Blockchain in Supply Chain Management

It is evident today that the modern world is seeing more and more wealth created, and that the economies and markets are connected via increasingly sophisticated routes of global trade. Global supply chains underpin the macroeconomy and global markets and are therefore of key importance for a smoothly running economy.

The management of supply chains has a direct impact on a company's competitive positioning and ultimately its long-term success. Therefore, enterprises are continuously improving their supply chains by finding new ways to make them faster, more flexible, more efficient, and more accurate. Blockchain technology can assist enterprises in achieving this goal and is already being applied in more and more enterprises.

By Jan Breker

01 Jul 2020


Challenges in Supply Chain Management

During the previous few years, the management of supply chains has changed dramatically as a result of new expectations and technological advances. Despite these advancements, such as the application of big data analytics and the incorporation of Internet of Things (IoT) devices, supply chains can still dramatically improve efficiency, transparency, and limit exploitative behaviors.

Supply chains are highly complex and involve many companies working together in order to achieve the end goal. They often manage their data separately in their own internal IT systems which are not always able to communicate consistently with each other. It can take considerable time and effort to track a components' origin and route, which can cause delays, lead to errors, and ultimately result in additional costs.

For instance, according to several studies by the international ocean advocacy organization Oceana, seafood in the US is mislabeled up to 43% of the time [1]. Many processes along the supply chain are still paper-based reducing transparency and increasing the likelihood of mistakes. According to a report of DHL and Accenture, 10% of all freight invoices contain inaccurate data [2].

For individual customers as well as for companies it is extremely difficult to truly know the value of products, due to a significant lack of transparency along the supply chain. Whether a specific product or component fulfills quality, environmental and ethical standards, it cannot be easily traced and hence guaranteed.

The UN Environment Programme estimates that 15 to 30% of the global timber production is illegally obtained [3]. In addition, Minca, which is a mineral used in many electronic products is often sourced from illegal mines by child laborers [4].

Another growing problem is the trade of counterfeit and pirated goods which has risen steadily in the last few years and now makes up around 3.3% of the global trade [5]. In particular consumer goods such as electronics and pharmaceuticals fall into this category.


Benefits for Enterprises

Blockchain technology offers a solution to these issues and has the ability of benefiting enterprises in many ways.The key characteristics of blockchain technology, decentralization and immutability, play a key role in this context. Decentralization means that data stored on the blockchain is visible to all supply chain participants. Immutability refers to the fact that data stored on the blockchain cannot be tampered with or changed by an individual.

These very important features lay the foundation for transparency and traceability in ways that have never been attainable before. Through blockchain technology, enterprises can follow a product in detail all the way from the sourcing of raw material, right up to the sale of the product. Transparency and traceability allow for great benefits in supply chain management.

Blockchain helps to identify inefficiencies and cut costs

Utilizing blockchain technology, companies are able to gain an all-encompassing overview of their supply chain processes and activities. This enables them to identify wasteful inefficiencies and implement targeted cost-saving measures.

For instance, paper-based documentation and bureaucracy can easily be reduced through a blockchain based supply chain system. Processes, such as purchasing activities, can become automated and faster through the use of smart contracts and customs transactions. As a result, blockchain technology leads to leaner processes, the identification of human errors and the avoidance of delays.

Blockchain helps to improve quality assurance

Enterprises can assess both their own performance and that of their partners. They can monitor exactly whether corporate standards, regarding quality, environmental, and social issues are met. This allows enterprises to react on non-compliance and to implement changes quickly, thereby improving quality assurance.

Blockchain enhances corporate reputation, credibility, and trust

Using blockchain technology within a supply chain also enhances corporate reputation by providing transparency of the various components used in the products, and also strengthens credibility and public trust of the data they share. Customers can reliably check the origin, the components and handling of the product, therefore increasing their level of confidence when purchasing the product.

Blockchain enables new partnerships

Blockchain technology can also have a significantly positive impact on partnerships and connectivity across supply chains. With blockchain technology, it is possible to interact with other enterprises in a trustless and secure way, opening up enterprises to more potential partnerships and collaborations. Simultaneously blockchain, reduces potential public relations risks from supply chain malpractice.

Blockchain secures data integrity and protects against corruption

Immutability of data guarantees its validity and accuracy along the supply chain, and avoids instances of data loss, coupled with preventing internal malpractices and manipulation, since changes to the data are immediately detected. This allows for an easier and more efficient regulatory compliance and auditing process.

Blockchain deters counterfeit and fraud

Blockchain technology enables individuals and companies to identify the source and originality of products, hence preventing counterfeit and fraud. This lowers the losses related to counterfeit goods for companies.

Blockchain Technology Applied

Blockchain technology has already been applied in many enterprises. Some of the most well-known use cases of blockchain technology in supply chain management are those of Walmart and BMW, which utilize blockchain technology to improve quality and to optimize their processes.

Walmart - Blockchain for Food Safety [6]

Walmart envisioned a fully transparent and safe food system and started a pilot project for food safety in 2017. Walmart was fully aware that apart from low prices, availability and services, its customers require the products they buy to be safe. In case of implications with the product quality, it is important to act fast and to identify the affected product.

In the past, this has turned out to be difficult as the food system is very complex, with many different players and many different traceability systems. Additionally, many suppliers still use paper to record and track their products, which makes it impossible to trace food/products easily. In 2018, an infectious outbreak could not sufficiently be traced back and caused hundreds of infections and five fatalities in the US [7].

Blockchain allows Walmart to trace the products quickly, helps to identify, isolate and remove the contaminated product to not only save costs, but also to prevent further infections, and hence leads to fewer fatalities. In addition, it also creates transparency, and furthermore allows Walmarts customers to see how responsibly and sustainably it is produced, and at which location.

Benefits of the Initiative:

  • Monitor food safety quickly and efficiently.
  • Create transparency for products.
  • Reduce costs that occur through slow reaction regarding violation of food safety regulations.
  • Increase food transparency and shipment efficiency.

The pilot was completed and Walmart announced that it will require suppliers of leafy greens to upload their data to the blockchain by September 2019. So far it has expanded to more than 80 members and has tracked over 1300 products so far [8].

BMW - Blockchain in Logistics Operations [9]

BMW uses blockchain technology to optimize its processes and to trace components reliably through its supply chain. The automotive industry's international supply chains are even more complex and involve even more participants with different tracking systems. Consequently, there is a low degree of visibility, and hence a considerable effort has to be made to track components reliably.

In 2019, it has introduced a pilot project called PartChain, a blockchain platform that enables immutable and consistently verifiable collection and transaction of data in their supply chain. The pilot project involved the two BMW plants, Spartanburg in the US and Dingolfing in Germany, as well as three locations of the supplier Automotive Lighting. With this new system, BMW and its partners receive accurate and transparent data and can seamlessly trace the components along the supply chain, therefore allowing BWM to easily identify inefficiencies and reduce costs.

In 2020, BMW has planned to continue and expand the project to around 10 suppliers.

Benefits of the Initiative:

  • Allowing data within supply chains to be exchanged and shared safely and anonymously throughout the industry.
  • Create transparency for the products.
  • Decreasing costs through automated tracking.
  • Increase supply chain transparency through tracking the components' origin and supply route.

Lisk Supply Chain Tutorial

Enterprises can greatly benefit from incorporating blockchain technology in their supply chain. You can easily build your own simple decentralized supply chain tracking system with the Lisk SDK by following our Supply Chain tutorial.