We are pretty sure that you must have never heard both supply chain and blockchain together; at least not until some years back. But with the disruption in the IT industry, the role of blockchain has evolved drastically. Thanks to the enormous potential that it holds to reshape the entire supply chain ecosystem. However, supply chain management has always been a complex landscape from the beginning itself. Bringing transparency in the process and tracking are one of the few challenges in this long queue. Luckily, blockchain technology in the supply chain might bring much-needed improvements to the existing supply chain landscape. So, take a look at this post from Quarks to understand how blockchain technology is improving supply chain management?
But before that, let’s first understand what exactly blockchain and supply chain management are.
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At the first glance, it is surely going to be complicated for you to understand if you have no prior knowledge of blockchain. Actually, blockchain made its way into this world via Bitcoin, one of the most sought-after words in the digital ecosystem that most of us are aware of. However, the enormous power of blockchain has been harvested into mining cryptocurrencies only. But recently, its potential has begun to be utilised by the industries as well.
So, blockchain is basically a digital ledger technology where every transaction and interaction is recorded as a block and is shared in a network connected via peer-to-peer nodes. These blocks have some amount of storage capacities. When they are filled, they get closed and linked with the block filled previously, thus, producing a chain of data which is known as the blockchain.
In layman’s language, you can take it as a process of managing the flow of goods and services including the transformation of raw materials into finished products. An organization creates a suppliers network that helps the product to move along with the people who supply raw materials to such companies that directly deal with end-users.
The entire process involves not just planning but also the execution of processes necessary to handle the movement of information, and materials along with financial capital. It also includes product planning, supply planning, demand planning, operations planning, and sales and supply management.
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One of the biggest ways that blockchain technology is improving supply chain management is, that it provides improved transparency in the process to a great extent. The blockchain is a kind of shared database which ensure transparency at all the steps. All the partners in the chain have the responsibility to upload all data and information about the product. This collection of accurate data in digital format improves confidence and accountability between stakeholders.
With the help of blockchain technology, we can see all the updates related to the product in just mere minutes. Every person who is involved in the supply chain may get to know where exactly the product is, at what stage of the production it is, how it’s being manufactured, and how long it will take to be delivered, and all these at just one place.
Do you know, that the Supply chain is one of those business sectors where fraud rates are high at all times? A report published by the UN Global Compact states that the total fraud losses incurred, cost over $2.5 trillion per year to this industry. And, this is the figure excluding unreported fraud cases.
Thanks to the key features of blockchain, such as ‘single source of truth’ and ‘data encryption’ that we can make sure the safe movement of goods. Blockchain technology is improving supply chain management by providing an extra layer of security through its hash function that one can assume as a digital fingerprint, in which every hash used is unique. With the usage of this function, it is almost impossible for everyone to alter the data.
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Another way that blockchain technology is improving supply chain management is by offering reduced transaction costs. Blockchain technology eliminates the need of using third parties in the process. This helps in minimizing the transaction costs. We can completely rely on the information in the blockchain even with no requirement of authorizing an organization to look after it. So, the time that is utilised to authenticate the data is short which greatly cuts down the cost and enhances the overall quality.
Usually, two parties sign a contract. They both agree on certain terms and conditions and when these conditions are fulfilled, another party make the final payment. But, this is not the case in blockchain technology as it executes smart contracts. This is another way that blockchain technology is improving supply chain management.
Smart contracts are programmed in a way that they develop and run applications using the blockchain. They are designed to support and verify the status of the transactions and initiate the payment process once the commitment made in the contract is achieved. This results in improved speed, better efficiency and reduced chances of human errors because of the automation in place.
There is no doubt in the fact that blockchain technology has completely revolutionized the financial industry. And we think it is just a matter of some more time when it will reach and take over other sectors. It is entirely a game-changing technology and worth an investment due to its huge potential for ROI. We believe that the next few years will be crucial and more logistic companies will adopt it.
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