Let's explore the use-cases of Blockchain for supply chain industries.
What Is A Supply Chain?
In a nutshell, supply chains are a system of organization, people, information or resources involved in moving a product or a service from supplier to customer. Simply put, a chain of supplies changing hands until it ends with a consumer. Depending on the product, the supply chain can span over hundreds of stages, multiple geographical (international) locations, a multitude of invoices and payments, have several individuals and entities involved, and extend over months of time. A blockchain can, in theory, solve many of the problems faced by today's supply chains because of its visibility benefits.
Supply Chains exist in almost every industry. To name a few:
- Beauty and Fashion
- Food & Beverage
Let's take a look at some challenges faced by supply chains
Challenges Face By Supply Chains
Supplier/Partner Relationship (Trust between parties)
It is important to establish good relations with all the players involved. Parties include wholesalers, distributors, manufacturers, and vendors. Relationships need to focus on growth. It is easy to realize how trust can be an issue when each party is highly likely to focus on their own gains as compared to the overall supply chain. Therefore, it is important for all parties to have access to a standardized form of data.
Reducing cost across the supply chain is an important focus for enterprises as it affects profit margins. Globalization has offered an opportunity to move manufacturing operations to countries with lower labor cost, lower tax, lower costs of transportation and procurement of raw materials.
Moving into these countries will no doubt reduce the overall cost of production. A global production process involves a great deal of coordination and collaboration as more parties will be affected. The risk of losing control, visibility and proper management are high unless the entire process can be integrated with a localized system.
Compliance & Integrity
In tandem with globalization, businesses are impacted by more regulations. Each country, state, and municipality regulates differently and supply chain businesses must understand local requirements to audit the compliance of local suppliers and channel partners. Likewise, with products or materials being transported through different states or across countries, the lack of automation in compliance filings can incur huge costs. A good example is the U.S. Conflict Minerals regulations which require U.S publicly-listed companies to check their supply chain for tin, tungsten, tantalum, and gold if they might originate from Congo or its neighboring countries. Another is the UK requirements to have a supply chain free of slave labor. Both are noble and worthwhile causes, yet both pieces of regulation present real challenges in supply chains that are increasingly complex to demonstrate compliance.
Lack of Automation
Human error is a natural occurrence and cannot be completely eradicated. Supply chain relies heavily on the report and administrative tasks by humans. With so many factors at play, the lack of safeguards for human error can potentially cost supply chain companies a lot of money when an error occurs.
Is Blockchain Technology The Solution To These Challenges?
In theory, yes. Together with Internet-of-Things (IoT), blockchain technology addresses several issues currently faced by supply chain companies. Blockchain can ensure connectivity and clear communication across the supply chain. Thus, ensuring that each supplier can prove and maintain compliance. Customers can also benefit from the increased visibility of product movement, thus ensuring long-term customer loyalty.
Transparency in Auditing
Having a ledger that clearly states when a product exchanges hands or who it goes to can drastically reduce the time (and cost) taken for a supply chain audit. The blockchain can help supply chain auditors make more informed decisions about which suppliers to audit, where to focus auditing resources, and which recommendations to make based on the findings.
Enhanced Social Responsibility
In an article written by SustainableBrands, consumers nowadays expect companies to be mindful of social and environmental issues. Consumers are highly likely to select a brand or product in line with their personal ethics. Therefore, with a blockchain, supply chain companies can offer greater visibility on the exchange of hands for goods- does the process include sweatshops, slave labor, include known vendors that contribute to environmental issues etc.
Accurate Transportation Data
A blockchain that increases visibility as it can offer real-time data access and better information sharing systems. Certainly, having a Blockchain can provide standardized method of recordkeeping that can be interoperable by all parties in a supply chain.
Prevent Compliance Violations
The cost of keeping in line with different compliance in different countries is high. Ignoring regulations can result in high fines. In 2013, Bureau of Industry and Security fined a Texas Company $100 million for export violations to Iran, Syria, Cuba, and other countries. The blockchain, with its decentralized and interoperability solutions, can, again, standardize the data collected from suppliers and vendors- stopping violations before it becomes an issue which can result in huge fines.
Blockchain offers clearer and real-time data and it opens up an opportunity to integrate artificial intelligence capabilities as AI uses historic and real-time records in decision-making. By enhancing visibility in the supply chain, it increases the likelihood that processes can be streamlined and automated with other technology. A study by Mckinsey has shown that transparency and visibility in the supply chain can yield huge profits; $75 million in free cash flow. Automating supply chain process stitches together disparate sub-processes into a cohesive end-to-end journey.
6 Examples of Companies Using Blockchain For Its Supply Chain
Walmart employees are tracking some products back to the start of the supply chain. For instance, employees can see which farm it came from, where is it stored, how long has it been out just by scanning its produce as reported by The New York Times. The technology could help customers understand where their food comes from and could streamline the restocking process. According to Cointelegraph, Walmart is working with IBM to use blockchain for its live food business.
Maersk, the world's largest shipping company, completed its first test of blockchain technology in March 2017, looking at how it could help manage its cargo. In the test, Maersk, Dutch customs, and US Homeland Security were all able to remotely access data about the cargo, suggesting the technology may streamline and secure international shipping.
3. British Airways
The airline tested using blockchain to manage data about flights between London, Geneva, and Miami in 2017. The airline hoped to reduce conflicting flight information coming from gate monitors, flight apps, and the airline's website.
The shipping company UPS joined the Blockchain in Trucking Alliance (BiTA), hoping to push for increased transparency among all groups involved in the supply chain. The group is working to develop blockchain standards for the freight industry. UPS now has a patent for blockchain-based shipping system.
FedEx, another shipping giant, also joined BiTA and has already launched a blockchain-powered pilot program to help solve customer disputes. The company hopes the program will clarify what data should be stored on blockchain to best remedy customer issues. FedEx also hopes to use the technology to store records, vice president of strategic planning and analysis. As reported by Coindesk, FedEx CEO stated: “Blockchain has the potential to completely revolutionize what’s across the border.”
On 15th February 2019, Apple has hinted behind-the-scenes blockchain work with their SEC filing. The document began by stating:
"Apple is deeply committed to upholding human rights across its global network of suppliers that support the manufacturing of its mobile communication and media devices, personal computers, and related accessories. Apple works to safeguard the well-being of people involved in its supply chain and to protect the places where materials are sourced. Through its strict supplier standards, Apple commits to use minerals in its products that do not directly or indirectly finance armed conflict or benefit armed groups."
However, it is important to note that while they do not outrightly state they are going to be using Blockchain. Apple chaired the board of the RBA and participated in a number of its internal committees and working groups, including “the blockchain team". The statement from the filing offered a strong hint that Apple is perhaps working on a blockchain solution.
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