Supply chain departments are rarely the first ones to incorporate technological changes. Only a handful of them show interest in using mobile applications, engage with real-time data, and take advantage of the sharing economy. It’s necessary to know that the three factors mentioned above form the backbone of supply chain management.
Now let’s focus on the central question of how blockchain will transform supply chain management. But before that, it’s essential to understand Blockchain and how it’s impacting today’s economy.
What is Blockchain?
Blockchain stores all transactions that occur between various parties. It’s a digital ledger and every stakeholder in the chain has a copy of it. The best part about Blockchain is that it provides tremendous security because the transaction records cannot be tempered and no party can unanimously make any changes. The more partners there are in the chain, the more digital copies will be made, thereby enhancing the security.
There are two types of blockchains — public and private. Public blockchains are available to everyone. Bitcoin is an example of a public blockchain where anyone living anywhere in the world can participate.
Private blockchains improve digital security further by allowing only authenticated parties to participate.
Role of Blockchain in supply chain management
Multiple industries are exploring the use of blockchain technology. The adoption rate is the highest in the Fintech and banking sectors and it’s increasing rapidly in the other sectors, especially the supply chain management segment. Blockchain in supply chain management will help stakeholders pay bills using a secured route and instantly transfer business-critical documents.
Let’s see in detail the latest developments happening in the blockchain that will improve supply chain management.
4 ways blockchain technology will transform supply chain management
1. Smart contracts will transform supply chain management forever.
Smart contracts are contracts that can be automatically executed when the involved parties accept the terms and conditions. The best part is that the contract clauses can be transformed if there is any emergency — natural calamity, pandemic, change in government policies — if all the involved parties agree. It also saves a lot of complicated paperwork that goes into signing contracts. Smart contracts significantly increase execution speed and eliminate human errors.
2. Blockchain technology can significantly increase trust and security.
Recent times have shown how dangerous online transactions can be. Many companies have lost hundreds of millions of dollars due to online fraud and the number is only increasing. And since supply chain companies involve multiple parties, it’s essential to make financial transactions as safe as possible. Blockchain in supply chain management allows secure and instant transfer of business-critical documents like cash receipts, shipping documents, cross-border chain transactions, and bills of lading. A small error in these documents can lead to huge losses and create distrust among other parties. Blockchain technology will transform supply chain management by speeding up payment processes and asset transfers.
3. Blockchain in supply chain management will change the methods for data exchange.
Blockchain will transform supply chain management by revolutionizing the methods for data exchange. Today, almost all contracts involve some paperwork or exchange of documents. But with the implementation of blockchain technology, it will change forever. Companies can send essential documents using blockchain technology. This process will eliminate the time involved in getting and transferring forms involved in shipping the goods, which include:
a. Custom papers
b. Bills of Lading
c. Proforma Invoice
d. Packing List
e. Commercial invoice
f. Shipper’s letter of instruction
g. Certificates of origin
h. Goods forms
i. Bills of lading
j. Bank drafts
Moreover, blockchain technology in supply chain management will also eliminate the multiple third parties that oversee financial transactions.
4. Challenges for Blockchain in supply chain management
Although blockchain has the potential to transform supply chain management forever, it also has numerous challenges.
a. Technological barriers: Blockchain needs to update its digital ledger continuously. So as the number of transactions increases, the operation speed decreases. This process causes the system to become inefficient.
b. Bringing all stakeholders to a single platform: It’s challenging to bring all the relevant stakeholders to a single platform. Most of them shy away from complying with the typical regulatory standards on data exchange that all the involved parties have to follow mandatorily.
c. Blockchain cannot authenticate the product’s physical reality: Blockchain is a digital ledger that stores tamper-proof transactions and allows all the involved parties to crosscheck them. But they cannot authenticate whether the physical product exists in the world.
Blockchain in supply chain management will transform the industry forever. Different parties will be able to instantly transfer critical business documents and make the process more secure and convenient. It will remove paperwork by introducing smart contracts and will significantly improve the trust between different parties. You can implement blockchain technology in your supply chain management company by integrating it with your Customer Relationship Management (CRM) software. It’s the easiest and quickest way of drawing the benefits of blockchain technology.