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Blockchain in the Supply Chain: Hype or the Next Big Thing?

10.30.2017 | By Chris Pickett | 3 min. read

Blockchain is a technology that has the potential to provide decentralized, tamper-resistant, paperless supply chain automation. It’s based on Bitcoin – a secure virtual currency – and a self-auditing ecosystem.

However, blockchain logistics management has yet to mature to the point of universal industry acceptance. It competes on an uneven playing field with cloud supply chain technology, a system that many companies are deeply invested in.

Blockchain: Defined

Blockchain is a protocol for a shared supply chain ledger and tracking system. Authorized users log in via an encrypted connection to update supply chain transactions. Updates do not overwrite original data; instead, they accumulate in a sequential block, using a process that even a system admin can’t alter.

Blockchain technology uses a network of decentralized computing nodes, meaning it’s not hosted on a centralized server. Each node shares an administrator role and joins the network voluntarily. This setup serves as a tamper-proof way to verify transactions and simultaneously update every administrator’s copy of the running ledger at one time.

Disadvantages of Traditional Supply Chain Documentation

At every step of the process, from ordering to delivery, traditional supply chain technology employs separate databases and ledgers for each user. That multiplicity makes the process vulnerable to error, fraud, inefficiencies, and disputes.

These weaknesses occur because:

  • Separate ledgers increase the odds of human error and fraud
  • Relying on third-party validation (intermediaries) adds another layer of expense and complexity
  • The process is paperwork intense and can result in delays

So how does blockchain solve these issues? A blockchain digital ledger has the following benefits:

  • Produces a single, shared, tamper-evident ledger
  • Each member of the network has secure access rights and can share confidential information on a need-to-know basis
  • Network members must agree to and validate each transaction
  • Once recorded, a transaction becomes a permanent, unalterable part of the ledger
  • You can see proof of ownership and transfer of ownership from one point to another
  • No third-party authentication is required
  • It employs encrypted access, which is more secure than traditional IT supply chain solutions
  • Data is not stored centrally; it’s stored across the entire blockchain network

As you can see, there are a great number of benefits to using a blockchain ledger. Now let’s look at how it’s being used.

Practical Blockchain Applications

In a Forbes magazine article, Steve Banker describes two interesting applications of blockchain technology in supply chain management:

  1. Auto-Bidding on Shipments
    After attaching RFID tags with delivery deadlines to pallets, a blockchain mining application could seek bids for the right to move a load. Then, the RFID tag could award the job to the lowest bidder. Once assigned, the blockchain network could continue tracking the shipment through to its final destination.
  2. Reducing cost in global supply chains.
    When big firms buy goods from small manufacturers, those suppliers are typically slow to receive payments. Because of this, small suppliers must rely on price factoring finance arrangements for sufficient cash flow. Blockchain has the potential to speed up the payment process and reduce or eliminate those cash flow pain points.

While these applications sound promising, there’s a catch.

Blockchain Technology is Still Immature

Banker acknowledges the prominent blockchain advantages in cybersecurity. However, the “hype” is mostly about the imaginative possibilities and room for future adoption. There are still major impediments to widespread adoption of blockchain in supply chain management in the short term.

For example:

  • Lack of technology talent as financial tech firms lure qualified programmers away from the supply chain industry
  • Difficulty in starting up the network nodes
  • Scalability issues between large and small companies
  • Latency issues in validating data along the blockchain process

So, blockchain as a technology for supply chain managers is still immature. However, it is a back-end resource, which could break out of its confines in the future. If and when it does, supply chain solutions vendors could have some serious competition.

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