By: Shashank Sharan, Consultant, Blockchain CoE

The world is run by trade. An efficient supply chain to realize this exchange of goods and services, is at the center of every business- getting your inventory where it needs to be, as quickly as possible with improved visibility. In today’s ever changing world, digital business is altering execution models and how we conduct business. It is changing how businesses communicate, interact and transact with customers, partners and suppliers. As businesses become more dependent on global supply chains for goods and services, new technologies that reinvent the traditional supply chain in order to assist in adapting to the ever-changing global customer demands and expectations, assume prime importance.

Supply chain riddled with inconsistency
A lot of inconsistencies appear across the supply chain today. One of the biggest hurdles that businesses face right now, is dealing with the existential information asymmetry in the production process, along with tracking and tracing of the assets before, during and after shipment in real-time. There is a threat of asset fraud as well, for example in cases, where a shipped asset is knocked off at the warehouse without the buyer knowing. Any defect seeping into the supply chain is difficult to backtrack, which ultimately leads to quality issues in the final product.

Additionally, there is the problem of overpaying for an inventory to cover for the actual asset lost in transit. A lack of visibility, transparency and accountability across complex supply chains limit better prediction and prevention of disruptions and inventory imbalance. Since the nature of ownership is distributed, this means there is no one party that is accountable.

Blockchain is the answer to many of these issues.

The Blockchain advantage
Blockchain technology fosters trust among the supply chain members and also reduce the middlemen presence by helping create a shared, distributed ledger of information that can be accessed in real-time by all member entities, giving everyone access to the same up-to-date information across the supply chain. It prevents any individual entity from making changes to the stored data, without the consensus of the known participants in a transaction. Once new data blocks are added to the chain, those records are immutable. Similarly, supply chain payments cannot be fabricated, which reduces the risk of fraud and also tackles the problem of double spending.

Blockchain technology also helps track provenance of an asset throughout the supply chain, consequently assisting in keeping a check on the product quality as well. It thus provides the supply chain stakeholders with increased visibility and accountability over end-to-end supply chain transactions. Blockchain, as such, brings transparency and tracability to a once opaque market, assists in mitigating associated risks, as well as helps reduce administrative costs throughout the value chain. Blockchain also helps businesses remain up-to-date and compliant with the government or industry regulations, by helping to avoid problems of counterfeit goods and unethical sourcing of goods and supplies from black market by unscrupulous suppliers and other third party vendors.

Transformational use cases of blockchain in Supply Chain
There are a number of potential supply chain use cases for Blockchain. Blockchain technology can be leveraged to automate the supplier payments, with direct, rapid and secure payment fulfillment possible. In the electric power industry, blockchain can be used to provide capability for automating the redistribution of excess power capacity by providing sufficient transparency and control over undue leakage and theft, further optimizing the supply network. Blockchain can also be used for efficient trade financing with improved visibility across the supply chain transactions and payments. Blockchain can also be leveraged for easing document sharing across the supply chain, by providing centralized updates to all the supply chain stakeholders. Some other use cases are traceability and counterfeit protection, procurement optimization and smart contracting, and import/export process simplification.

Potential risks
However, there are several challenges that need to be dealt with before blockchain can really proliferate across supply chains. One of the key challenge is the integrity and quality of initial data entered into the blockchain. Another obstacle is ensuring the integrity of supply chain participants- tracability of the supply chain would fail if upstream producers misinterpret the provenance and quality of asset in the blockchain.

Overall, governance and set standards are other challenges to implementing blockchain integrations to manage supply chains on a truly global scale. With laws and regulations varying from country to country, the transaction life cycle should be compliant across the supply chain, which becomes difficult to map across the entire value chain. For truly global scalability, there needs to be interoperability across public and private blockchains as well, which will require agreement on best practices, technology standards and contract structure across international jurisdictions and borders.

In conclusion
Blockchain is a very powerful tool which could slash the cost of transactions and reshape global supply chains, enabling tracability, transparency and driving positive change. Accelerating B2B payments by a few days globally, would in turn, affect the cash flow in the form of GDP, paving way for dramatic growth of economies around the world.

Although blockchain provides the silver lining in the supply chain domain, businesses should fully consider both the advantages and the limitations of the technology and the implications for the supply chain members, before integrating the same into their businesses. Successful blockchain integrations will facilitate large numbers of partners, creating new ‘platform’ solutions for business. Companies should strive to build ecosystem of partners and the supporting governance required to make the winning platforms.