Blockchain in Supply Chain Management

What is blockchain?

    Blockchain can be termed as a distributed digital ledger and these ledgers are recorded in a chronological chain of transaction called blocks. Records of this transaction are spread across multiple computers around the globe and each computer is called nodes. Each block uses a cryptographic hash function of the previous block, transaction data and time stamp. The architectural design of blockchain reduces modification of data and its transaction is highly secured that each transaction is linked to the previous block and reduces tampering or making it literally impossible.

    Blockchain was introduced as a public transaction ledger of cryptocurrency ‘Bitcoin’ in 2008. But its scope is more than the digital currency transaction. Blockchain can be used where a permanent, transparent public ledger is needed like that of financial records, medical areas, supply chain, and logistics, real estate data management etc. Supply Chain is one area where there is a tremendous scope for blockchain technology. Blockchain in Supply Chain Management facilitates easy execution of more secure and transparent tracking of all kinds of transactions pertaining to areas such as product traceability, supplier payments, logistic transaction details, contract bids, and execution.  

Supply Chain Management

    The supply chain is a process of sourcing, making and distributing of goods and services in real time and place in the right amount of quantity. In the supply chain, two or more parties are involved and connected to each other for fulfilling the customer’s demand. Supply chain management is all about management with regard to the flow of goods and services and it includes all processes that can transform the raw materials into finished goods. Supply chain management encompasses the coordinated planning and execution of process needs, an optimized flow of materials, finance information in the area that includes demand, raw material planning, production, inventory management, and logistics.

Intermediaries and challenges in a supply chain:

In a normal supply chain includes a company its suppliers, transporting agents, sales agents, and customer of that company.

    The process of the supply chain becomes more complicated when a number of parties are included. Another import intermediaries included in this process is a financial institution, software vendors and marketing researchers and many more. Sometimes this people may take help from other entities to fulfill the need of this chain. When more and more people are included in the supply chain process it becomes more complex and difficult in managing and rendering. If the company wants to have an effective supply chain then it should manage all the above flow. When more companies enter into global market to offer their services it starts to face new challenges like that of being unaware to the global trade policies, financial transaction policies, import and export regulation, cultural and social differences, currency exchange rates, legal process, and other monetary policies create huge expenses and profit sharing. Building trust and reputation between parties is another important thing that supply chain need to maintain. In most case, this ends in disputes and later to complex legal issues. All these require a large amount of money and time, therefore it is better to avoid unwanted resource flow, thereby helping the economy to move forward.

Blockchain and Supply Chain

    1. Transparency enhancement :     

    If documents of a product's details transfer across the supply chain and reveal its true origin and every halt point, and this will create a greater trust between parties and eliminates the bias found in today's vague supply chain. Blockchain in Supply Chain allows transparency, and also privacy. So, it can show that a source in a supply chain is trusted while not giving away the actual name of that source. 

    2. Scalability:    

     With blockchain in supply chain management, any number of the complex transaction from any point is possible.   

    3. Security:    

    A shared, indestructible ledger with codified rules(smart contracts) could potentially exclude the audits required by internal systems and thus keep the data secure will reduce tampering.   

    4.Trust Building:  

   By building a transparent data a clear trust is built across the trading partners about each supply chain process. This could reduce fraud and errors and could build trust and reduce the time spend on transit and another shipping process will ultimately improve inventory management efficiency and will lead to customer satisfaction and trust.  

    5. Smart Contract  

  A smart contract is a code of programs that are used to connect to the blockchain. In other words, they are the digital agreements made between the parties in written codes and later deployed to a blockchain. Every action in blockchain is triggered via using smart contract. Each action is stored and keep updated every individual node whoever participate in that blockchain. For example, if an order has been received smart contract can trigger them to contact suppliers for getting the raw materials, or a condition has not been satisfied it can trigger a penalty or any corresponding action can be taken. With the implementation of blockchain to the business, the process of manual checking of events can be avoided and every party can be informed and updated about a particular action. Thereby creating a transparency within the business process. The smart contract can benefit supply chain management in three key areas : 

    6. Traceability:   

  One key aspect of blockchain smart contract is that it will help a shared secure record of supply chain information in a single version of the truth across networks of supply chain transactions. Inventory tracking across the supply chain will help in maintaining a continuity of supply. By a common database to refer to a smart contract can improve traceability over the blockchain by allowing inventory to be tracked at every step along from the raw materials to the final customer. This will helps in better asset and financial management also.

    Provenience of goods and services will assure the quality, trust to customers and also provides a transparent, credible and high stake reputation to the company. The efficient smart contract will help in providing accurate data and can also make an assurance that their required raw materials and services are coming from a reliable source. The end customer can be more confident in their actions that they are purchasing a legitimate product by allowing digital identification created within the smart contract.   

     The smart contract in the supply chain can enhance efficiency in two aspects- process and cost. Process efficiency can be improved as smart contract execute on a distributed data helping to simplify the complex systems currently present. Here, the cost reduction relying on computer code is easily customizable for executing certain agreements and documentation maintained by each party become lower. Also, the amount of manual effort undertaken will lessen via implementing a using a single database.