Can blockchain help address the global supply chain crisis?
Over the past two years, the world’s supply chains have been pushed to the limit. It started with COVID-19, and the mass closure of businesses and factories, and was exacerbated by labor and material shortages, extreme weather events, and more recently, Russia’s invasion of Ukraine. The end result has been shortages in everything from semiconductors and lumber to baby formula, and rising prices fueling inflation.
In a sense, there has been a perfect storm when it comes to supply chains, which has demonstrated the urgent need for change and innovation to ensure supply chains are more resilient. This is where blockchain can help.
There are few industries that are as natural of a fit with blockchain as supply chains. I mean, they both have chain in their name, after all. Blockchain has the potential to help create more efficient, transparent, and coordinated supply chains that will revolutionize the sector for the better.
In fact, according to the Harvard Business Review:
When it comes to the role blockchain can play, it can truly shine by enabling greater efficiency, transparency, and coordination in global supply chains.
Greater efficiency
Efficiency is what blockchain is all about. The ability to seamlessly transfer money across the world in mere minutes, to gain access to auditable data within seconds, and to cut out clunky and outdated intermediaries. These are all examples of how blockchain can create greater efficiency, and this is certainly the case when it comes to supply chains as well.
Let’s start with an example involving a project called StaTwig.
StaTwig is an amazing project making use of blockchain technology to improve the efficiency of food and vaccine supply chains.
StaTwig’s platform allows you to track important resources and products, such as vaccines, from start to finish, as they go through all steps from production to distribution:
According to StaTwig, the percentages of food and vaccines that end up going to waste due to supply chain failures are 30% and 50-60% respectively. StaTwig hopes to address this by leveraging “new technologies such as the Internet of Things (IoT), Artificial Intelligence, and Blockchain to track all products in the supply chain and gather data about each product. Access to such data helps in preventing failures of distribution, predicting the demand and capacity levels, and reducing the cost and wastage of all limited resources.”
By making use of process automation and IoT, it enables for sensors and RFID tags to be integrated in to the blockchain, ensuring greater efficiency in supply chains. For example, let’s look at refrigeration. Let’s say there is a food product that must be kept at a certain temperature, or else it will spoil and go to waste. In the supply chain, a refrigerated container with a device to monitor temperatures could record any unsafe temperatures or fluctuations, and automatically record them on the blockchain. This could help organizations more quickly address temperature issues, helping reduce spoilage.
Smart contracts can also help create more efficient supply chains by allowing for greater automation and cutting out the need for intermediaries. Let’s use the example of a distribution centre for a large grocer. The distribution centre receives a large shipment of coffee from a provider, and when the product is scanned at the distribution centre, it automatically triggers a payment to the provider, cutting out the need for a bank or any individual to give the stamp of approval. Less intermediaries means less costs, as there are fewer actors taking a cut of each transaction.
Overall, there are myriad ways that blockchains can help create more efficient supply chains, leading to less waste, greater automation, and lower costs for consumers.
Greater transparency
Another way that blockchain can help address the supply chain crisis, is by enabling for greater transparency. Let’s start with an example involving one of the biggest retailers in the world, Walmart.
Previously, it could take as long as 7 days to get specific data on food in Walmart’s supply chains. However, with an increasing need to monitor for food borne illnesses and disease controls in food supply chains, 7 days was simply too long to wait for data. To help address this, Walmart teamed up with IBM, and makes use of their Food Trust platform, built on Hyperledger, to more efficiently gather food data. Now, with IBM’s blockchain-based platform, they are able to gather the same data, which once took 7 days, in just over 2 seconds.
When it comes to product traceability, blockchain enables for the creation of immutable, and verifiable records, which enable participants to see every step in a products journey. Not only could this help them keep track of essential data, such as refrigeration temperatures noted above, but it could also help them identify counterfeit products, which would certainly lack a legitimate verification history on the blockchain.
It can also help ensure that materials being used in the production of goods are ethically sourced. A great example of this involves the Circulor blockchain platform powered by Oracle. This platform is being used by some of the world’s largest electric vehicle manufactures, such as Volvo and Mercedes-Benz, to track the provenance of high-risk materials, such as cobalt, which is an essential component of EV batteries. However, this material comes primarily from the Democratic Republic of the Congo, where it is often mined as a conflict mineral, or by using child labour.
Another example of a blockchain protocol creating greater transparency for supply chains is VeChain’s Digital Carbon Footprint SaaS platform, which aims to bring more transparency to the process of tracking an organization's carbon footprint. According to the VeChain Foundation:
This platform provides a practical solution to the challenge of unverifiable data that often comes with environmental reporting. Whether it’s reporting one’s carbon emissions, the amount of bycatch in their fishing operations, or whether produce meets organic certification standards, it can be hard to independently verify data, especially with so many moving parts in complex supply chains.
VeChain’s platform, on the other hand “allows enterprise users to log key data and integrate it with world-leading third party assurance providers within VeChain’s partnership network”. Through every step of the supply chain, users can enter data, which is stored on the blockchain, and enables organizations to see their impact across the entirety of the process from production, to delivery, to sale.
The example above applies to carbon footprints, but a similar approach to data collection could apply to any aspect of the supply chain. For example, by recording every financial transaction in the supply chain on the blockchain, it could help reduce overpayments or mis payments, cutting down on the time needed for reconciliation. So, how exactly does this help address the supply chain crisis? Well, “greater traceability and transparency eliminate waste, duplicate orders and accounts payable headaches such as invoice fraud and rogue spend.” By eliminating waste, it can ultimately help cut down on costs, and save time, leading to greater overall efficiency.
Greater coordination
Finally, blockchain can enable more coordinated supply chains. As blockchain relies on a shared, distributed network infrastructure, as opposed to each party in the supply chain using their own Enterprise Resource Management (ERM) platform, it can help improve communication and collaboration for all involved. It can also help increase accountability of all parties involved in the supply chain:
Let’s use the example of a bank to demonstrate how greater coordination can lead to more efficient and less labor-intensive supply chains. Banks often spend a substantial amount of time and resources conducting physical audits and financial reviews to verify transactions. Alternatively, imagine every financial transaction in a supply chain is recorded on the blockchain, enabling all parties to easily audit all transactions, ensuring money is where it should be, without the need for a physical audit and a lot of back and forth between parties.
By enabling greater communication, collaboration, and coordination among supply chain actors, it can help reduce costs and the amount of manpower that must go into important supply chain functions, resulting in more efficient and less wasteful supply chains.
Conclusion
The immutable, efficient, transparent, and open-source nature of blockchain makes it a perfect and natural fit for supply chains. These features can help revamp clunky, disjointed, and outdated supply chains, leading to cost savings, greater efficiency, and less waste, all while creating greater transparency for consumers and organizations.
As the supply chain crisis continues to drive inflation, greater efficiency could help reduce costs and take some of the pressure off supply chains, ultimately helping address inflation and reduce the costs consumers pay for goods.
The supply chain crisis is massive, and blockchain alone won’t solve it. However, blockchain-based supply chain platforms can, and should, be a part of the solution by creating more efficient, transparent, and coordinated blockchains.
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