The Supply Chain Links to Blockchain

Stephen DeAngelis

May 7, 2021

We’ve all heard the saying, “The job’s not over until the paperwork is done.” Often the saying is attached to a cartoon showing someone sitting on a toilet reaching for the toilet paper. When it comes to paperwork in the supply chain, however, it’s no joke. The editorial staff at IEEE Innovation at Work notes, “The supply chain industry is filled with obstacles, particularly when it comes to the logistics of getting goods and materials from one place to another. Current supply chain systems are laden with paperwork and the headache of unanticipated problems that arise in daily operations.”[1] Not only is paperwork a headache, it’s an anchor on efforts to digitize supply chains. Abhishek Hansrajani, a self-proclaimed tech guru, adds, “Depending on the product, the supply chain can span over hundreds of stages, multiple geographical locations, a multitude of invoices and payments, have several individuals and entities involved, and extend over months of time.”[2] The IEEE team observes, “Increasingly, experts see blockchain technology as a potential solution to simplifying an overly complex system.”

 

How Blockchain Works

 

Most people have heard of bitcoin; however, many people are unaware the cryptocurrency is a blockchain system. Many of the people who are aware of bitcoin’s link to blockchain have become suspicious of the technology. It has been said “blockchain suffers to an extent from guilt by association. And that is part of blockchain’s current image problem. Any marketing person would tell you that blockchain the brand needs a major repositioning.”[3] On the other hand, a good deal of experimentation is taking place with blockchain technology. Journalist Janet Brice reports, “Years after bitcoin introduced the world to blockchain, the technology continues to change all sectors of industry from financial services to government and healthcare in ways quite distinct from its original crypto-driven applications.”[4] She adds, “Blockchain technology will support the global movement of $2 trillion of goods and services by 2023, predicts Gartner in their new report. ‘You can’t afford to ignore this powerful technology,’ warn Gartner who provide an insight into how digital businesses can apply this technology in the paper: Blockchain Technology: What’s Ahead?”

 

If you are unfamiliar with how blockchain works, Erminio Di Paola, Vice President at HERE Technologies, explains, “Blockchain is a distributed ledger. It can be best thought of as a continuously growing list of records, which are the blocks. Each one of these records, or blocks, are duplicated and redistributed to multiple different locations — all of them linked together with cryptographic technology. The links are subsequently the chains. With so many points in space, and all points connected to each other via heavily encrypted chains, each addition is made from a validated source that is a trusted part of the network. Then, via a secured process, the update is spread to all the other blocks. This makes the information within the blockchain system inherently secure. It’s extremely difficult to make an invalid entry and, if you were able to make one, this would then be detected by all of the other blocks.”[5]

 

Blockchain in the Supply Chain

 

Tech reporter Dashveenjit Kaur (@DashveenjitK) notes that because blockchain provides an immutable transaction ledger, it is “potentially useful for any processes that involves tracking the movement of data between parties, so it has applications across trading, supply chain, logistics, and provenance.”[6] Kaur believes one of the most beneficial uses of blockchain technology will be optimizing supply chains. She explains:

 

There are many hurdles within the supply chain industry, especially in the area of goods flow and logistics. These sectors are known for their paper-heavy processes and tussle with many challenges in day-to-day operations. Optimized supply chains are not just the cost-optimized shipment of goods or raw materials from destination A to B. With digitization and the desire for transparency across the entire supply chain, a uniform system is needed that can map each good as a digital twin and store it permanently in a trustworthy, distributed database. That said, long distances, numerous parties, large volumes of documents and data, and mutual trust can be optimally mapped digitally with blockchains. As a distributed ledger, the technology is ideally suited to recording and storing large volumes of data and granting access to every single detail to a predefined target group. All transactions that take place are stored on the central ledger, which is not stored centrally anywhere. The integration of distributed ledger technology in supply chain management is one of the top blockchain trends this year, according to experts, because on the one hand, the consumer’s need for transparency is growing and on the other hand, the barrier-free supply of goods across all borders ensures greater security and economic stability.”

 

Another tech writer, Dilip Kumar Patairya insist blockchain can also play an important role in the Procurement to Pay (P2P) process.[7] He explains, in a PRP blockchain process, “As soon as a purchase order releases, the transaction details [are] visible on the Blockchain. … With the delivery of the goods to the buyer, there is a goods receipt that is generated. The transaction details become visible on the Blockchain and the supplier gets to see it on a real-time basis. The invoice process is also executed and managed by the Blockchain and it is possible for the buyer to acknowledge instantly. In the current process, a considerable amount of time goes into reconciliation. With the involvement of Blockchain technology, the transactions are pre-approved. The suppliers can then make use of the invoice and the overall improvements in the liquidity can be made.” Improving cash flow is always important to businesses and blockchain has the potential to make a big impact. Pre-approved blockchain transactions are often referred to as “smart contracts.” Journalist Sally Mewies explains, “Blockchain technology can facilitate the use of smart contracts, which are pre-programmed transaction protocols that are automatically executed once the terms of a contract are met. For manufactures, this can mean significantly reduced turn-around times, lower transaction costs and far less paperwork for both buyers and sellers.”[8]

 

The most prevalent early implementation of blockchain in the supply chain is likely to be in the areas of transparency and visibility. Mewies explains, “For manufacturers, blockchain technology could help build transparency throughout the entire supply chain, ranging from quality assurance of the source material used in a product, tracking or tracing the product to your distribution network, and ensuring that the product is not counterfeited during its journey. From an auditing and accountability perspective, the utilization of this technology can be revolutionary. For example, a manufacturer releases a product that includes parts from multiple suppliers and finds out that the product contained one faulty part, resulting in a product recall. By using the blockchain to track who the supplier was, they can contain the issue quickly and easily whilst reducing the time and costs required to do so.”

 

Concluding Thoughts

 

Although blockchain utilization in the supply chain remains in its early stages, as Gartner notes, blockchain is a powerful technology that can’t be ignored. In the years ahead, blockchain is predicted to become a mainstream technology in the supply chain arena. Nadia Hewett, from the World Economic Forum, and Rasmus Winther Mølbjerg, from Deloitte, observe, “The need to process transactions quickly and verify the creation, transmission and reception of a particular exchange of value is ever more critical to business success. To make a supply chains resilient, there must be transparency and integrity across domains, which can be improved through the deployment of blockchain technologies.” In other words, there will be strong links connecting the supply chain with blockchain.

 

Footnotes
[1] Staff, “Three Major Ways Blockchain Can Boost Supply Chains,” IEEE Innovation at Work, April 2021.
[2] Abhishek Hansrajani, “How Blockchain will Transform the Supply Chain Industry,” BBN Times, 26 August 2018.
[3] Maximilian Enthoven, Dominik Roeck, Mathias Mathauer and Erik Hofmann, “Unmasking Blockchain in Supply Chains,” Supply Chain Management Review, 9 November 2020.
[4] Janet Brice, “Gartner: How to navigate the blockchain revolution,” Business Chief, 20 October 2020.
[5] Erminio Di Paola, “Blockchain: En Route to the Global Supply Chain,” TechNative, 11 August 2020.
[6] Dashveenjit Kaur, “4 blockchain trends to watch in 2021, beyond cryptocurrency,” T_HQ, 1 April 2021.
[7] Dilip Kumar Patairya, “How Blockchain Has Helped Tackle Issues Prevailing in Cumbersome Supply Chain Process,” Business2Community, 5 September 2020.
[8] Sally Mewies, “Why blockchain will be a gamechanger for manufacturers,” Manufacturing Global, 21 February 2021.
[9] Nadia Hewett and Rasmus Winther Mølbjerg, “This Is How Blockchain Can Be Used In Supply Chains To Shape A Post-COVID-19 Economic Recovery,” Forbes, 19 June 2020.