Blockchain in Supply Chain

Until COVID-19 in 2020, people relied on a two-hour delivery model, but the pandemic disrupted this, exposing delays and loopholes in the supply chain. This highlighted the need for a technology to address these challenges. 

Blockchain, with its traceability, transparency, and security, became the perfect match. Together, they enable real-time tracking, reduce fraud, ensure authenticity, and automate processes through smart contracts.

In this article, we’ll delve into the benefits of blockchain in supply chain learning how it enhances traceability, transparency and trust. We’ll explore the use cases and cover a case study to learn how the supply chain is providing better customer experience. Finally, we’ll conclude with the setbacks in using blockchain technology in the supply chain.

Blockchain Meets Supply Chain

Before we dive deeper into the benefits of blockchain in the supply chain, let’s have a look at the underlying technology. 

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What is Blockchain? Blockchain is a decentralized digital ledger that records transactions securely and transparently. It eliminates intermediaries, offering verifiable, tamperproof records. It supports automatic transaction triggers through programmable features.

Blockchain vs. Conventional Systems In traditional supply chain systems, blind spots occur because different parties (e.g., suppliers, retailers, and banks) rely on separate ledgers, leading to errors like mismatched inventory or payments. Blockchain ensures all parties share a synchronized, transparent record, reducing errors and improving traceability.

How Blockchain Works in Supply Chains

• Unique Identifiers: Inventory units, orders, and financial transactions are assigned digital tokens. Participants use digital signatures to verify and record each step.
• Shared Ledger: All activities (orders, confirmations, payments) are recorded chronologically, encrypted, and distributed among participants, ensuring tamperproof data.
• Smart Contracts: These automate processes like verifying obligations and releasing payments based on blockchain data, improving efficiency.

Integration with ERP and RFID Blockchain complements rather than replaces ERP systems. While ERP handles transaction processing and reporting, blockchain integrates data from multiple ERP systems across organizations for unified visibility. RFID tags and GS1 standards can be used alongside blockchain to mark and track inventory, ensuring seamless traceability and reducing execution errors.

Benefits of Blockchain in Supply Chain

Key benefits are highlighted below with examples to showcase how blockchain transforms the supply chain through its core features like transparency, trust and immutability. Traceability sits at the root of most of the use cases and benefits that derive from that ability.

Improved Traceability, Transparency, and Trust

Blockchain’s transparent and immutable records revolutionize the supply chain by enabling detailed tracing of products from their origin to their destination. This reduces fraud, enhances accountability, and fosters greater transparency. 

For example, Walmart uses blockchain to trace food items, such as mangoes, back to their farms within seconds, ensuring safety and quality. This builds trust among supply chain partners and reassures consumers about product authenticity and responsible sourcing.

Increased Efficiency and Speed

Blockchain automates processes like payments, inventory tracking, and logistics, significantly enhancing supply chain efficiency.

For instance, Maersk’s TradeLens platform automates shipping documentation and tracks containers in real time, reducing delays and costs. By eliminating inefficiencies, blockchain enables faster operations and drives the need for speed in delivering products.

Reduced Costs

Blockchain reduces costs by eliminating intermediaries and streamlining operations from development to delivery. In the automotive industry, for example, blockchain automates inventory tracking, cutting administrative tasks and overhead. 

Additionally, real-time data sharing across stakeholders reduces paperwork and manual errors, while improved collaboration accelerates product development and minimizes time-to-market delays.

Enhanced Security with Immutability

The security of blockchain lies in its distributed ledger and cryptographic safeguards. Immutability ensures that data and transaction histories remain unaltered, making tampering virtually impossible. This improves traceability, as every transaction is permanently recorded and accessible.

For instance, IBM Food Trust uses blockchain to securely track food supply chains, enhancing accountability and trust among participants.

Better Customer Experience

Blockchain benefits customers by enabling faster, more accurate deliveries and greater product transparency. Customers can trace their purchases through the supply chain, verifying authenticity and ethical sourcing. 

For example, Everledger uses blockchain to track diamonds, ensuring conflict-free sourcing. This transparency promotes customer trust, aligns with sustainability goals, and enhances satisfaction by empowering consumers to make informed, responsible choices.

Blockchain Use Cases in Supply Chain Management

1. Environmental and Ethical Sustainability
   Blockchain tracks carbon emissions and environmental impacts across the supply chain, helping businesses identify areas for improvement. It also ensures ethical sourcing by flagging issues like child labor, unfair wages, or unsafe working conditions.
2. Quality Assurance
   By recording production data at every stage on the blockchain, companies can verify that products meet quality standards and comply with requirements.
3. Counterfeit Prevention
   Blockchain creates tamperproof records of product ownership and authenticity, reducing counterfeit goods in industries like luxury goods and pharmaceuticals.
4. Streamlined Payment Processing
   Smart contracts automate payments based on conditions like delivery confirmations or quality checks, improving efficiency and accuracy.

IBM’s Role in Supply Chain Management

IBM is providing groundbreaking solutions by combining generative AI and blockchain to address complex supply chain problems. One notable success is the first multicloud deployment of the IBM Blockchain Platform, which is transforming the oil and gas supply chain. This innovative approach not only optimizes operations but also sets a precedent for other industries to follow.

Case Study: Preventing Supply Chain Disruptions with Blockchain

It’s the middle of winter, and a sudden polar vortex blankets a region in snow, plunging temperatures to record lows. A homeowner wakes up to find their propane tank empty, the heating off, and hot water running cold. 

Across the region, a similar crisis unfolds, with propane suppliers scrambling to meet skyrocketing demand. Supply trucks and trains are delayed, prices soar, and people are left in the cold, both literally and figuratively.

This chaos was the catalyst for Vertrax, a leader in supply chain management for the oil and gas industry, to innovate. Collaborating with Chateaux Software, an IBM Business Partner, Vertrax introduced the Vertrax Blockchain — a first-of-its-kind multicloud blockchain solution built on the IBM Blockchain Platform and deployed on AWS.

The solution leverages IoT sonar sensors placed on propane tanks to provide real-time, precise insights into fuel usage. This transparency ensures propane retailers can monitor client demand with pinpoint accuracy, mitigating the risks of unexpected shortages.

However, Vertrax recognized that real-time data wasn’t enough. The oil and gas supply chain operates on razor-thin margins, with decisions often based on historical consumption patterns and long-range weather forecasts.

The challenge was clear: supply chain participants, often competitors with unique IT infrastructures, needed a secure, flexible, and collaborative platform to share real-time data. The Vertrax Blockchain delivered precisely this. By enabling instant data sharing across multicloud environments, it empowered suppliers to make critical decisions in sync with dynamic weather changes.

This innovation represents a milestone for the oil and gas industry, ushering in a new era of transparency, efficiency, and collaboration. Furthermore, it highlights the transformative potential of blockchain and multicloud solutions in reshaping supply chains across industries.

Challenges of Blockchain in Supply Chain Management

While blockchain technology offers many potential benefits for supply chain management, there are also several challenges and limitations that must be taken into account:

1. Integration with Existing Systems
   Implementing blockchain requires seamless integration with existing infrastructure, which can be a complex and time-consuming process, particularly for companies with legacy systems. This demands significant resources to ensure compatibility and effective operation.
2. Cybersecurity and Data Privacy
   Although blockchain is inherently secure, vulnerabilities can still be exploited by malicious actors. Transparency, while beneficial, may expose sensitive information if precautions like encryption and access controls are not implemented. Businesses must adopt robust security measures, including firewalls and identity verification, to safeguard against potential threats.
3. Scalability Challenges
   As blockchain adoption grows, scalability issues arise. Current infrastructure often struggles to handle high transaction volumes without experiencing delays or reduced performance. This poses challenges for widespread adoption, especially in industries requiring real-time processing.
4. Regulatory and Legal Ambiguity
   The lack of clear regulations surrounding blockchain technology creates uncertainty for businesses operating across different jurisdictions. Organizations need to stay updated on evolving legal frameworks to avoid potential compliance risks.
5. High Implementation Costs
   Developing, deploying, and maintaining blockchain networks involve significant expenses. The scarcity of skilled developers further adds to the cost, making blockchain adoption a considerable financial commitment for many organizations.

FAQs

1. What are the main challenges in traditional supply chain execution?
   Traditional supply chains struggle with execution errors like inventory issues, missing shipments, and duplicate payments. Fixing these errors is complex and costly due to the vast network and difficulty in tracking them.

2. How does blockchain improve supply chain traceability?
   Blockchain offers a secure, chronological record of transactions, allowing full traceability of inventory. This ensures product authenticity, improves safety, and helps meet regulatory requirements.

3. Can blockchain replace ERP systems in supply chain management?
   No, blockchain complements ERP systems. It enhances collaboration and traceability by integrating data across companies, while ERP systems handle tasks like invoicing and reporting.

Conclusion

Blockchain has the potential to revolutionize supply chain management by offering enhanced traceability, security, and efficiency. However, it requires the creation of tailored rules, as supply chains differ from cryptocurrency networks. 

Companies must adopt private, permissioned blockchains, implement simpler consensus protocols, and ensure data privacy and integrity. With the help of trusted blockchain solutions, like those from BlockApex, businesses can overcome these challenges and unlock blockchain’s full potential for transparent, secure, and efficient supply chain operations.