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Blockchain Technology – Is It the Solution to Supply Chain Problems?

In today’s world, managing the supply chain has increasingly become more complex. Before a product reaches its intended destination, i.e. from a supplier to a manufacturer, or a merchant to a consumer, it usually passes through several stages, all of which are time-consuming.

Blockchain Technology – Is It the Solution to Supply Chain Problems?

In essence, the delivery of a product can take months due to many brokers between the source and its destination. Even worse, these third-parties may increase the cost of transactions significantly.

Another challenge is the apparent lack of transparency in the supply chain. For instance, if you receive a defective product, it is difficult to send it back to the supplier because of the many go-betweens. A consumer can also defraud a merchant for requesting a chargeback after the product is delivered.

Due to these challenges and many others, stakeholders in this industry are contemplating the introduction of blockchain technology as a solution.

So how does blockchain improve the supply chain?

Most people associate blockchain technology with cryptocurrencies, especially Bitcoin. However, a blockchain is a distributed ledger that can be used for several purposes, cryptocurrencies being one. All transactions conducted on the blockchain ledger are recorded on blocks, hence the name. All nodes connected to the blockchain network can easily access the transaction records, which are also inalterable. Security on the blockchain is as a result of the collective effort of the individual nodes.

The most significant advantage of blockchain technology is decentralization – the ability to facilitate direct peer-to-peer transactions between member nodes. If this were the case in the supply chain, the turnaround time for deliveries would improve by a great margin. Also, the transaction costs would reduce, as no extra fees would be charged by intermediaries.

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Blockchain technology will definitely increase transparency in the supply chain. This is because all transactions are recorded on a ledger, which is then distributed to all member nodes. This means that it would be easy to establish the origin of a product, and persons handling it until it reaches its destination. In case a product is defective, you can easily track the supplier and request for a refund or a replacement. Moreover, the records make it easier to conduct audits.

With blockchain technology, disputes in the supply chain would be entirely forgotten. This is because blockchain provides consensus from every participant that has a copy of the ledger. As a result, every member can see and verify the change of ownership in the public ledger. Even better, the records are inalterable, eliminating the possibility of mischief.

Additionally, blockchain-powered smart contracts can also be used to improve the security of funds in supply chain transactions. A smart contract is a program that only executes if certain preset conditions are met. For example, it can be set to send funds to the supplier only if the product reaches its destination in good shape. Also, it can be set to trigger a penalty if a specific requirement is contravened.

What is preventing the use of blockchain technology?

Despite its apparent advantages, there’s no denying that very few participants in the supply chain are using blockchain technology. The primary reason for the low adoption rates is that technology is still upcoming. For this reason, many players are still sceptical of their abilities.

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Similar to other technologies, blockchain requires specialized infrastructure and technical know-how to function. Therefore, if you are planning to implement it in your business, you must spend money in either teaching the existing staff or hiring new employees.

Take away: here is what you need to consider

There is more to blockchain technology than Bitcoin and other cryptocurrencies. Though it is still relatively new to the scene, this emerging technology has shown signs of being able to deliver lasting solutions to the problems facing the supply chain.

The problem, however, is the reluctance among key players in the supply chain to adopt blockchain technology. With the introduction of several blockchain-as-a-service platforms, the cost will no longer be an excuse for not implanting this technology. It is also expected that the success of the other supply chain companies already using the blockchain will drive up the demand for such services in the sector.

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