How to implement blockchain in a supply chain

Supply chain and logistics in retail have been one of the most pandemic-disrupted sectors of the world and local economies. As ordering online became the primary hobby in millions of families worldwide and household savings were redirected from travel and entertainment into Internet purchases, the major problem of any supply chain became that of shortages. Shortages have been experienced in all the links of the supply chain — employment, inventory, transportation, machines & equipment, etc. The problem became so grave that even the White House dedicated a special blog post to it.

Problems of this scale and scope always require the most daring solutions. Drones, AI, robotic process automation, and digital twin simulations are only a few examples of how supply chains have been trying to optimize their operations through digital transformation. Blockchain, among other things, is among the top-3 leading trends in today’s development of supply chain management.

First, blockchain does not seem to be the most obvious choice for supply and logistics management. However, supply chain managers themselves have already detected which vulnerabilities can be reduced or entirely eliminated using blockchain.

Ways of implementing blockchain in a supply chain

1. Precise tracking of all product movements

This is probably the most obvious way of using blockchain in supply and logistics. Walmart strongly encourages all its suppliers to track all produce using blockchain technologies developed by IBM.

This move to blockchain in inventory management is often compared with how logistics vendors once massively switched from pen-and-paper methods to early ERPs and other warehouse management software solutions. Blockchain is just another step towards complete digitization of the supply chains.

2. With RFID tags

RFID tags in retail have been used for almost a decade by now, and the sector has highly appreciated their benefits over more simple barcodes and QR codes.

Combining blockchain with RFID tagging, the supply chain would get increased transparency, higher level of security, and more efficient automation at the same time.

3. Secure deals execution with smart contracts

Smart contract is a blockchain-based program that serves to prevent fraudulent and suspicious activities inside a supply chain. Also, smart contract mechanism indirectly prevents manual errors and typos. For example, when a shipper is inputting a serial number and there is a mistake in the row of numbers (intentional or accidental), the smart contract would immediately detect and report on it.

4. Blockchain as a certificate of origin

For retailers as the final link in a supply chain, blockchain is the fastest and the most reliable way to check product provenance — of the whole product or even of certain ingredients inside it.

Nowadays, when consumers are increasingly concerned about GMO and also about their own ethical consumption behavior, blockchain might become the easiest and the quickest way to maintain consumer trust and strengthen brand loyalty.

Retailers and end consumers are not the only stakeholder groups to enjoy the benefits of blockchain implementation. Along the whole supply chain, blockchain provides benefits that almost immediately outweigh the costs of its initial implementation.

Benefits from implementing blockchain in a supply chain

1. Absolute transparency

Delays and errors in the supply process are something all the participants would like to avoid since one short-term delay may turn into significant reputational damage for all the businesses involved.

Blockchain technology guarantees end-to-end tracking throughout the whole delivery workflow, equally accessible to producers, suppliers, retailers (and even to end consumers in a range of cases with highly specific, data-sensitive products).

2. Fraud and misuse prevention

Nowadays, high rates of employee turnover is an acute problem of many businesses, sales and services especially. In an ideal hiring situation, a thorough screening of all new employees would help prevent many “human-caused” problems. However, with the increasing speed of operations and a constantly growing number of orders, very few logistics and trade companies can afford time and resources for such a screening.

To some extent, blockchain can easily substitute screening as blockchain technology allows for immediate detection of inconsistencies and violations in supply chain operations.

3. Immediate response to changed orders and inventory gaps

Scalability and lightning-speed reaction to sudden changes are the key unbeatable advantages of using blockchain in commerce.

With blockchain, you can easily predict the risk of inventory gaps in your supply system and almost immediately find the closest and the best-fit alternative.

Blockchain adjusts to all changes in real time, and this makes it an ideal assistant for anyone in sales and commerce.

With all the benefits and advantages of a blockchain, it is still not a universal tool for any supply chain whatsoever.

If you strive for higher visibility and stronger security of your supply chain, blockchain can surely help, but there are several open questions you need to answer first.

Questions to ask before implementing blockchain in a supply chain

1. What is your use case?

Or in other words, what is the area in your supply chain that the blockchain can improve?

This can be:

  • A data point where an unstable number of parties meet with a random frequency;
  • A group of routine, highly repetitive processes which are often subject to errors and rules violations;
  • A process involving highly sensitive digital assets.

2. What about regulation risks and government intrusion?

Keep in mind that blockchain is still seen as an “untamed horse” by both regulators and larger businesses. Despite all the apparent benefits, changes in the attitude are happening slowly.

If you are working internationally, negotiations and some adjustment in terminology might be needed, with legal and tech counseling involved in some cases.

3. Can you find the right partner for blockchain development?

Last but not least, blockchain is always about complete trust manifested through transparency. Finding a partner who can make it all happen is never an easy task. There are several basic recommendations though:

  1. Discuss the proof of concept in the greatest detail possible. All the parties involved must be on the same page about the end result, no illusions, no wrong expectations;
  2. Dedicate a realistic amount of time for testing or a pilot project. It is always a good idea to test blockchain implementation on several interconnected links inside your supply chain or even on a standalone warehouse.
  3. Always go for the experience. Ideally, your blockchain development partner should already have supply/sales/fintech blockchain projects in their portfolio.