Many businesses, consumers, and individuals have benefited from the introduction of Blockchain technology ever since it was first established. Let’s explore how the Supply Chain will inevitably be impacted by its development.
What is the Blockchain?
Blockchain technology enables the recording of information in such a way that it becomes difficult or impossible to change or hack the system. A blockchain, in its simplest form, is a digital ledger where transactions are duplicated and shared across a network of systems on that blockchain. Every single block in the chain consists of several transactions, and a record of each new transaction is added to every participant’s ledger. Essentially, a blockchain is a catalog of transactions that everyone can access and validate.
Moreover, Merriam-Webster defines Blockchain as follows:
“A digital database containing information (such as records of financial transactions) that can be simultaneously used and shared within a large decentralized, publicly accessible network.”
The use of blockchain was popularized by cryptocurrencies and is used by renowned coins, such as Bitcoin, Ethereum, Bitcoin Cash, and Litecoin. The key difference between a typical database and a blockchain is the manner in which the data is structured. A blockchain gathers data in units called blocks, each of which has a specified amount of storage. As blocks are filled, they are sealed and connected to the ones that came before them to form the data chain, i.e., the blockchain.
What is the Supply Chain?
Investopedia describes the Supply Chain as a network of individuals and companies who are involved in creating a product and delivering it to the consumer.
A supply chain involves everything from the transportation of source materials from the supplier to the manufacturer to its eventual delivery to the customer. The process maps out various aspects of the production cycle, from activities involved at all stages to components such as raw materials and human resources required for the finished product or service. Some of the key steps in a supply chain include the following:
- Sourcing or extraction of raw materials
- Refining and manufacturing materials
- Assembly of the finished product
- Sale of the finished product or service to the consumer
- Delivering finished products to the consumer
Global Supply Chains in a Post-Pandemic World
The Covid-19 Pandemic has revealed the vulnerability of global supply chains throughout 2020 and 2021. The health crisis was accompanied by economic and financial challenges aggravated by trade wars, economic nationalism, temporary trade restrictions, and the subsequent logistics chaos resulting from the rapid return to trade. The supply shock that started in China had worldwide repercussions as the global economy shut down, exposing serious weaknesses in supply chains worldwide. The past year saw supply chains face complex, changing conditions which highlighted the necessity of being able to react and adapt to uncertain market conditions.
As a result of the volatile conditions, manufacturers worldwide have been under greater competitive pressure to increase their domestic production, grow employment opportunities in their home countries, and rethink their use of lean manufacturing strategies. On the other hand, innovative business practices and cutting-edge technologies like robots and automation were heavily embraced by forward-leaning companies as a response to the crisis. Advances in artificial intelligence and new technologies such as blockchain have also presented opportunities for further innovation.
5 Reasons Why Blockchain is the Future of the Supply Chain
We live in an age of rapid digitalization where supply chains need seamless integration with the digital world to fulfill their business and customer needs effectively.
Blockchain is the latest technological product of the digitalization era that can offer smooth integration with digital systems. The application of such a technology can help supply chain partners with some of their challenges by creating a complete, transparent, and tamperproof history of the information, inventory, and financial flows in transactions.
Blockchain technology is transformative and is expected to have a massive impact on the supply chain market. Here are five reasons why blockchain is set to become the future of the supply chain:
Blockchain technology operates on the idea of networking, and all data is updated on the network in a decentralized manner. This feature prevents redundancy and duplication of data while carrying out all transactions in the supply chain management without the need for an intermediary.
Thanks to smart contracts, retailers no longer need brokerages, lawyers, or other third parties to enter binding agreements. Such will immediately dissolve if all the conditions that were agreed upon aren’t met. Ledger-based contracts increase transparency and profits, decrease delivery time and costly errors, as well as reduce bottlenecks and clerical errors. Because the ledgers are decentralized, multiple stakeholders, as well as multiple supply chains, can integrate with each other; hence another reason why blockchain in the supply chain market is thriving.
Transparency and Traceability
The use of blockchain technology in the supply chain provides an exceptionally high level of transparency and traceability, which makes it easier to verify the authenticity of products. Since blockchain is open-sourced and public, it allows every partner along the supply chain to have complete access and full visibility to all the transactions on the chain, from the supplier to the warehouse and the end-user.
Blockchain technology makes it easier to monitor where the goods come from and where they go through. More importantly, since all the data is located on a single source and is accessible to all parties, it provides consistency across a global network and provides an inherent level of traceability.
Blockchain technology in the supply chain eliminates the threat of duplicate orders, invoice fraud, and unaccounted spending. Additionally, it simplifies administrative procedures, lowers expenses, and provides simple financing choices for smaller organizations. Processes involving manual checks that may take weeks can be accelerated through a distributed ledger of all relevant information.
Since blockchain provides all parties within a respective supply chain with access to the same information, it reduces communication or data errors. As a result, less time needs to be spent validating data, and instead, efforts can be made to improve the delivery of goods and services by improving quality, reducing cost, or both.
A study by Cointelegraph Consulting and the Swiss company Insolar claims that blockchain technology can cut supply chain expenses for companies by 0.4% to 0.8%. This is a result of a number of reasons, some of which prior supply chain technologies were unable to provide, including reducing waste, stock loss, and overall higher efficiency.
The distributed network system of blockchain technology enables sharing of transactions digitally with all involved parties, thus eliminating the need for paper-based transactions and operations, which in the long run, improves cost-effectiveness and reduces dependency on resources. Such technology has catapulted a new paradigm shift for supply chain management by offering better data, improving analytics and product tracking, and cutting costs by the removal of intermediaries.
The instantaneous and irreversible nature of transaction verification and recording is a major characteristic of blockchain technology. The ledger is distributed across several nodes, ensuring that all data is instantly replicated and stored in every part of the network. A transaction recorded in the blockchain registers details such as price, asset, and ownership, which are confirmed, and settled within seconds. A verified change registered on any ledger is automatically documented on all other copies of the register.
Visibility and specific payment conditions can be built into the transaction, ensuring the security of sensitive data while streamlining the overall process. As a result of each transaction being open for anyone to see, there is no need to depend on a third-party, such as a bank, for verification.
The blockchain has a well-established connection to cryptocurrencies such as Bitcoin and Ethereum. It has attracted major interest over the past few years due to its key characteristics, including a decentralized approach, improved security, and irreversible ledgers.
These features have made blockchain extremely important and crucial for various industries beyond the Fintech sectors. By harnessing blockchain technology to its fullest potential, supply chain management can strategically increase industry profitability and bring transparency at all stages of business.
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