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BLOCKCHAIN IN SUPPLY CHAIN & LOGISTICS

by Marina Ozhohanych

As consumers gain more and more new options to control the quality of their product from manufacturing to delivery to point of sale, the demand for this kind of hands-on approach continues to grow. Considering the complexity of supply chain management — with hundreds of locations, tons of invoices between parties and dozens of people involved — it’s very difficult to maintain high quality and eliminate human errors.

The lingering problem here is a lack of transparency between buyers and manufacturers. There is still a lot of miscommunication between vendors and suppliers, as well as difficulties in tracing each stage of deliveries. Luckily, blockchain technology is here to help solve this challenge.

Blockchain can keep records of the communications between everyone involved in the delivery process so that each action is easier to track, payments are more secure, and forged data can be flagged along the way.

However, in order to use blockchain technology wisely, you need to know what technology can and can’t do and which strategy to choose to really improve the quality of supply chain management.

Main reasons for the rise of blockchain in the supply chain

Due to all the hype blockchain has generated in cryptocurrency, many still assume this is its only application. In fact, there are few ways in which blockchain can improve supply chain management.

  • Fraud detection. With blockchain, supply chain processes are harder to tamper with. This happens due to the fact that records can be validated only with the consensus of all the participants. Moreover, on the blockchain, it’s easier to trace any record back to its original version and restore it.
  • Improves payment and transaction security. Thanks to the decentralized nature of blockchain, it’s easier to issue money transfers with no risk of fraud or error. Not only that, but the technology is capable of issuing payments automatically as soon as the buyer has met all the criteria demanded by the consumer. This certainly makes payment and invoice management faster and more precise.
  • Enables transparent freight capacity tracking. The rising demand for same-day deliveries makes traditional tracking systems no longer efficient. Blockchain provides a way to identify and track a vehicle autonomously. An experiment performed by IBM showed that a container of flowers, transported through four countries, had to go through over 200 separate communications. Thanks to blockchain, the number of interactions a container or a vehicle has to go through can be easier to trick as well as decrease. 
  • Monitors deliveries, pickups, and other types of performance. Blockchain enables controlling the status and the performance of delivery via smart contracts. Projects like Sawtooth-based use blockchain application development to determine the storage quality and the origin of seafood. 

Blockchain in logistics and supply: challenges

Considering all of the possible advantages blockchain technology can provide for supply management, let’s take a look at the roadblocks that hinder the pace of technology adoption. Here are the main challenges managers might deal with while adopting blockchain in the industry:

  • Lack of industry support. While blockchain is quickly getting traction, it still lacks common standards and practice. When logistics and supply chain management businesses start exploring the technology, they are discouraged by the lack of common framework.
  • Limited understanding of blockchain and its applications. One of blockchain’s biggest issues is that a fair share of executives lack basic understanding as to what blockchain is and is not, confusing it either with IoT or with artificial intelligence. Thus, when the technology doesn’t deliver goals it simply wasn’t wired to meet, it gets a lot of badmouthing and keeps businesses from exploring its applications.
  • Few off-the-shelf solutions; huge reliance on custom products. While the number of companies sold on blockchain steadily grows, many rely on technology mostly for performing specific tasks with a short-term impact. As a result, there’s a relatively low demand for a set of universally used off-the-shelf solutions. While custom tools tend to have a better array of features and payoff in the long run, those who are looking forward to quickly exploring the technology without having to invest in development don’t get a sneak peek into blockchain because of the lack of ready-to-go products. The good news is, tech frontrunners, such as IBM, are getting businesses interested in the technology by launching blockchain platforms designed to transform the food industry (the company’s FoodTrust platform controls supply changes on all stages), trading (with TradeLens), banking (We.trade), and so on. The “MAERSK-IBM” partnership was not without its challenges – it even started a rivalry in the market as TradeLens became threatened by GSBN blockchain. It looks, however, as the big players across various industries have started noticing the impact of blockchain. In the nearest future, businesses could see big brands creating blockchain-based platforms for SMEs (it seems, Intel is already on the move).
  • Poor data quality. Another challenge blockchain supply chain faces is that it’s hugely reliant on data input and the people gathering data. For instance, if a food supplier needs to track the product, he might need its parameters — weight, etc. If a person writing the data input has accidentally or purposefully misplaced a value, the output will be just as misleading.

How to successfully overcome these challenges

While adopting blockchain in logistics comes at its own stakes, there are several ways for businesses to overcome these risks:

  • Advocate for governmental regulations. The oversight of the use of technology, a set of guidelines for developers to follow will make the industry more business-faced and secure.
  • Create and join communities for blockchain in supply chains. Community building is key to spreading technology. By uniting supply chain managers, you’ll make the potential challenges in blockchain adoption more manageable.
  • Share knowledge. Investors and business managers still treat blockchain as an unreliable trend or a bubble that’s about to burst. By sharing knowledge on the applications of the technology, you can increase the level of trust in the blockchain.
  • Create a long-term plan for blockchain adoption. Redesigning current workflows within the enterprise and replacing them with blockchain is a long road for businesses, so it’s best to plan it up front.
  • Find partners interested in blockchain adoption. Most impressive blockchain innovations were born as a fruit of collaboration. According to CoinDesk, the partnership remains crucial for enterprises seeking blockchain adoption. That’s why businesses should take their time looking for brands, investors, and media willing to provide their company with feedback and improve the quality of problem-solving.
  • Research the market. The good news is – there are more than a few successful blockchain applications in the supply chain. Make sure to create a pitch deck that mentions a couple of successful use cases of the technology in order to prove to investors that blockchain is capable of providing a high return on investment.
  • Provide businesses with a better understanding of the technology. To do this, industry leaders will have to share educational materials (reports, ebooks, white papers) to help potential technology adopters understand what the uses of blockchain in logistics are.
  • Develop off-the-shelf products that allow businesses to test the effectiveness of blockchain without having to commit to creating custom solutions. In the long run, however, businesses will still likely need to create personalized blockchain tools to make sure the technology delivers on all their business goals.
  • Improve the quality of data input. To make sure the data stored by blockchain is secure, businesses can pair the technology with others. For instance, IoT sensors can collect data on the condition of the product. This will allow supply chain managers to make sure that vendors don’t enter misleading data and to put better trust in the blockchain output.

How do you implement blockchain into supply chain?

Depending on the goals, there are a few ways blockchain can be implemented. While the applications of the technology are still fairly limited, it can be quite beneficial when it comes to optimizing day-to-day delivery operations.

  • Provenance tracking with the help of sensors and RFID tags. The use of RFID tags is not a new trend but an established practice. Blockchain enables companies to pair RFID tags with sensors in order to determine the quality of the product, keeping their provenance. Moreover, the technology can detect frauds in any part of the delivery process.
  • Cryptocurrency payment processing. Blockchain can be used to build decentralized payment gateways that can allow businesses to accept and transfer payments in all currencies, crypto included.
  • Tracking products from a production point to the distribution spot. In fact, using blockchain for product tracking from the point of its production to that of the distributions is one of the textbooks blockchain use cases. Powered with IoT-sensor or APIs, the technology can avoid human error in tracking and help managers identify room for improvement.
  • Analyzing the performance of all the parties involved. Due to blockchain’s ability to keep records of all operations and communications performed during deliveries and no risk of tampering with this data, a supply chain manager can use this data to evaluate the performance of a vendor or an employee. This helps establish trust within the company as well as ensure transparency.
  • Detecting the attempts of tampering with the product. Blockchain ledgers can be adopted in order to detect false products or spot tampering. For instance, the use of technology has been tested to prevent drug counterfeiting. The counterfeit alert will then be distributed via a consensus algorithm.

Case study:

VeChain is one of the noteworthy applications of blockchain in the supply chain industry. A Singapore-based platform uses blockchain to create an open view of all supply chain processes, most of which usually lack transparency. It provides a buyer with a wider range of data about the product. VeChain allows business owners to track goods down, conduct safe and secure transactions, and share supply chain-related information via a peer-to-peer platform.

Applications of Blockchain in different supply industries

Understanding the applications of this technology in different aspects of logistics and supply chain management will provide business owners with a better understanding of how blockchain can be used within their companies.

There are just as many innovations that could be used to rebuild logistics and supply chain management. Smart contracts, ledger records, and tokenizations can help businesses manage transactions, track down each step of the product delivery, improve bookkeeping and accounting, and so on. Let’s go over the most promising blockchain applications in the supply management industry.

Automotive supply chain

Due to globalization, the supply chain for automotive companies is way more dispersed. While Toyota cars are labeled as Japanese, their parts are created all over the world to later make up a cohesive whole. Needless to say, taking control of such a complicated process comes with its challenges.

Blockchain ledgers can improve the cooperation between all parties involved in the manufacturing process. Apart from increasing the quality of oversight, blockchain allows automotive companies to pinpoint the source of a flawed shipment.

There are several projects aiming at creating transparency within automotive supply chains. The most notable one is MOBI — a blockchain-powered non-profit contributing to increasing accessibility and mobility.

Food supply chain

Due to the lack of traceability, food supply chains often are at the center of the negative press. Blockchain can finally clear things up, providing consumers with a better understanding of the origin of each of their meal’s ingredients. As mentioned above, blockchain can track the products all the way from manufacturing to the POS. Moreover, the transportation conditions and other properties of food (freshness, for instance) can also be scanned and analyzed via a blockchain + IoT sensors tandem.

A few notable projects in the field:

  • Rice Exchange – a blockchain-based rice trading platform that allows cutting out the middle man during transactions. A seller’s track record will be accessible to buyers – this way, the risk of unreliable purchases is reduced significantly.
  • Tael (formerly WaBi) – a blockchain-based project aimed at the detection of fake foods. The platform uses RFID chips to label food products and to trace their due date.

Drugs and Pharmaceuticals

Due to the growth of the global black market, the drug shipment industry could benefit from blockchain like no other. Finally, people placing orders will show up in the radars and be traceable.

The technology would help successfully target a different problem — drug fraud. According to WHO, over the last five years, the sales of fake drugs have experienced a 90% increase. With blockchain, each drug can be assigned a digital barcode which will allow for easy traceability and transparency. That will allow local governments as well as the community itself to monitor the quality of drug management.

Mining industry

Due to a system of governmental regulations and constraints, the metal mining industry is forced to check the quality of its products rather tediously. That’s especially true when it comes to gold bars used by governments and banks. Each of those is background-checked to find out if:

  • The mine that sells gold has a certification;
  • All the supply managers have valid certifications;
  • These certifications were valid at the time of mining.

In order to improve the security of mining transactions, the Unicsoft team used Ethereum to assign a digital barcode to each ingot. All of their moves were then recorded in a custom system. Such a solution not only enabled the traceability of gold — but the system also improved the documentation flow between mines, refineries, and other participants involved in the supply chain.

If you’re looking forward to implementing a similar tracking product for a different industry, let us know and we’ll deliver the solution to target the goals of your business.

Summing up

Supply management is struggling to live up to the ever-changing expectations of the market. It’s too slow and difficult to keep control over. With blockchain, supply chain management can be improved tremendously.

This technology allows products and operations to be traceable and makes all the records of such communications impossible to tamper with.

Having said that, blockchain still has its limits and constraints — in order for it to function to the fullest extent, the technology should be paired with IoT and AI. Challenges like the lack of a regulatory framework as well as poor understanding of the technology within the community are yet to be alleviated. However, even as a standalone investment, blockchain will be a savior in terms of traceability and transparency within supply chains.

At Unicsoft, we help SMEs and big corporations to fully harness the power of blockchain. We’ve created dozens of blockchain-based projects across different industries (supply chain management included). If you want to see these cases, take a look at our work. To discuss a project, leave us a message and we will reach out to you right away!

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