Founder and CEO of PLANERGY, with decades of international experience in Procurement, Spend Management and Technology.
Is your supply chain ready for the blockchain?
Cryptocurrencies are the most commonly cited examples of blockchain's potential, but it's the technology itself that's attracting attention from those outside finance.
From increased security and visibility to tracking complex variables related to sustainability and ethical sourcing, blockchain is set to help procurement organizations in all industries lower their costs and improve performance while driving greater value for their companies.
The Blockchain Is Already Transforming Supply Chain Management
The core technology of the blockchain is the decentralized ledger, which records and protects transaction data shared among multiple parties. Cryptocurrencies like Bitcoin, Ethereum and Dogecoin leverage the blockchain to theoretically allow infinite and anonymous parties to conduct transactions without the need for an intermediary.
In supply chain management, however, the focus is on allowing a set number of known parties to conduct transactions with one another directly while improving security, ensuring contract compliance and reducing costs. Instead of coins, supply chain blockchains "tokenize" a variety of transaction-related data, creating unique and readily verifiable identifiers for purchase orders, inventory units, bills of lading, etc.MORE FROMFORBES ADVISOR
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Every participant in the chain has their own unique digital signature, which is used to "sign" tokens moving through the chain. Every phase of a given transaction is recorded in the transfers between stakeholders, providing a built-in audit trail that can't be tampered with since everyone gets their own copy of the chain. A bad actor tinkering with their own chain would also have to find a way to make the same changes to subsequent links in the copies maintained by everyone else.
Companies using blockchain technology can expect to see several key benefits, including:
• Improved Efficiency: Because it relies on a shared network infrastructure, a supply chain using blockchain technology improves communication and collaboration for all parties. Greater traceability and transparency eliminate waste, duplicate orders and accounts payable headaches such as invoice fraud and rogue spend. Contract compliance contingencies encourage all parties to meet their agreed-upon obligations in a timely, complete and accurate fashion. Full visibility of financial information and performance improves financing options for small businesses and lowers processing times by reducing uncertainty and risk.
• More Ethical, Sustainable Sourcing: The traceability and tamper-resistance of the blockchain make it easier to verify where materials and goods come from, where they go as they travel through the supply chain and who had access to them.
• Greater Savings: The gains to efficiency and reductions in stock loss and waste are significant sources of cost savings with blockchain technology. A distributed network sharing resources and transactions digitally also eliminates the need for paper-based workflows and materials. Going paperless doesn't just lower materials costs; it also eliminates ancillary costs related to storage and the labor required to process and manage all those physical documents.
• Additional Functionality For Other Digital Transformation Technologies: The blockchain readily integrates other technologies such as process automation and Internet of Things (IoT) objects such as smart sensors and RFID tags to further improve efficiency, visibility and accuracy throughout the value chain.
Blockchain Project's Requirements For Success
A few key elements will determine blockchain's suitability for a project in supply chain:
• Data Exchange: When data needs to be exchanged between multiple unrelated parties, blockchain is a good candidate as a solution.
• Trusted Partners: As blockchain requires updates to be made by multiple unrelated parties, you want to be confident you can trust the partners involved in the project.
• Shared Value: If the project offers value to all partners involved, they will be incentivized to adopt the technology and processes to make it work.
• Defined Data Standards: A consistent and well-defined process and data standard that all partners can work with will keep data accurate, ideally with an existing standard like electronic data interchange (EDI).
• Integrated: To get the most from blockchain, it should integrate with the existing tech stack, like an existing ERP.
• Cost Versus Benefit Analysis: Apart from capital costs, you should also factor in computational costs related to blockchain. Transactions processed through blockchain may have higher or lower costs depending on factors like how fast they need to be completed. Often overlooked, these transactional costs will have a significant impact on whether a project is viable.
If these elements are not in place, then the project is likely not worth pursuing.
Leading Organizations Are Already Leveraging Blockchain's Abilities
As an emerging technology, it is likely still too early for most companies to consider implementing. However, there are companies in a variety of industries already putting the blockchain's capabilities to good use in their own supply chains:
• FedEx has integrated the blockchain into its chain of custody to improve traceability and provide a trustworthy record, helping to address customer disputes. The company has also joined the Blockchain in Transport Alliance (BiTA) and is a vocal advocate for the adoption of a blockchain-based industry standard.
• DeBeers is using the blockchain's tracking technology to monitor the source and progress of every single natural diamond they mine. In addition to improving efficiency and inventory control, the Tracr app also helps the company address consumer concerns about ethical sourcing of gemstones.
• Walmart has taken a serious interest in the blockchain, piloting multiple programs powered by Hyperledger Fabric. From tracing the origins of mangoes in the U.S. to tracking pork sold in its Chinese markets, the retail giant has embraced leveraging the blockchain to improve supply chain visibility and traceability — and capture more ethical and strategic sourcing opportunities while they're at it.
Bitcoin may have opened the door, but the blockchain's role in transforming the global economy won't end with currency. Blockchain technology has powerful potential to grant better control over and visibility into the supply chain than ever before. For businesses ready to embrace the changing face of supply chain management and invest in the networking and technology required, blockchain holds the key to unlocking lower costs, greater efficiency and a stronger position in a crowded and competitive marketplace.
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