Does Blockchain in Supply Chain Work?

You wouldn’t be wrong to assume that technology is the lifeblood of modern supply chain management, but the big question is whether all technology, no matter how attractive, like the blockchain, is suitable for the supply chain.

My answer would be, if it works, why not keep using it? But in this article, we will discuss the role of blockchain in the supply chain and if all the hype has been well worth it.

Since its introduction to the market, there has been much ado about the blockchain technology that goes beyond crypto and the financial world.

The hype is real and has transformed how many industries like healthcare, media, cybersecurity, and government agencies across the globe operate.

But a popular question these days is……. Does it really work in Supply chain management?

Let’s find out.


What is Blockchain Technology?

At its core, blockchain is an immutable digital ledger.

With blockchain technology, you can store and track transactions and assets across different computers to ensure data transparency and security.

It was initially built to house and facilitate transactions done with digital currencies. But as we saw earlier, the technology has been successfully used for other purposes.

To understand how blockchain works, you will need to understand the different components of the technology. Namey, nodes, ledger, nonce, consensus algorithm, and hash.

For more information on the intricacies of blockchain technology, read my article on how blockchain works on medium.


Why do People Believe Blockchain is Important in the Supply Chain?

By its nature, the technology amplifies trust and transparency, key issues in modern-day supply chain management.

Here is how it benefits your supply chain management.

1. Transparency

Many supply chain managers would kill for real-time visibility that translates to transparency in their supply chain, and with blockchains, they can achieve that seamlessly.

This is because the technology can provide end-to-end information on different aspects of the supply chain network and its operation.

With blockchain, you can see the state of your supply chain in real time while tracking the movement and development of your products as they move across the supply chain to the consumer.

2. Smart Contracts to Facilitate Transactions

Smart contracts simplify your vendor management and check. For instance, the payment process to the suppliers will only be initiated if the suppliers meet certain criteria.

Smart contracts ensure your suppliers meet their obligations to your supply chain as stipulated in their contracts. You can also automate processes like payment.

With smart contracts, you can simplify the supply chain process, improve efficiency, and reduce costs.

3. Simplify and Track Financial Records

Financial records are a big deal for any supply chain management, especially for your procurement team.

Keeping track of financial records between vendors and the organization is helpful in determining and analyzing the supply chain’s success.

It also allows you to track the spending of your supply chain and identify areas to cut down or negotiate with suppliers on.

4. Supply Chain Compliance and Sustainability

Gone are the days when supply chains could just get by based on their performance.

Today, stakeholders, including investors and customers, want to know the supply chain is compliant and sustainably managed.

With blockchain, these stakeholders can easily track the compliance and sustainability practices of the supply chain. But maybe, more importantly, they can trust the data.

5. Simplifying Inventory Management

Tracking the inventory flow in and out of the supply chain for raw materials and finished goods can be stressful and complex, especially for supply chains spread across multiple countries.

Sometimes, the inventory is not under the possession of the organization. It could be en route to them or the customer but is still under its supply chain’s jurisdiction.

Getting the numbers straight can be a huge and complicated task, but with blockchains, that can simplified and calculated easily.


What are the challenges of Implementing Blockchain in Technology

Although the benefits of integrating blockchain in your supply chain are great, there are still some challenges that come along with it.

1. Data Quality

Although data security is part of the foundation of the blockchain, the data itself is entered by people who are prone to mistakes or fraud.

Unlike in crypto, where the data is entered and populated by computers, in the supply chain, people still play a major role, and as much as they are great, there is still a flaw in the system.

At the end of the day, the question will be, what exactly is the quality of data the blockchain technology securing for the supply chain?

2. Cost of Implementation

The cost of implementing blockchain in the supply chain can be astronomical, but to be fair, it depends on the level of implementation your organization is willing to undertake.

The blockchain applications used in the supply chain are far more complex and efficient than those used for cryptocurrencies.

However, they will require more systems and computational power to run successfully. This is what drives the bulk of the cost of blockchain technology.

3. Integration with Existing Platforms

Your supply chain network probably has a chain of stakeholders, including vendors, retailers, consumers, and other relevant parties who are already using a host of applications like the ERP platform to facilitate the supply chain operations.

Syncing or integrating the blockchain applications with the systems in place might prove to be a very difficult task.

And just like streaming services experienced a pushback in the early days, the same might happen with your supply chain stakeholders.

4. Lack of Industry Standardization

The full impact of blockchain applications in the supply chain might be limited in the absence of standardization.

Different companies in the supply chain will probably use a distinct blockchain application or solution. Generally, what they think is best for their business.

This can make it challenging to achieve the right amount of transparency and interoperability that you need.


Examples of Blockchain in Supply Chain Breakthroughs

There have been quite a number of blockchain applications in supply chain management, with many of them experiencing high increases in productivity.

Walmart Canada uses blockchain technology to track its logistics and transportation across multiple data points and logistics providers nationwide.

IBM Food Trust used blockchain technology to enhance traceability and transparency across the food supply chains, which helps identify issues and their origin for many organizations.

With this application, your supply chain can easily identify causes of food defects or damage that might impact the consumer.

Nestle uses the application of blockchain in their supply chain to strengthen their claim to sustainability.

This was necessary after the baby formula incident, which the supply chain wasn’t a part of. However, it impacted the organization’s business negatively.

VeChain is a blockchain platform focusing on product authenticity and supply chain management.

Its blockchain-based solutions assist supply chains and consumers confirm the authenticity and origin of products by enabling transparency and traceability throughout the supply chain.


So, is Blockchain in Supply Chain Management Worth all the Hype?

On its surface, the short answer is yes. However, with all it can do, there are challenges in the implementation. There are also applications that are already serving supply chains with the same applications.

For instance, real-time visibility and transparency can be achieved with quite a number of other technology applications.

Although supply chains are complex, they are still able to track and maintain quality data, which gives them the ability to be transparent and traceable.

With the warehouse management system and other logistics applications, you can track the flow of goods and services to and fro the warehouse and pinpoint other inventories or products in transit.

So, for all the hype, there are many applications that are doing many of the benefits it is purported to have. These applications might not do it as well, but for the cost of implementation, the major question is whether the ROI is worth it for many supply chain setups.

So, is the blockchain worth the hype? Not really. It can do most of what it says, but supply chains can achieve the same functions with other less expensive applications.