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Supply Chain And Blockchain: A Dynamic Duo

29 Apr 2020

#Blockchain Development

#Startup Library

#Supply Chain

#Useful Information

In times of the global lockdown, businesses are faced with unprecedented challenges that were unimaginable even a few months ago. Today many people talk about disrupted supply chains and the importance of wise supply chain management for the success of business operations – not only during the quarantine but also when we are back to normal. But what is the supply chain exactly? What is its origin and most importantly, what are the most significant developments in the supply chain industry, and what is the role of blockchain in all this? Let’s try to answer these questions in today’s post.

Brief History of Supply Chains

In ancient times, transportation technology was basic and the cost of moving goods was a major determinant of the production and distribution of a product. Goods had to be put together close to the source of raw materials and linear chains that took a finished product to its ultimate destination were predominant. Moreover, given the high costs, long-distance trade was limited to high-value items such as spices, weapons, and luxury goods.

The production and consumption of most items were local, so producers and consumers could directly communicate with each other, and the customer could specify exact individual requirements. This was the world of the village weaver, cobbler, blacksmith, and potter. The bulk of pre-industrial artisan manufacturing, therefore, was customized to the needs of the end consumer.

It was only in the 18th century that production networks took on a totally different scale and shipping technology improved enough to allow the large-scale functioning of an international production network. As a result of the innovations (steamships, looms, etc.) a global supply network emerged and goods became more standardized as it was no longer possible for individual customers to specify requirements. Then came containerization, and trade would never be the same. Larger amounts of goods can be shipped faster and cheaper, and the supply network began to rapidly extend. When telephones, and, later, the Internet, became widely used, improved communication provided for better relations of producers, suppliers, and consumers, and communication hardships were erased. And so the global supply chains gained momentum.

Supply Chain Definition

The life cycle of a product is a complicated series of steps. The next time you’re buying something in the supermarket, think of what all it went through to get in your hands. Think about where all the raw materials came from, who transported them to the production plant where the product was created, and how it eventually got packaged and ended up in the very shop so that you can buy it.

Quite evidently, the product goes through a lot of processes as well as middlemen. It is exactly this system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer that is called “supply chain”.

So in essence, a supply chain is a network between a company and its suppliers to produce and distribute a specific product to the end-users as well as all the steps the product takes to get to the customer.

Supply Chain and Blockchain

Blockchain is one of the key innovative technologies revolutionizing digital supply chain management. As supply chains grow more complex and sophisticated in nature, involve diverse stakeholders, and mainly rely on a number of external intermediaries, blockchain emerged as a strong contender for de-tangling all the data and documentation exchanges happening within the supply chain ecosystem.

There are several distinctive features that make blockchain highly applicable to digital supply chains.

  • Transactions are transparent and controlled. There are no intermediaries, so settlements are faster and the ledger is automatically updated.
  • Transaction fees become preapproved. You know the fees beforehand instead of discovering them upon the transaction completion, as, for example, is with Swift cross-border payments.
  • Auditability. All the transactions become visible immediately and no one can tamper, delete or conceal any information added to the blockchain.
  • Reliability. Since blockchain has distributed nature, there is no single point of failure. Moreover, all the transactions processed on the blockchain are immutable and irrevocable so the risk of fraud is eliminated.

Use Cases

Blockchain is indeed gaining momentum in the supply chain sector. Big corporations as well as smaller ones employ the technology to ensure data transparency and allow for convenient tracking of information about goods and components.

Let’s consider some examples.

  • Walmart is a pioneer in the domain, partnering with IBM since 2016 on a blockchain-based traceability solution that would be applied across the company’s food supply chain. The tested system allowed the retailer to track incoming food supplies from “farm to store” in near real-time.
  • IBM has ongoing collaborations with a number of gold and diamond industry leaders (Helzberg Diamonds, Asahi Refining, and others), helping them to create new solutions for tracking and authenticating their products. A startup called Everledger is attempting to do the same.
  • Moreover, in the next six years, 20% of the top 10 global grocers will adopt blockchain for food safety and traceability to ramp up their visibility into production, quality, and freshness.

As a company that completely understands the importance, value, and impact of supply chains, we’re excited to work together with our client on the project named Chemchain. This platform would allow companies to get the maximum information about the chemical substances origin, documentation, and other valuable logistics data in order to be compliant with the European Union legislation. The use of IBM Hyperledger Fabric as a Blockchain ledger gives us a lot of opportunities for the Chemchain platform flexibility and efficiency. Despite the fact that this example has a very small niche in comparison with the whole logistics market, we face the real facts of the way how Blockchain may improve the whole global ecosystem.

Summing Up

The blockchain technology and supply chain management systems seem to have been built for each other. In fact, all the flaws and drawbacks of the current supply chains can be easily mitigated by using blockchain technology. It may be one of the foremost industries that the blockchain can disrupt and change for the better. Hopefully, blockchain-based supply chain management systems will become the norm in the future to boost data transparency and enhance business communications.

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