What is Blockchain and How Will It Impact Supply Chains
Paul Trudgian Ltd | Supply Chain & Logistics Consultancy No Comments

Currently, there is a lot of talk about Blockchain technology. Blockchain technology has been driven by the financial services industry to provide a practical algorithm, designed for cryptocurrency, that drives a distributed data structure in relation to electronic cash movements.  Blockchain has been invented to replace the administrative role of a central bank and the technology can therefore be used as a repository and distributor of virtual money.  That’s its use for financial services, but how will it impact supply chains?

The practical application of Blockchain means that you can have a virtual bank where you can accept deposits and complete business transactions. What differentiates Blockchain to traditional banking is that with this type of banking there is no regulatory restrictions, monitoring, business hours or other types of restrictions placed upon it. However, Blockchain is becoming more than it was originally intended to become. That is because it is a transparent and secure information technology and transmission system that can be used across a plethora of industries. It records all transactions between users and so is not only a valuable resource for currency transfers but is also able to automate and execute contracts.

When looking at Blockchain technology related to supply chain management, it is important to understand that the technology relies on three main principles. These principles are transparency, decentralisation and security. Firstly, it relies on transparency so that everyone can visualise the transactions that need to be recorded by the Blockchain; secondly, it relies on decentralisation so that it can operate on a network and not be centrally controlled by a single entity; finally, it relies on security, since it operates on encryption, therefore ensuring that data can’t be forged.

Blockchain also works on a transaction by transaction basis whereby a user will need to enter a key to record transaction data. Once this happens the data will be encrypted and then grouped into “blocks” which are submitted for validation by all the different network nodes. Once this happens the data can be confirmed and the viability of the transactions can be analysed. The data will be recorded and is duplicated across all network servers which then makes it impossible to change the data or alter information on the Blockchain. Changes can only be made by authorisation from all connected computers.

There are many potential benefits of Blockchain technology for supply chains, including:

  •  Blockchains automate purchase processing

Blockchains allow automated contracts (also known as smart contracts) to be generated. Once all parties involved in the supply chain agree on all the terms and conditions, smart contracts can be automatically executed. These contracts will execute all terms, service payments, shipping authorisations etc. This ensures greater efficiency and accuracy.

  • Blockchains improve the transaction flow

Because Blockchain automates everything, it can drastically reduce administrative activity times, specifically validation times, between providers, suppliers and clients when looking at contracts, signatures, orders and payments. Blockchain therefore allows for real-time management of flows and business partners, again aiding efficiency.

  • Blockchains ensure supply chain security

Within the Blockchain, suppliers could attribute a tag to each individual product and thus ensure the security of the supply chain. This is because the information on the product origin, place of storage, authenticity, property certificates are all in one single place that can’t be amended or adapted.

  • Blockchains gives integral traceability

A Blockchain ensures that you can trace the flow of goods as each transaction is made by a user. These records therefore become permanent and are tamper-proof ensuring the integrity of all the information and data.

  • Blockchains are reactive

Fraud can be detected easily within a Blockchain as problems are identified from the very beginning of the transaction.  Fraud within the supply chain occurs when there are inconsistencies in the validation or suspicious identity of parties etc. The Blockchain will send immediate alerts to warn of fraud.

The benefits of Blockchain technology in the supply chain have already been tested in the real-world. In 2016, Walmart used the technology to follow Mexican mangos and Chinese pork and assess their traceability across the supply chain network. The results lived up to expectations as Walmart discovered that the ability to trace the products reduced from a few days to just a few minutes. However, greater tests across the whole range of advantages still need to be undertaken but this small test has highlighted the capability of the technology.

It is therefore no wonder that there is excitement and furore regarding the effect that Blockchain could have on supply chain management. However, in the excitement it is important to remember that Blockchain still requires improvement to fully be applicable to supply chain practices. One of the current limitations is that Blockchain is unable to handle large infrastructure data that needs to be processed by the millisecond. We need to put this technology into perspective and accept that it won’t resolve all the transactional and traceability challenges facing the supply chain at present. However, Blockchain will improve the industry through its secure transactions, fraud combating and reducing errors in the process flow. But, this is not to say that this will change in the future. The full potential is yet to be reached and there are bound to be more exciting developments to come. It is no wonder that Blockchain has been called the technology of tomorrow.

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