement of the parties.
There are several examples of the possible uses of the software. One is monitoring the storage conditions of a product. If a specific climatic element such as humidity reaches undesirable levels, all on the blockchain are notified. The smart contract will automatically trigger a corrective action. Another is blocking a phone automatically when a person does not pay their contract fees on the agreed date. It can also trigger payments at the confirmation of delivery. The list is endless.
In spite of the possibilities, blockchain would first have to overcome its challenges regarding currency volatility and regulation. Only then can it be a sustainable solution to the current chaos in the supply chain management.