Supply chain challenges and how blockchain technology can help overcome them

Supply chains can be made simpler with blockchain.

Supply chains are complex contraptions, with many middlemen and intermediaries. A customer simply paying a supplier is often a complex undertaking, requiring the use of electronic data interchange (EDI) by both parties. Likewise, it's easy to overpay on invoices without full-fledged freight settlement. It's no surprise that the total amount of work needed for a streamlined supply chain usually feels overwhelming.

The good news is that superior data storage and management solutions, including ones leveraging blockchain technology, can address many of the major challenges in this domain. Blockchains and integrated supply chain management (SCM) solutions share more than the "chain" nomenclature: In their ideal states, they both help organizations make sense of numerous disparate transactions and use the resulting actionable information to improve their decisions.

The promising outlook for blockchain technology in supply chains

As less corruptible and more automated alternatives to traditional databases, blockchains are well-suited to the complicated recordkeeping necessary in modern supply chains. They can be applied to some of the most common challenges in SCM, including:

Proving provenance

It seems crazy, but even multinational companies do not always know the full backstories of the products in their supply chains. This lack of transparency opens the doors for cost overruns as well as for public relations issues, such as consumers balking at items originating from conflict zones (e.g., diamonds) or produced with underpaid labor.

Blockchain-based supply chain management can provide a definitive system of record, based on readings from embedded sensors and radio frequency identification (aka RFID) tags in the Internet of Things (IoT). The origins, histories and current locations of every item in the supply chain can be reliably established. As an added benefit, this accurate provenance can be used in campaigns touting the local and/or sustainable sourcing of products, if applicable.

"The origins, histories and current locations of every item in a supply chain can be reliably established via blockchain"

Controlling costs

The real-time tracking enabled by blockchain and the IoT has the potential to reduce the costs of moving items through supply chains. A 2017 survey of SCM professionals conducted by APQC and the Digital Supply Chain Institute (DSCI) at the Center for Global Enterprise found that more than one-third of respondents cited cost reduction as the top perceived benefit of blockchain supply chain management. However, there's still the question of how, exactly, blockchain might save organizations money.

One possibility is through the elimination of the aforementioned middlemen and intermediaries. Instead of relying on EDI to make payments, customers and suppliers could connect directly via blockchain, similar to how many digital currencies like Bitcoin and Ethereum already work. Settlements would take less time and be based on trustworthy records. There are also the efficiency gains from improved tracking and more accurate recordkeeping, which lower the risk of losing something and having to reorder it.

Blockchain can help establish where a product was made.Blockchain can help establish where a product was made.

Establishing trust

For the smoothest possible operations, the many participants in any supply chain have to trust each other. For example, a manufacturer must be able to depend on its suppliers to follow factory safety standards, use properly sourced raw materials and generally tell the truth about its activities. Being trustworthy is also vital when complying with regulatory agencies, such as customs enforcers.

With blockchain technology in supply chains, trust is easier to establish than ever before. The immutable structure of a well-designed blockchain prevents tampering, while the consensus mechanisms for approving new transactions encourage trust from the get-go.

The road to blockchain in your supply chain

Although its potential is immense, blockchain is still in the early stages of being implemented in SCM. The report by DSCI/APQC revealed only 1 percent of respondents were already using it.  Getting the right technologies and personnel in place were seen as some of the biggest challenges to blockchain success. Paramount Software can help your organization find the best storage solutions, reference architectures and offer cloud computing services to support your blockchain supply chain management. Contact our team today to learn more.