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Using Blockchains to Increase Supply Chain Efficiency

The global supply chain and logistics market surged past  $8.1 trillion in 2015 and is set to exceed $15 trillion by 2023, according to a report from Transparency Market Research.

Supply chain management, which involves controlling a product’s flow from the sourcing of raw materials to the distribution of the final product to the consumer, can be extremely complex. Some supply chains involve hundreds of processes carried out by several companies in numerous geographic locations.

However, despite the rapid growth in this already huge industry, there has not been much groundbreaking innovation since the introduction of the shipping container in 1956. Manual, paper-based processes are still common in many areas of supply chain distribution. These outdated processes often lead to inefficiencies as the supply chain is slowed down by the large and complex network of point-to-point communications. 

It has become clear that these old methods and technologies are no longer adequate for the intricate and geographically diverse supply cycles of today.

The Problem

There was once a time when the majority of commerce was conducted locally, and the management of supply chains was relatively simple. The industry has since outgrown and outpaced the technologies used to manage them. This has unfortunately introduced several inefficiencies into the current systems.

Despite the development of supply chain management software, many companies still lack visibility and insight into the progress of their products at any given point in time. This is due mainly to the analog gaps that exist between systems and entities across regional boundaries. Although visibility options are available, they are often proprietary and lack interoperability, resulting in the creation of information silos. Printed documents, though they may contain pertinent information, simply cannot contain the level of detailed information necessary for full visibility and traceability.  

Since the journey of the product across the supply chain cannot be traced, it is almost impossible for consumers to know the true value of their products.

In addition, at present, it is extremely difficult to investigate illegal or unethical practices associated with the supply chain. Counterfeiting, dishonest production practices, forced labor, poor working conditions and other criminal activities can occur at various points of the supply chain without detection.

A 2013 horse meat scandal, in which foods advertised as beef were found to contain undeclared horse meat, revealed a major breakdown in supply chain traceability and transparency. Although the scandal did not present any health problems, it is not difficult to see how harmful ingredients could slip into systems undetected.

The Blockchain Solution

To solve these problems, blockchain solutions are now being explored by top names in the industry in an attempt to transform the supply chain and logistics industry. At its core, blockchain technology is inherently transparent and immutable, two features that are ideal for solving this industry’s current issues. 

Public ledgers make it possible to track products at every stage of the supply chain, from the raw materials to the final product to be received by the consumer. This information can then be made available and accessible to all relevant parties within minutes.

Also, once the transaction data is recorded, it cannot be manipulated. Every transaction is recorded across multiple copies of the ledger and verified by multiple nodes. The ledger is not owned by any central authority, making it impossible for any one entity to gain control and manipulate the data written on the blockchain. The end result is a public record that is highly transparent, easily traceable and extremely difficult to compromise.

Smart contracts can also be utilized to significantly reduce, or even eliminate, the use of time-consuming and costly paperwork. Predetermined arrangements can be programmed into the contract, allowing businesses to execute complex, conditional-based actions such as payments and the transfer of crucial information without the need for intermediary agents. All contractual actions are synchronized and verified by other participants across the network.

For instance, the food industry, which accounts for the largest subset of the global supply chain industry, can benefit by having crucial information recorded and digitally tracked at all stages of the supply chain on a distributed ledger, recording things like farming conditions, factory processing data, batch numbers, serial numbers, expiration dates, storage temperatures and shipping data.

As a result, food authenticity can be easily safeguarded and verified, therefore reducing instances of food fraud. Additionally, the increased transparency and security provided by the blockchain can decrease inaccuracies caused by manual inspections, help retailers better manage the shelf life of products, cut costs by reducing waste and increase consumer confidence in products.

Similar to the food industry, any other industry that relies on a supply chain to produce their product can greatly benefit by implementing a blockchain-based solution. The technology is still very new and it may take some time before its full benefits are realized, however, the results from successful pilots suggest that blockchain technology is poised to bring a much-needed transformation to the supply chain industry.

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