Blockchain Applications in Supply Chain Industry: Overview of use cases
Blockchain technology holds enormous potential to transform Supply Chain Industry by offering enhanced traceability, improving efficiency, and reducing lead time.
Introduction
Blockchain Technology, the innovation behind cryptocurrency, is rapidly changing the face of the modern financial industry. However, another area where the application of an open ledger can bring enormous benefits is the supply chain industry. With the help of blockchain, the operational efficiency of supply chains can be improved significantly. Further, its application can enhance the traceability of products and achieve better coordination among stakeholders to reduce the lead time. Sure enough, all these things when come together can work wonders for the entire domain of supply chain and logistics. We take a look at specific use cases of blockchain in the supply chain industry to understand the vast potential that the application of Blockchain can unlock for stakeholders of the supply chain industry:
1) Enhanced Traceability: By electronically tagging the products and entering the information in the open ledger, blockchain is proving extremely beneficial for tracking the movement of the products throughout the supply chain. At each entry and exit point, the tags are scanned and the information gets recorded on the blockchain. This information is then accessible to all partners in the ecosystem and proving its worth in protecting customers from sub-standard or counterfeit products. The application has found huge favor in the pharmaceutical industry, fast-moving consumer goods (FMCG) sector, and automobile industry as many players in these sectors have already started integrating blockchain in their supply chains for enhancing tracking and tracing their products.
2) Increased efficiency and reduced lead time: Often, one of the major problems faced by a production company is to manage their complex web of interconnected supplies to enhance operational efficiencies and reduce the lead time. Take, for instance, a car manufacturer. The production of a four-wheeler requires thousands of different components and parts. As these supplies are sourced from a large number of suppliers, the lead time of conventional supply chains is very uncertain and unpredictable. However, the application of blockchain can come in extremely handy here as sharing the data of the supplies among manufacturers, partners, and suppliers can significantly enhance the transparency and visibility of the processes. This, in turn, will help to dial up the operational efficiency on the account of fewer disruptions and reduced lead lime.
3) Connected Inventory, Information, and Finance: Some of the specific blockchain applications in the supply chain industry belong to inventory, information, and finance. It’s been seen that supply chain companies often face difficulty in availing the credit facility from banks and financial institutions. This is because banks face difficulty in assessing the quality of the borrower’s assets, list of its trading partners, status of its order book, and dealings it has with overseas clients. However, taking all this crucial information to the blockchain can help find a credible solution to this issue. For example, as and when the supplier receives an order, the bank connected through blockchain gets access to the information of the order such as name of the client, quantity required, deadline of the project, and so on. Now with all the information at their disposal, it becomes easy for banks to make the calculations and extend the facility of credit to the supplier. In addition, the readily available data also helps in auditing and reconciliation between the lending and borrowing firms.
4) Payment to suppliers: The use of blockchain technology allows the direct transfer of money between parties involved in the transaction without the need for any intermediary. This disintermediation not only reduces the overall cost but also makes the transactions quicker than the payment done through conventional methods involving banks and third-party payment processors. Yes, there are some regulatory and legal challenges related to making payments in Bitcoin or other digital currencies, but in the case of both manufacturer and supplier are comfortable, the payment using the blockchain can save an enormous cost and time for the company.
5) Smart Contracts: Smart contracts are programs build on blockchain that automatically triggers the next round of task once the prerequisite for it is completed. Ethereum-based smart contracts are the most popular application and are being used extensively by players across the supply chain industry. Take the example of TransActive Grid, a power distribution company that has employed smart contracts for the redistribution of solar energy. The smart contracts feature here automatically tracks the availability of solar power and accordingly, executes the selling and buying of the energy to users through a peer-to-peer system.
Conclusion
There is no doubt that blockchain technology has enormous potential to enhance efficiency and reduce the cost for the supply chain industry. The use cases mentioned above have already started proving their worth to stakeholders by bringing in huge value addition and cost-saving for companies. And with pilot projects digging their heels in, the adoption and integration of blockchain in the supply chain industry on a wider scale are expected to take off very soon in the future. We guestimate that the blockchain applications will be fully commercialized in the supply chain industry in the next three years and reach their crescendo in five years.
