Today‘s global supply chains contend with dizzying complexity. Extended networks of suppliers, manufacturers, distributors, retailers and more operate across continents – and discontinuities plague processes. Demand variability, margin pressures, and supplier consolidation roil supply chain visibility and responsiveness. Nearly 50% of supply chain leaders have complete visibility into only tier 1 suppliers, not the full upstream network.[^1] Successfully managing future global supply chains requires embracing emerging technologies – blockchain offers immense potential.
In this article, we‘ll delve into how blockchain transforms supply chain management, from enhancing traceability to automating transactions. We‘ll analyze key benefits blockchain delivers and provide examples of top use cases being applied across procurement, logistics, operations, and beyond. With insights from my decade in supply chain analytics, I‘ll shed light on real-world blockchain benefits and share tips for driving adoption.
What is Blockchain and How Does it Work?
A blockchain is a type of distributed digital ledger technology (DLT) that records transactions in blocks linked together in a chain. As an immutable sequenced chain of records distributed across a network, blockchain enables visibility, transparency, and coordination benefits we‘ll explore shortly.
Public blockchains like Bitcoin and Ethereum operate permissionless networks where anyone can participate. Private blockchains like Hyperledger require defined access controls. Both employ consensus mechanisms like proof-of-work or proof-of-stake to validate transactions without central authorities.
Blockchain‘s distributed ledger structure enables supply chain improvements
Regardless of type, blockchain creates immutable, transparent, and secure records. Here‘s how:
Decentralized: Information gets shared across many participants rather than controlled by a single entity, removing centralized points of failure.
Immutable: Records cannot be altered without monumental computing effort, making data tamper-resistant.
Transparent: All parties can view transactions, enabling trust through accountability.
Secure: Cryptographic functions like hashing preserve integrity and privacy.
Automated: Smart contracts automatically execute actions when conditions are met, boosting efficiency.
These attributes directly address common supply chain weaknesses, which I‘ll cover next.
Why Blockchain is Disrupting Supply Chain Management
Complex global supply chains struggle with disjointed systems, manually intensive processes, limited visibility, and distrust between trading partners. This breeds inefficiencies like:
- Miscommunications from fragmented systems
- Difficulty tracing issues to root causes
- Expensive disputes and reconciliations
- Fraud, counterfeiting, and cybercrime
Blockchain alleviates these pain points in five key ways:
1. Enhanced Traceability
Blockchain‘s interconnected structure creates a transparent map of the supply chain, from raw materials to the end customer. This simplifies tracing each component‘s details including suppliers, manufacturing events, inspectors, transportation methods, and more.
For example, Walmart employs blockchain to trace mangoes from farms in Mexico to store shelves, viewing over 50,000 distribution points in seconds versus weeks prior. This pinpoints issues to resolve quickly.
2. Increased Transparency
With all parties accessing the same blockchain data, supply chain events become visible end-to-end. Trust builds when partners can validate transactions.
A blockchain revealed ethical sourcing violations at an Indonesian factory supplying major clothing brands, providing transparency to rectify practices. Such revelations deepen accountability.
3. Faster Speed
Smart contracts accelerate processes by removing manual confirmation steps and paperwork. They automatically execute actions like awarding contracts, shipping orders, or releasing payments when predefined conditions are met.
Maersk found that blockchain could reduce shipping-related paperwork handling costs by $160 billion annually and slash transit times by 40% by enabling real-time approvals.
4. Tamper-Resistant Transactions
Blockchains exist in numerous identical copies across participant systems. Altering any transaction requires near-impossible simultaneous changes to all copies globally. This makes fraud exponentially harder.
In tests quantifying benefits, Deloitte found blockchain cut counterfeit reports by 70% in one manufacturing scenario, while IBM measured a 40-80% decrease in reconciliation tasks – hours recouped.
With transactions‘ validity and automation both verifiable on blockchain, all parties consistently reach agreement on supply chain actions and data. This facilitates coordination.
By aligning multi-party incentives around shared business logic, blockchain reduces disputes. SAP Ariba users saw a 70% drop in transaction questions after adding blockchain.
These strengths directly tackle supply chain dysfunction. Now let‘s examine blockchain use cases delivering business value.
Top Blockchain Use Cases to Transform Supply Chains
While still emerging, companies are piloting innovative blockchain approaches across supply chain functions:
More enterprises are leveraging blockchain across supply chain applications [Source: Deloitte]
Here are leading examples where blockchain is driving benefits.
Supply Chain Management
Blockchain‘s information sharing and coordination upside enhances supply chain integration. With end-to-end visibility across supplier tiers, companies gain transparency to proactively manage global networks.
Jension Zhang, Foxconn Director of Supply Chain Management, notes: "Blockchain lets us view the entire supply chain process, increasing trust. We‘ve used it to resolve disputes around transaction details in days rather than months."
Research confirms blockchain reduces disruptions like fraud, human error, and miscommunications.[^2]
Lowering Costs
By enabling direct transactions across borders, blockchain avoids expensive intermediaries. Removing these unnecessary costs from supply chain workflows is powerful.
For example, IBM blockchain network TradeLens helps eliminate $800 paperwork costs per shipment. With over half a billion shipping events annually, those savings add up quickly.
Product Recalls
Thanks to blockchain‘s traceability, when recalls occur, finding affected items for removal across channels is faster and more accurate. This streamlines the process and reduces expenses.
Walmart‘s blockchain test tracing mangoes cut the time to trace a package from over a week to just seconds. Applied to recalls, this saves millions in recovery costs.
Combating Counterfeits
Verifying provenance is key to combating counterfeit goods, which accounted for over 3% of global trade in 2016.^3 Blockchain tracks an item‘s full custody history across tiers, simplifying authentication.
Brands like LVMH employ blockchain to provide product lifecycle visibility to customers while deterring duplicity. Confirming authenticity on blockchain mitigates the $323B counterfeit market.
Upholding Ethics
Today‘s consumers demand sustainability and ethical practices. Blockchain‘s supply chain transparency helps prove standards are upheld across global networks rife with risks.
SAP‘s blockchain lets users trace sources and prove sustainability compliance. This caters to customers like Unilever demanding ethical accountability. Transparency builds brand trust.
Optimizing Logistics
Smart contracts enable seamless coordination between customs authorities, logistics providers, carriers, and other entities. This eases shipping across borders.
Microsoft‘s Azure Blockchain Workbench simplified supply delivery contracts. By automatically managing conditions and payments, it accelerated cycle times over 40%.
Supplier Payments
Maintaining cash flow is imperative for supplier health. Blockchain verification triggers automatic payments upon delivery, avoiding delays from manual approvals.
Unilever‘s blockchain trial removed payment friction, creating value for over 5,000 suppliers. According to Technology Director Doug Stephens: "Using blockchain, we can get money to deserving businesses faster."
Food Safety
In food supply chains, blockchain quickly tracks ingredients‘ provenance, handling, and shelf life. This increases safety and reduces waste.
Walmart employs blockchain to monitor pork from Chinese suppliers, improving tracing from days to seconds. Eliminating food-related health issues creates immense value for businesses and customers alike.
After-Sales Service
Product warranties and maintenance are reinvented by blockchain through ownership and digital identity tracking. This automated connectivity improves customer experiences.
When Italian insurer Generali added blockchain to home appliance warranties, customers could validate coverage on resales themselves and claims processing sped up. All parties won.
These examples reveal blockchain‘s immense potential modernizing supply chain transparency, resilience, sustainability and performance. As the technology matures, adoption is accelerating across industries.
Based on my supply chain analytics experience, here are tips to drive blockchain success:
- Start with a limited pilot project and small network to prove value.
- Enlist C-level engagement and alignment across partners.
- Leverage integrations with existing software vs. rip-and-replace implementations.
- Develop metrics to track benefits relative to a baseline.
- Use permissioned blockchains to balance openness with privacy needs.
Want to discuss blockchain opportunities for your supply chain? Reach out to explore our decade of expertise.
[^1]: “Supply chain disruption and resilience.” McKinsey, 26 August 2022, https://www.mckinsey.com/capabilities/operations/our-insights/taking-the-pulse-of-shifting-supply-chains. Accessed 19 November 2022. [^2]: Alkhudary, R., Queiroz, M. M., & Féniès, P. (2022). “Mitigating the risk of specific supply chain disruptions through blockchain technology”. Supply Chain Forum: An International Journal. pp. 1–11. https://doi.org/10.1080/16258312.2022.2090273