Blockchain Adaptation in supply chain management

In a conventional setting, reliable third parties operate as financial transaction middlemen. If you’ve ever transferred money internationally, you’ll know that it goes through an intermediary (usually a bank). It is not normally quick (it can take up to three days), and the middleman will demand a fee for doing so, either in the form of exchange rate conversion or other expenses. The original Blockchain is an open-source technology that provides an alternative to the usual middleman for Bitcoin transfers. The middleman is replaced by the ecosystem’s collaborative verification, which provides a high level of traceability, security, and speed; all attributes needed in effective supply chain management.

Blockchain is a web-based technology that is valued for its capacity to publicly validate, record, and distribute transactions in immutable, encrypted ledgers. The system was created to allow bitcoin transactions, a digital money that functions independently of a central bank. In essence, blockchain technology creates and distributes the ledger, or record, of every bitcoin transaction to hundreds, if not millions, of computers connected to networks all over the world. 

Blockchain technology provides more security than the banking model since transactions and ledgers are encrypted, and their instantaneous transmission through the internet removes banks’ two- to three-day clearance procedure and associated charges for transferring money from one account to another. It is a method of storing data in such a way that it is difficult or impossible to update, hack, or trick the system.

A blockchain is simply a digital record of transactions that is replicated and distributed throughout the blockchain’s complete network of computer systems. Each block on the chain consists of a collection of transactions, and whenever a new transaction happens on the blockchain, a record of that transaction is added to the ledger of every participant. Distributed Ledger Technology refers to a decentralized database administered by several individuals (DLT). 

A simple analogy for understanding blockchain technology is a Google Doc. When we create a document and share it with a group of people, the document is distributed instead of copied or transferred. This provides a decentralized distribution network in which everyone has simultaneous access to the document. No one is locked out while waiting for changes from another party, and all changes to the document are logged in real-time, making alterations totally transparent. Of course, blockchain is more complex than a Google Doc, but the example is useful because it shows three key concepts in the technology: 

The way data is organized differs significantly between a traditional database and a blockchain. When a block’s storage capacity is reached, it is closed and connected to the previous full block, producing a data chain known as the blockchain. All new information that follows that newly added block is assembled into a newly formed block, which is then added to the chain once it is complete. 

Is Blockchain Trustworthy? 

In numerous ways, blockchain technology delivers decentralized security and trust. To begin, new blocks are always kept in a linear and chronological order. That is, they are always appended to the blockchain’s “end.” It is exceedingly difficult to go back and change the contents of a block once it has been added to the end of the blockchain unless a majority of the network has achieved a consensus to do so.

This is due to the fact that each block has its own hash, as well as the hash of the block before it and the previously mentioned time stamp. A mathematical function converts digital information into a string of numbers and letters to generate hash codes. If that information is changed in any manner, the hash code will change as well. 

Assume a hacker, who also operates a node on a blockchain network, wishes to change a blockchain and steal bitcoin from everyone else. If they changed their single copy, it would no longer be in sync with everyone else’s copy. When everyone else compares their copies, they will see that this one copy stands out, and that hacker’s version of the chain would be cast away as illegitimate.

The Start of Blockchain’s Technological Ascent 

The most well-known (and maybe most contentious) application of blockchain is in cryptocurrency. Cryptocurrencies are digital currencies (or tokens) that may be used to purchase goods and services, such as Bitcoin, Ethereum, or Litecoin. Crypto, like a digital version of cash, may be used to purchase everything from your lunch to your next house. Unlike cash, cryptocurrency employs blockchain to serve as both a public ledger and an upgraded cryptographic security system, ensuring that online transactions are always recorded and safe. 

To present, there are around 6,700 cryptocurrencies in the globe, with a total market valuation of nearly $1.6 trillion, with Bitcoin accounting for the vast bulk of the value. Over the previous several years, these tokens have grown in popularity, with one Bitcoin equaling $60,000. Because of the lack of stability, some people have become extremely wealthy, while the majority have lost thousands of dollars. 

It remains to be seen whether digital currencies are the way of the future. For the time being, it appears that blockchain’s stratospheric growth is beginning to take root in reality rather than pure hype. Though it is still in its early stages in this brand-new, highly adventurous industry, blockchain is showing promise beyond Bitcoin. 

The Supply Chain

The supply chain business is riddled with stumbling blocks, especially when it comes to the logistics of transporting goods and commodities from one location to another. Current supply chain systems are burdened with paperwork and the stress of unplanned difficulties that happen during everyday operations. Experts are increasingly seeing blockchain technology as a viable answer to simplifying an overly complex system.

A supply chain is a network that connects a firm and its suppliers in order to manufacture and deliver a certain product to the end user. This network consists of many activities, individuals, entities, information, and resources. The supply chain also symbolizes the stages involved in getting a product or service from its initial condition to the client. 

Companies create supply chains in order to minimize costs and remain competitive in the business world. A supply chain focuses on the essential processes necessary inside an organization to turn raw materials or component components into completed products or services.  In a traditional manufacturing environment, the activity of interacting with suppliers is generally supported by “Procurement,” the materials will then pass through goods in warehouses (if products), through the manufacturing site, and onto the finished goods warehouse, this activity is the core activity of “Operations Management,” and throughout the supply chain logistics will play an integral role in the movement of inbound materials and outbound goods in order to ensure the optimum flow of materials and goods. 

Supply Chain Management 

Supply-chain management is described as “the design, planning, execution, control, and monitoring of supply-chain operations with the goal of producing net value, constructing a competitive infrastructure, leveraging global logistics, synchronizing supply with demand, and assessing global performance.” 

The purpose of supply chain management is to increase efficiency by coordinating the operations of the many supply chain actors. This can lead to a firm gaining a competitive edge over its competitors and improving the quality of its products, both of which can lead to higher sales and income. 

In the production cycle, effective supply chain management solutions reduce cost, waste, and time. A just-in-time supply chain, in which retail sales instantly transmit replenishment requests to manufacturers, has become the industry norm. Retail shelves may thus be replenished practically as rapidly as products are sold. Analyzing data from supply chain partners to evaluate where more changes may be made is one technique to improve this process.

Supply Chain & Blockchain 

The capacity of blockchain technology to link organizations without providing one company a competitive edge is its most significant benefit to the supply chain. Blockchains also allow for token interoperability between regions, which means that not only will more information flow throughout a network, but it will also be more accurate. 

When moving digital tokens that represent assets from one area to another, the tokens must be removed from the old location before being placed in the new one. This appears to be a straightforward task, yet that is precisely what banks do with money. However, it is not typical practice in company-to-company supply chain transactions. 

The pandemic has highlighted a major supply chain management myth: that the information used for most planning is reliable. While corporations began to gravitate toward blockchain prior to the epidemic, COVID-19 has exacerbated the pressure on supply chains owing to lockdowns and other interruptions. Blockchain can help firms re-establish their supply lines while also increasing customer confidence. Businesses and consumers expect brands to ensure product authenticity, while supply chain actors seek responsible sourcing and improved visibility to reduce conflicts. 

Blockchain for supply chain solutions enables supply chain executives to utilize data to deal with today’s problems while also preparing for the future. 

Benefits 

Increased supply chain transparency 

One-up/one-down visibility can constrain supply chain networks. Blockchain supply chain solutions enable permissioned parties with enhanced visibility across all supply chain operations by utilizing distributed ledger technology that delivers a shared, single version of the truth. 

Create a dependable supply chain. 

A single unanticipated occurrence might trigger a chain reaction of supply chain disruptions. Smart contracts are used in Blockchain supply chain solutions to automatically activate when pre-defined business criteria are satisfied. This provides near real-time visibility into operations as well as the ability to take action sooner if an exception occurs. 

Supplier onboarding has been simplified. 

For both buyers and sellers in a supply chain, new supplier onboarding is a time-consuming, manual process. Blockchain supply chain solutions help accelerate this process by maintaining an immutable record of fresh vendor information that business network members can rely on.

Slow, manual procedures are being replaced.

 Although supply chains can now manage massive, complicated data sets, many of their procedures, particularly those in the lowest supply tiers, are sluggish and rely exclusively on paper—as is still the case in the shipping sector. 

Increasing traceability. 

Change is already being driven by rising regulatory and consumer demand for provenance information. Furthermore, strengthening traceability offers value by lowering the high costs of quality issues such as recalls, reputational harm, or revenue loss from black- or grey-market items. Simplifying a complicated supplier base opens up new options for value generation (see sidebar, “A complex supply chain of unknown parties”). 

Reducing IT transaction costs in the supply chain. 

This benefit is more theoretical than practical at this point. Bitcoin pays users to validate each block or transaction, and anybody proposing a new block must include a fee in their request. Because supply networks may be massive, such a cost would very certainly be unaffordable. 

Final Thoughts 

Blockchain is being used in a variety of supply chain applications, particularly in the financial and manufacturing industries, to optimize operations and improve efficiency in other areas. Blockchain’s disruptive presence and integration with IoT have elevated it to one of the most promising recent technical advancements. This convergence of technology enables businesses to enhance interactions with their key business stakeholders, particularly present consumers, while also attracting new ones. For example, it is anticipated that enterprises in the food and pharmaceutical industries would suffer significant financial losses as a result of a range of supply chain concerns. Counterfeiting, stolen goods, the gray market, fraud, and product recalls are examples of these. Such issues have encouraged supply chain stakeholders to seek more openness and traceability. Blockchain is a potential answer, at least for trust and traceability concerns, because it offers immutability, transparency, security, and fault tolerance. 

Other market participants have been encouraged to use Blockchain-based solutions as a result of successful ventures. Based on lengthy and exhaustive study on the possibilities of Blockchain in the supply chain sector. While it is true that the current problems confronting global suppliers, shippers, truckers, and businesses are multifaceted, including issues such as worker pay and benefits, the incorporation of blockchain technology offers a significant upgrade to the current system, which frequently relies on tracking physical paperwork between siloed parts of the multinational network. 

Furthermore, organizations can keep greater control over outsourced contract production. Blockchain gives all participants in a supply chain access to the same information, possibly minimizing communication or data transfer problems. Less time can be spent confirming data and more time can be spent delivering goods and services—improving quality, lowering costs, or both.

Finally, by providing an effective audit of supply chain data, blockchain may expedite administrative operations and decrease expenses. Manual checks for compliance or credit purposes, which might now take weeks, can be sped up by using a distributed ledger containing all necessary information. 

Moving onwards 

Companies should keep an eye on the players in their market that have begun experimenting with blockchain as the technology develops traction. Blockchain notably benefits from network effect; once a critical mass has gathered in a supply chain, it is easy for others to join in and reap the benefits. Companies might look to other players in their supply chain and rivals for guidance on when to construct a blockchain prototype.

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