Why Blockchain is The Next Breakthrough in Supply Chain Management

July 4, 2017

Blockchain is not a new technology. If you’ve ever heard about Bitcoin, you sure already knew what blockchain technology is about. What you may not know is that in the logistics industry, applying blockchain technology can revolutionize your supply chain management. Blockchain is being hailed as the game-changer and the key to the future of logistics management. 

 

Many international corporations and FMCG companies like Walmarts, Co-op… are utilizing blockchain to its supply chain management. You should, too. Let’s see why.

 

First, what is blockchain?

 

If you still haven’t had a clue about what it is: blockchain is a decentralized database locked down by smart cryptography. Blockchain acts like a “shared ledger” to digitally store all the tracking data of a product, from its raw production stage until it lands on consumer’s hand, in real-time. Each product’s activity will be recorded as a “block” with a time-stamped, unique alphanumerical character set and accessible by all supply chain’s parties.

 

 Co-op uses blockchain to track the flow of tuna from being caught to customers (Source)

 

Simply speaking, this is a coding technique that allows all-time product’s data verification and product flow tracking between different parties across borders without the need of intermediaries or massive manual record-keeping work. You’re able to know who did what and when with just a few clicks to access the archived data.

 

Instead of just one entity holds the access to the database, now all the information is visible to everyone in the network. You can directly check all data recorded during the flow of a product without having to rely on a central administration like in the traditional centralized database. More than that, all the data are secured, automatically synchronized and replicated online so they’re free from human errors.

 

Secure, sleek, transparent and powerful – that’s what blockchain technology brings about.  

 

Transparency and the problem of today’s supply chain management

 

There are many entities involved in the process of product making and product distributing, especially FMCG industry. Hence, there are hundreds of steps in turning raw ingredients into the final consuming product put on the market’s shelf ready for customers to pick up. These gaps make it a “myth” of product’s origin as well as real product’s costs for both supply chain managers as well as customers. Consequently, monitoring a cost-saving and efficient supply chain management becomes a nerve-wracking task.

 

Example: Processes in palm oil supply chain (Source)

 

The lack of trusted exchanging information during product’s flow not only fails to reflect the exact product’s production costs but also poses a great difficulty in product’s investigation when there is corruption occurs during the process such as counterfeit products, food contamination, environmental damage, information exploit, labor abuses or other illicit activities, etc.

 

Take Chipotle case for instance. The company’s marketing value lies in its fresh, hormone-free and locally grown ingredients – which also increases the risks of food safety failures even if there’s a small hole in the supply chain process. The E. Coli bacteria outbreak in 2015 at Chipotle’s outlets seriously damaged the company’s reputation as well as sales, “as the stock remains 42% lower than its year-ago levels” [1]. The same story goes for the case of tainted milk with melamine which not only swept away the reputation of China’s food exports but also damaged the domestic dairy industry [2].  

 Chipotle’s stock before and after E. Coli breakout crisis [3]

 

With time, transparency in supply chain has become a great challenge for businesses as it’s one of the important factors to draw customers’ attention – report says that 30% of UK consumers are concerned about the origin of products and other product manufacturing issues [4].

 

How blockchain benefits supply chain management?

 

#1 - Brings error-free product tracking data for better supply chain management
 

Blockchain technology doesn’t require a scanner or other similar methods to verify information, so it can automatically record information of all kinds of products in all sizes. And no more paper-based documentation – it doesn’t involve human manual tasks in the process; hence, blockchain is perfectly auditable. The peer-to-peer transmission nature of blockchain gets every single interaction during the product’s flow seamlessly recorded and archived. There are no single points of failure, and the database can recover easily from every possible damage scenario.

 

 

So, now you can cut down the huge cost of the administrative tasks as well as ensure the high accuracy of your product data to utilize them for other supply chain management’s tasks like better planning or better risk prediction.  

 

#2 - Builds trusted and secured database to foster transparency in supply chain
 

Using blockchain, once the data is verified and recorded, it can’t be altered or hacked. This is done via the smart contracts where certain cryptographic conditions are required to validate and allow transaction completion. You can say that blockchain prevents corruption usually seen in traditional database keeping where people change the product information on their own will to benefit from it. Also, with the unique authentication required to interact with blockchain, security risks are drastically reduced to the minimum.

 

 

Thanks to the accessibility of the whole network, everyone has the equal and mutually agreed information to look up. This helps increase trust among suppliers in supply chain and hereafter, provides better mutually collaboration among the whole system. Furthermore, businesses can gain more trust from customers by letting they know the product journey and help customers with their buying decision. This value can be considered as one of the advantages for businesses to win over more customers.

 

Trust and transparency are the biggest values that blockchain technology benefits logistics management.

 

#3 - Accelerates productivity while simplifies faults tracking in the supply chain
 

When there are trust and transparency built between entities in the supply chain, all product-related interactions will become faster, smoother so there will be higher transaction volumes, hence, higher productivity.

 

The great benefits of blockchain don’t just stop there. Since every product transaction is stored in a decentralized database in a chronological order, it’s dead simple and time-saving to track back to fault attempt in the chain. It also helps supply chain managers to react promptly to supply chain crisis. Like in the case of Chipotle, if they have had used blockchain for tracking the source as well as the quality of the raw ingredients in their food, they might have discovered the E. Coli bacteria sooner and got rid of the infected ingredients before selling them to customers.   

 

The case of Chipotle has become a wake-up call for not only many restaurants but also other FMCG companies. Tracking down the initial source of food and other products has gained much attention from supply chain managers. At the beginning of this year, Walmart has started to apply blockchain technology in tracking and tracing pork production in China and in the U.S [5]. Co-op is also the first supermarket to try blockchain technology and pioneer to improve the authenticity of its food which called “fair trade for the digital age” [6].

 

Blockchain: here’s to a better supply chain management

 

Blockchain technology is decentralized, accessible for everyone, cryptographic, capable of storing a massive amount of information automatically and synchronically. These advantages encourage trust between non-trusting entities within supply chains. The more trusted information exchanged between parties, the more transparency there will be. Hence, it enables much more effective supply chain management.

 

Are you in for blockchain and grab a ticket to take your supply chain management to the next level? Let’s share this article and tell us your thoughts!

 

Reference: 

[1]http://www.cnbc.com/2016/10/31/one-year-after-chipotles-e-coli-crisis-chain-still-struggling.html

[2]https://www.forbes.com/sites/yanzhonghuang/2014/07/16/the-2008-milk-scandal-revisited/#199e7ac34105   

[3]https://www.forbes.com/sites/kevinomarah/2017/03/09/blockchain-for-supply-chain-enormous-potential-down-the-road/2/#34aaeddc3832

[4]https://www.lucs.lu.se/wp-content/uploads/2017/01/kkeg17_littsem-1_sustainable-consumption.pdf

[5]https://blogs.wsj.com/cio/2016/12/16/wal-mart-readies-blockchain-pilot-for-tracking-u-s-produce-china-pork/

[6]http://www.cityam.com/248873/co-op-exploring-blockchain-technology

 

 

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