3 Ways Blockchain Is a Supply Chain’s Best Friend
It’s nothing short of magic, really, the way global trading partners do business today. The problems are obvious and acute: massive complexity exacerbated by an enormous amount of manual, still mostly paper-oriented processes.
Which is why blockchain—the networked distributed ledger technology—is gaining relevance in today’s global supply chains. Sanctioned blockchains provide their participants with a jointly managed, tamper-resistant mechanism for recording validated information. Its near-real-time nature helps minimize supply chain risks and accelerate operations across multiple geographies. It also helps supply chain partners simplify their business processes and workflows, while generating better guarantees on performance and outcomes. Finally, blockchain enables companies to adapt quickly to changing market conditions.
Already, companies are using blockchain to track supply chain anomalies, such as food contamination and counterfeit merchandise, and trace their origins. Among the other supply chain areas where blockchain networks can help:
1. Regulatory Compliance
Government regulations require companies to provide periodic reports documenting their compliance with business and trade laws. The process calls for a method to track and record the way products are acquired or produced—for instance, when and how a company got raw material from an approved forest or mine, or how it manufactured products in specific compliant ways. (Internet of Things systems are starting to play a prominent role in such instrumentations.)
For example, the government of Rwanda implemented a blockchain project last year to track the mining of tantalum, a “conflict resource” used in electronics manufacturing. (The blockchain provider, Circulor, uses Oracle Blockchain Platform to power its platform.)
Producing a report showing compliance means aggregating all of this recorded information, whether internally generated or from suppliers, and presenting it in a government-mandated format. Much depends on the validity of those records—and the ability to prove it.
Supply chain partners’ real-time visibility into the blockchain’s validated data cuts down on the cumbersomeness and lag associated with compliance reporting. Publishing IoT-instrumented records directly to the blockchain establishes an immutable audit trail and lets companies create their own specific regulatory reports, so that they don’t have to wait for their suppliers to do it. It also lets companies share those records with parties outside of the network—to show customers, for example, that material came from ethical sources.
2. Supplier Performance Management
Supply chain participants depend on the capabilities of their trading partners, who depend on their trading partners, and so on. That’s why it’s important to have a detailed, metrics-based view into the performance of the suppliers in the chain.
Most large companies score their suppliers based on metrics such as contract fulfillment, quality, volume, price, sourcing and negative incidence rates, among others. Today’s performance-tracking mechanisms take time and might allow unethical suppliers to game the system.
In addition, some supply chain stakeholders look for specific information about transactions with a partner. Legal, sourcing, procurement, accounts payable and human resources teams require only supplier data that’s relevant to their areas of business. Blockchains offer validated transaction data—a single source of truth—as well as metadata about a supply chain transaction. This lets companies track suppliers’ key performance indicators in real time, which mitigates manual reconciliations and their resulting delays.
Supply chain partners can further automate business processes by employing the blockchain’s smart contract layer, which lets engineers program in business logic, workflows and incentives. For example, a stipulation programmed into a smart contract might reward a well-performing supplier by releasing payment earlier than expected. Such real-time performance measurement and rewards help ensure the quality of transactions, improve process efficiency and foster more reliable supply chain partnerships.
3. Trade Finance
The wheels of a global supply chain are greased by financing from banks and other institutions—lots of grease. Estimates of the size of the global trade finance market vary widely, with the most aggressive estimates putting it at close to $10 trillion annually.
As part of the trade finance process, companies generate and share multiple copies/representations of relevant documentation. A typical shipment could entail the exchange of more than 30 documents—some with multiple revisions. This complexity too often leads to delays, duplication errors, time spent on reconciliations and even fraud.
By using a blockchain network, supply chain partners can expedite documentation turnaround times, reduce delays related to reconciliations and eliminate duplication errors. It will also help them to reduce disputes with suppliers and financiers, avoid late penalties from customs agencies and better manage freight detention and demurrage costs.
Keep in mind that we’re in the early stages of adopting blockchain technology and embracing the concept of “programmable trust” that blockchain embodies. But as features evolve, blockchain networks will form an important support structure for the hyper-connected future encompassing the Internet of Things, data analytics, artificial intelligence and other emerging technologies.
Meanwhile, we can solve some pressing problems in our global supply chains with the blockchain technology that’s available today. And that’s plenty of value to harness—for now.
All credits to source below by Anant Kadiyala – director of blockchain and IoT solutions at Oracle.