Using a blockchain-based supply chain management system can significantly improve the transparency of supply chains, provide information for customers about quality and to trace product origins, as well as improve the agility and adaptability of supply chains, says information technology service provider In2IT CTO Vishal Barapatre.
Blockchain, which is a transaction record that relies on a distributed ledger system, can readily be applied to existing supply chains, whether as a private blockchain or as a federated cloud-based blockchain. This means that small and large companies within value chains can participate and benefit.
“The advantages of blockchain realised in the financial services sector – such as low-cost and a traceable record of transactions – can be realised in supply chains and provide additional benefits over and above secure transaction platforms,” he adds.
Blockchain is suitable to support complex supply chains, as well as help to counter disruptions in these supply chains. Blockchain can enable each component or company involved in the entire process to share information, while enhancing security and traceability, says Barapatre.
The core functionality of blockchains means that no piece of inventory can exist in the same place twice. If a product is moved from ‘finished goods’ to ‘in-transit’, the transaction status will be updated for everyone, everywhere within minutes, with full traceability back to the point of origin.
“Further, with a blockchain-based solution, you can calculate the exact volume discount based on total purchasing. You can mathematically prove the calculation is correct and you can do so even while preserving the privacy of each company’s individual volumes,” explains Barapatre.
The enhanced transparency offers proof about how goods are sourced and how they comply with regulations.
“Despite the fact that organisations use enterprise resource planning solutions that can be integrated across the players in the supply chain, it is still a challenge to establish, for example, sharing, where the material is sourced or how it is packaged.”
Two general models expected to be adopted are large centralised blockchain systems deployed by large enterprises and smaller platform-based blockchains that leverage federated cloud platforms.
“This makes blockchain suitable for small and basic, as well as large and complex, supply chains. However, the most important question to determine its applicability and viability is whether it makes economic sense to implement such a system,” he emphasises.
Blockchain systems can also facilitate business-to-consumer, as well as business-to-business, interactions and provide visibility and proof of origin or source.
“For international value chains and freight, blockchain has proven successful. It is used by an international freight company for seamless handover of freight containers from one part of the supply chain to the next, while maintaining responsibility and [complying with] regulations or ensuring standards are met,” says Barapatre.
Similarly, blockchain systems can enable smaller companies to integrate their own products and quality standards into value chains, providing visibility of their work. Conversely, vendors and retailers can interact directly with the broader supply chain and can more accurately assess quality and security of supply across all parts of the supply chain.
“While it must be considered on a case-by-case basis and against the business value, there are significant benefits that blockchain can bring to supply chain management, visibility, traceability and lower costs,” he concludes.