Blockchain supply chain has the potential to drive cost-saving efficiencies and to enhance the consumer experience through traceability, transparency, and tradeability. Improving supply chain management and taking it to another level happens to be one of the best use cases of blockchain technology. To understand this, let’s first grasp what we mean by a supply chain.
What is a supply chain?
Any product goes through a series of processes and middlemen. This system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer is called “supply chain”.
The components of this supply chain are:
- Natural Resources: Will you require a significant amount of natural resources for the creation of your product?
- Materials: The production or procurement of different materials.
- Ingredients and components: Create different components of your product with natural resources and materials.
- Finished Goods: Bring all these components together to create your finished products.
- Retail and E-commerce: The product has been made, now it needs to be shipped to shops and listed on e-commerce websites.
- Customer: Finally, the customer gets their hand on your product either in the shop or online.
- Returns, Reuse, and Recycling: Finally, every supply chain must always have provisions for refunds.
Now that we know what a supply chain is let’s look at how supply chain management works.
What is Supply Chain Management?
Supply chain management includes integrated planning as well as the execution of different processes within the supply chain. The three core processes in supply chain management include:
- Material flow
- Information flow
- Financial capital flow
Supply chain management is the management of the flow of goods, services, and information involving the storage and movement of raw materials, building products, and full-fledged finished goods from one point to another.
If properly implemented, supply chain management can allow organizations to:
- Increase sales
- Decrease frauds
- Reduce overhead costs
- Improve the quality of improvisation
- Accelerate production and distribution
- Reduce the cost and complexity of the manufacturing process.
What is blockchain technology?
A blockchain is, in the simplest of terms, a time-stamped series of an immutable record of data that is managed by a cluster of computers not owned by any single entity. Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain).
There are three core properties that make the blockchain unique
At the very center of blockchain technology lies “decentralization.”
Legacy organizations and systems have a centralized architecture. A vast majority of the decision-making process happens via a centralized board of directors. However, blockchain allows one to exercise the principles of decentralization in its operational architecture.
Everyone in the network can download and maintain a copy of the blockchain. So, instead of one node owning all the data stored inside the blockchain, everyone owns it.
This can be immensely helpful for supply chain management, since it presently has a centralization problem. All the suppliers and procurement officers inadvertently become their own silos of information. There is nothing that is going to tell us with 100% assurance that the information that these people are sending is 100% authentic or not.
However, the blockchain breaks down this very concept of silos through decentralization.
When all these different entities, all over the world are connected by this chain, there is no longer any question of data isolation. All the data that would have stored in them is not being shared by everyone on the blockchain.
Immutability means non-tamperable. Any data that you put inside the blockchain cannot be tampered with. The blockchain achieves this via the integration of cryptographic hash functions.
Can you imagine how valuable this will be for supply chain management?
It is impossible for anyone to tamper the financial records and to justify extra payments once they have entered the data inside the blockchain.
The reason why the blockchain gets this property is because of cryptographic hash functions.
Finally, we have transparency property. Blockchains like Bitcoin and Ethereum are pseudonymous by nature.
The following snapshot of Ethereum transactions will show you what we mean:
So, while the person’s real identity is secure, you will still see all the transactions that were done by their public address. This level of transparency has never existed before within a financial system. It adds that extra, and much needed, level of accountability which is required by some of these biggest institutions.
Speaking purely from the point of view of cryptocurrency, if you know the public address of one of these big companies, you can simply pop it in an explorer and look at all the transactions that they have engaged in. This forces them to be honest, something that they have never had to deal with before.
Now, use this in the context of supply chain management.
Every single operation that will ever take place in your supply chain will be recorded in the blockchain for everyone to see. Can you imagine what this level of transparency can do to your business? Everyone will be forced to be accountable for their actions, and it will disrupt the silos that have been traditionally associated with supply chains.
Disrupting Supply Chain Management with Blockchain
So, from what we have known so far, blockchain technology has properties of decentralization, transparency, and immutability. As such, it is the perfect tool to use for the disruption of the supply chain management industry.
Every time a product changes hands, the transaction could be documented in the blockchain, creating a permanent history of a product, from manufacture to sale. What this does, is that it reduces:
- Time Delays
- Human Error
- Added Costs
Blockchain can definitely improve the following properties:
- Recording the quantity of the products and its transfer through different parties.
- Tracking all the purchase orders, change orders, receipts, trade-related details
- Verifying the validity of the certification of the products. Eg. this can be used to track whether a particular item meets certain quality standards or not
- It can link various physical items to serial numbers, barcodes, and tags like RFID etc.
- Helps in the sharing all the information about the manufacturing process, assembly, delivery, and maintenance of products with the different parties in the supply chain
So, if we were to look into all the benefits that the blockchain can bring into the system:
- Blockchain’s transparency helps in the careful documentation of a product’s journey from its point of origin to all its suppliers. This increases the trust among the various parties in the supply chain because all the data is visible for everyone to see.
- The blockchain network can take in any and all participants of the supply chain network. Plus, regardless of their geographical location, everybody will be able to connect with the blockchain.
- Blockchain’s immutability will make sure that all the records in the chain are honest and free from corruption. Plus, the strong security from its innate cryptography will eliminate unnecessary audits, saving copious amounts of time and money.
- The utilization of blockchain also opens up the doors to future innovation.
Alright, enough theory. Now, let’s look at some use cases and see how we can incorporate the blockchain to boost supply chain management.
Use Case #1: The Food Industry
On October 6, 2006, multiple states in the US suffered a major E-Coli outbreak. The culprit? Spinach — Around 199 people were affected of whom 22 were children under 5 years old. 31 of the 199 developed a type of kidney failure called hemolytic-uremic syndrome, and, unfortunately, 3 of them passed away.
As a result of this, the entire food industry went into an uproar. People were desperately trying to trace the source of the infected spinach. Everyone stopped selling spinach immediately from the market. It took the Food and Drug Administration (FDA) a total of 2 weeks to find the contaminated spinach source.
Image Credit: NBC News
Can you guess as to what the source was?
It was one supplier. One farm. One lot.
That one farm locked up an entire industry for 2 weeks. For that period, farmers whose entire livelihood depended on spinach were left broke and penniless. All this would have been avoided if there was a better way to trace and track down the defective spinach lot.
To prevent this from ever happening again, big companies like Walmart have teamed up with IBM to incorporate their “Food Trust System” blockchain in their supply management system.
Walmart has already done two test runs with IBM, one with Chinese pork and the other with Mexican mangoes. Walmart and IBM used the “Hyperledger Fabric”, a blockchain originally built by IBM and now housed under the Linux Foundation’s Hyperledger group for these tests.
The advantages of a transparent food supply chain are manifold:
- It greatly enhances food safety.
- Ensures fresher food since no one will risk sending “non-fresh” food in an open system.
- There is less food waste because every single piece of food is accounted for.
- Stops food fraud because the system is open for everyone to see.
- Promotes responsibility among the food producers since they now know that they can’t get away with underhand dealings.
- It gives the customer trust-able information about their food and empowers them to make better buying choices.
Use Case #2: Track Nuclear Power Plant Supply Chain
Nuclearis is an engineering and manufacturing firm that will be launching an RSK-based solution to track different documents related to the nuclear power plant supply chain. This solution will be powered by RSK and its infrastructure framework (RIF).
So, before we go any further, let’s gain a quick understanding of RSK and RIF.
What is RSK and RIF?
Rootstock (RSK) is a smart contract platform that is connected to Bitcoin´s blockchain through sidechain technology. Rootstock allows you to create applications compatible with Ethereum (the web3/EVM/Solidity model) while still enjoying the Bitcoin blockchain’s security. At its very core, Rootstock is a combination of:
- A Turing-complete resource-accounted deterministic virtual machine (for smart contracts) is compatible with the Ethereum’s EVM.
- A two-way pegged Bitcoin sidechain (for BTC denominated trade) based on a strong federation
- A SHA256D merge-mining consensus protocol (for consensus security relying on Bitcoin’s miners) with 30-seconds block interval. (for fast payments).
Rootstock will also be using its tech stack – the Rootstock Infrastructure Framework Open Standard (RIFOS or RIF) to help build a healthy economic system on top of Bitcoin. It’ll facilitate the use of blockchain technology by making it as simple for everyone as possible.
Advantages of this solution
Nuclear power plants require extensive documentation. Constructing and maintaining new nuclear power plants requires you to produce and procure several essential components worldwide. As stipulated by international authorities, this entire production process needs to be properly documented to guarantee all data’s traceability. Any irregularities or falsifications may have far-reaching negative consequences on the industry.
By leveraging RSK, Nuclearis will be able to:
- Ensure that the data, calirations, material certificates, etc. cannot be forged, misplaced, or modified.
- Provide a layer of security wherein nuclear power operators can easily verify the authenticity of all documents.
- Ensure with complete certainty that there have been no alterations between the time of dispatch and arrival.
Diego Gutierrez Zaldivar, the CEO of IOVlabs (the company behind RSK), best summed up the solution:
“The immutability and security that blockchain provides is of the most importance for the nuclear industry. We are very excited about Nuclearis’ solution in that industry and thrilled they have chosen RSK blockchain and RSK Infrastructure Framework (RIF) technologies for its development.”
Blockchain for supply chain is, of course, just one of the many of the potential use cases as this technology has also being explored by this company to foster blockchain domain name systems, decentralized storage solutions, decentralized exchanges, blockchain oracles, non fungible tokens (NFTs), self sovereign identities, stable coins, DeFi and blockchain for social impact among many others.
Companies around the world have already started boosting their supply chain management program by blockchain supply chain solutions. It’s quite astounding how easily the blockchain’s properties can fix the current supply chain market’s issues. The Food Trust System and the Nuclearis’s solution are just the tips of the iceberg. There are several POCs and working solutions out there, which shows why supply chain management is a natural blockchain use case.