When most people think of blockchain, they think about cryptocurrencies. That’s understandable since cryptocurrencies are the best application of blockchain. But this technology has many other applications, especially in digital supply chains. Blockchain’s decentralized ledger and end-to-end visibility are excellent features for digitizing and improving the global supply chain.
In the following article, I’ll explain how blockchain (or distributed ledger) technology benefits the global supply chain with examples and case studies. I’ll also cover how your business can adopt blockchain and which factors you should consider using blockchain for your firm.
Blockchain is more than just cryptocurrencies
Naturally, most people associate blockchain with cryptocurrencies. Cryptocurrencies and NFTs are the most popularly known for using distributed ledger technology. And as cryptocurrencies and NFTs are rapidly losing legitimacy because of repeated scams, hackings, and crashes, many people think blockchain is dubious.
This opinion is understandable, but it’s not accurate. Cryptocurrencies and NFTs are far from the only application of blockchain. As early as 2018, McKinsey & Company noted that blockchain’s best use was for increasing business productivity, specifically in logistics and supply chain management.
The global supply chain crisis of 2021 to 2022, caused by the COVID-19 pandemic and the Russian invasion of Ukraine, showed how vulnerable the global supply chain was. Companies struggled to maintain schedules, communicate effectively, and provide end-to-end visibility.
At the same time, consumer expectations for transparency and dependability only increased. Implementing blockchain technology is one of the best ways to solve this supply chain crisis.
Should companies use Blockchain for Supply Chain Management?
Today’s businesses need to concentrate their data and processes on a single platform to meet the complexity of modern supply chain management. All data related to supply chain processes needs to be collected, analyzed, and appropriately displayed in a single place. The more integrated the platform, the better it performs.
Until today, most firms achieved this by investing in database management systems that use cloud-based computing. These systems can rapidly analyze massive data sets. But they have limits. Conventional database management systems can’t handle infinitely large or complex amounts of information.
One of the biggest problems with conventional database solutions is they often rely on analog communication methods, like telephones, printers, and fax machines. These tools are slow and unreliable. So latency and errors are common and accepted in the global supply chain. Blockchain doesn’t have these problems.
Blockchain is a decentralized information management system. It’s like a database but structured to avoid conventional problems. Blockchain’s digital ledger technology atomizes every link in the supply chain, removing the need for analog communication tools. Since the data is also stored transparently, there’s end-to-end visibility.
Why not use conventional databases instead of blockchain?
Conventional databases work, but blockchain works better for the following reasons:
Transparency & Traceability
Conventional databases have a client-server architecture. The data is stored in tables and files in a central server, and limited access is granted to users to access, edit, and delete the information.
In contrast, blockchain has a decentralized digital ledger. Each block acts like a page in a ledger. All participants across the entire chain can see all information across the entire chain at any time.
The benefit of blockchain is that all users can see all information at all times. So data can’t be fabricated. In practical terms, every participant in an entire supply chain would see the data of every other participant across the entire supply chain.
New blocks in a distributed ledger are cryptographically linked to existing ones chronologically, creating an audit trail. This makes it impossible for users to forge documents. Instead, all members across an entire blockchain can see which information was added at what time.
The practical benefit of this for supply chains is that it prevents forgeries or confusion. Every participant in a blockchain-managed supply chain can view the exact date and time of the creation of every piece of data in the blockchain, preventing both fraud and mishandling of data.
The Singapore-based startup LogChain is currently using blockchain technology to re-engineer the supply chains of chemical companies to track the transport records of dangerous chemicals. They’ve been successful in improving the safe transport of multiple chemical companies.
Security & Efficiency
- Security and Immutability:
Unlike conventional databases, the data in a blockchain can only be altered or deleted if all participants in the chain accept the alteration. This creates an inalterable record of changes that makes it impossible to falsify or change records. The records are also end-to-end encrypted in the network, preventing unauthorized access.
In practical terms, this means that no participant in a complex supply chain can alter any data. As a result, your business can easily satisfy legal standards, like ethical or sustainable sourcing. And consumers can fully trust your business needs regulatory requirements.
- Efficiency and Automation:
Blockchain’s decentralized ledger removes the need for a central administrator, like in databases. A conventional supply chain must reconcile multiple databases from different locations, which costs time and money. A blockchain-managed supply shows every participant every other participant’s data at all times.
The practical benefit of this is that it saves businesses both time and money. They would no longer need administrators and other resources to reconcile databases. With blockchain, they can even automate activities, like insurance payouts, since they won’t need to validate data. The result is that the entire supply chain moves faster.
Why has Blockchain adoption been slow?
Blockchain adoption in the global supply chain has been slow despite its many advantages. There are multiple reasons why. Blockchain’s structure and implementation are complicated. A blockchain-managed supply chain needs every participant to adopt it to be effective. That could potentially be hundreds of companies.
The 2022 cryptocurrency crash made many companies suspicious of blockchain technology. The consulting firm Gartner reported that blockchain platforms experienced a ‘trough of disillusionment’ last July. But they also predicted an upward slope for blockchain in the near future.
It can be argued that early 2023 already marks this upward slope. Several major businesses recently deployed blockchain technology. For example, Walmart uses a distributed ledger to improve consumer product management in the US and China. IBM and Maersk are also developing a blockchain platform to eliminate paper-based processes.
Examining some more examples may be the best way to highlight blockchain technology’s usefulness for the global supply chain management.
Examples of blockchain integration in supply chains
1. Rio Tinto
Their operations start from mining bauxite ore, mostly from Australia and Canada, before they ship it to industrial plants in the same countries. The ore is refined, smelted into aluminum, and sold as sheets, rods, ingots, and other parts to customers across the globe.
In 2019, the company decided to build an application on a private blockchain network to increase transparency and traceability across its supply chain. The blockchain network gave them complete end-to-end visibility across their supply chain. They could track every aluminum sheet across the entire chain.
Their new application stored all data in a single immutable record accessible to all participants across the supply chain. As a result, they saved both time and money by repeating manual information-handling processes.
By sharing unfalsifiable data about the origin of their inputs, Rio Tinto provides greater assurance to their customers and has higher investor confidence. Their new application lets them meet new government regulations and industry standards transparently.
In 2021, Rio Tinto launched a platform, START Responsible Aluminum, which gives their customers detailed information about their orders. This information includes a QR code for each order and details on where the material was sourced. This gives customers detailed information on their orders, including their environmental impact.
2. Corona Canada
One of Rio Tinto’s partners, Corona Canada, completed a trial using their partner company’s START platform. They printed QR codes on 1.2 million beer cans sold in Ontario, Canada. Consumers could scan the QR codes with their phones and receive information on where the aluminum for the can was mined and refined.
Consumers could view the following:
- How much aluminum used to make the can was from recycled sources
- What was the carbon footprint of the can was
- How much water was used
- How much the production site complied with regulations.
- The fact that the large amount of energy used to make the cans was offset by renewable hydropower.
Corona Canada is just another example of how blockchain technology benefits consumers by making the global supply chain more transparent. The French supermarket chain, Carrefour, reveals how blockchain can be used to show consumers the origin of the foods they eat with QR codes.
What factors should you consider before adopting blockchain?
Most companies will likely switch to blockchain technology soon. The advantages are just that massive. But every country will have to evaluate using the technology according to their specific needs and conditions.
The following are the most important factors to consider when switching your business to blockchain.
Public vs. Private Platforms
Blockchains can be either public, accessible by anyone, or private, accessible only to participants. The best-known public blockchains are the ones used for cryptocurrencies. These networks are made of a distributed encrypted ledger that’s implemented on a peer-to-peer network anyone can see and access.
Most small companies and startups use public blockchains. They’re easier and less expensive to acquire. But large and established companies prefer private blockchain networks because of their privacy controls and customized solutions. Private blockchains are more secure, but they have a limited peer-to-peer network.
The right type of blockchain for your business mostly depends on its size and goals. A public platform is preferable if you have a small business and no confidential information. Conversely, a private blockchain is better if your company can afford and has data to protect.
Evaluating Permissioned Blockchains
Suppose your firm chooses a private permissioned blockchain. There are multiple platforms you can choose from. Hyperledger Fabric, for instance, is one of the most popular permissioned blockchains. Hyperledger Fabric is overseen by the Linux Foundation, and they help businesses build their own networks.
Other popular platforms include Quorum, which JP Morgan Chase developed from the Ethereum blockchain. There’s also Corda, which is mostly used for financial services.
Consider the following questions when deciding which platform to use:
What is the consensus mechanism?
The consensus mechanism is the algorithm that lets participants cooperate on a blockchain network transparently. For example, the consensus mechanism used by Bitcoin is known as ‘proof of work.’ It’s arguably the most secure mechanism, but it requires massive amounts of power, costing huge amounts of money.
Another popular consensus mechanism is proof of stake, which Ethereum adopted. Proof of stake consumes upwards of 99% less energy than proof of work. The result is lower energy costs and a smaller environmental impact.
Your company should opt for the consensus mechanism that you can afford in terms of both energy and environmental impact.
What about governance?
A private blockchain reintroduces a central control point while keeping all other features of a digital ledger. And different distributed ledger networks have different degrees of governance.
You should choose a blockchain with an appropriate degree of governance that meets the interests of all stakeholders on the chain. This is especially important if your business will share proprietary information with customers or government officials.
How much does it cost?
Some private blockchains, like Hyperledger Fabric, are free to use. Others have expensive licensing fees and operating expenses. You’ll likely also have to hire software developers with blockchain expertise to customize your platform to your company’s needs.
Your company needs to create a budget for its blockchain platform and choose a solution that meets its financial goals.
What about your company’s existing system?
Naturally, you want your blockchain platform to not disrupt your company’s existing operations. Luckily, many blockchain systems were designed to be interoperable with existing systems. So you can build and integrate a blockchain platform with your legacy systems.
Many blockchain systems use Application Programming Interfaces (APIs) to connect the blockchain system with your legacy one. Open-source blockchain systems, like Hyperledger Fabric, especially make secure and scalable data transfer easy.
In conclusion, events like the COVID-19 pandemic and the 2022 Russian Invasion of Ukraine proved how vulnerable the global supply chain is to disruption. Analog technology, communication difficulties, and the need to verify information all slow the global supply chain. But Blockchain technology has the best potential to solve these problems with its decentralized ledger and end-to-end visibility. Companies like Rio Tinto, Carrefour, and Corona Canada have already proved how blockchain technology improves the efficiency and transparency of supply chains. So most businesses will likely eventually adopt blockchain technology in the near future.