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06 December 2022

Blockchain Implementation in Supply Chain Management (SCM)

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The Singapore Blockchain Ecosystem Report, a study by PwC in collaboration with OpenNodes, IBM, Ernst & Young and others, says supply chain management (SCM) is the most prospective and promising use case for blockchain technology. In the EU alone, another study by the Cointelegraph Consulting team and Insolar estimates that blockchain could cut supply chain-related costs for businesses by 0.4-0.8%, amounting to $450 billion.

"94% of leading logistics companies believe that digital transformation will significantly change supply chain management. As early as 2035, if the latest technology is implemented, industrial companies can expect 25% increase in gross margins," according to the Singapore Blockchain Ecosystem report.

In this article, we'll outline exactly how blockchain technology can improve supply chain management and provide examples of such cases.

What is SCM. Goals and Scope.

Supply chain management refers to fine-tuning and managing the flow of goods, as well as managing the data and finances associated with the movement of products from raw materials and manufacturer to store and customer. This involves covering aspects such as purchasing, product/service lifecycle management, supply chain planning (inventory planning and maintenance of company assets and production lines), logistics (transportation and fleet management) and managing orders. SCM also extends to processes related to international trade, such as global supplier management, cross-state manufacturing processes and cross-border financial settlements.

The goal of SCM is to control the shipment, delivery and distribution of goods and services, reducing costs and optimizing time management. To achieve these goals, SCM must involve all supply chain participants working together to ensure a continuous flow of information about the movement of goods and services from the manufacturer to the end consumer. Which is impossible without implementing a process approach, that must also include management of order fulfillment, customer relationships; supplier relationships, product development and commercialization; production flows, demand and returns.

Covering such a wide range of aspects makes existing SCM systems unnecessarily cumbersome, opaque and fragmented. Moreover, the longer a supply chain is, the less efficient and transparent the processes are, which is bad for supply chain management. The problem is so big that  69% of companies said they have insufficient control over their supply chains, causing them to incur huge losses, which the Data Warehousing Institute estimates  at more than $600 billion.

The business is supposed to solve this problem with the help of blockchain.

Advantages of Blockchain in SCM

Blockchain is a type of decentralized distributed registries, where every interaction, every transaction is recorded in the registry database and is mirrored on the devices of all participants in the blockchain network without the ability to change or delete them. Integrating this technology into supply chain management will bring all data about the movement of goods into one place. Each stakeholder will be able to access this data as needed with confidence that it is accurate and reliable.

Blockchain integration scheme for supply chain management. Source

Thanks to this SCM systems will have the following advantages.

Data security. Each blockchain creates an immutable transaction history that is shared between different nodes. If someone wants to add new data to the network, everyone on the network will see these changes and be able to verify which participant added it and when it happened. This property makes blockchain ideal for collecting and storing data such as financial transactions, property transactions, medical data and the movement of goods and services through supply chains, starting with from which raw material was produced and ending with who has bought it, when, and at what price.

At the same time, the information recorded in the blockchain will be as accurate as possible and protected from hacker attacks and unauthorized access, because in order to hack the blockchain network and change the data in it, it is necessary to take control of 51% of all nodes in the network (for example, in Bitcoin there are 14317 nodes, Ethereum - 8022). Blockchain will also allow data to be segregated based on the user's role in the supply chain, e.g., a buyer will have access to one set of data, a distributor/seller to another and a manufacturer to the third.

In addition, blockchain will also improve the reliability of identity authentication. Blockchain-based authentication systems use cryptographic-based digital signatures and other tools (biometrics, multi-signatures, two-factor identification, hardware access key, and more) to securely authenticate an individual without revealing their sensitive data.

A comparison of the security level between traditional approaches (top) and blockchain (bottom). Source

Simple and fast auditing. Another significant benefit of integrating blockchain into supply chain management is the ability to verify product data easily and quickly: ingredients, manufacturer, manufacturing time, delivery route (based on GPS data), transportation provider, storage and transportation conditions (temperature, humidity, shaking, pressure, etc.).

All this information is recorded in blockchain and can be accessed on demand, so that any participant of a supply chain (for example, a retailer or a buyer) can trace the origin of goods, shelf life, storage conditions, etc. And blockchain allows you to do this in seconds,  whereas with a traditional approach it can take days or even weeks.

Information distribution scheme in SCM systems based on blockchain. Source

Business process optimization. Once blockchain is integrated into an organization's SCM system, it can optimize its operations, internal data controls and business processes. For example, smart contracts can help automatically verify transactions between companies, fill out standard documents (invoices, contracts, invoices, consignments, etc.), and perform data and settlement checks.

Smart contracts are software algorithms that are automatically executed under preset conditions. Their key feature is that there is no need to involve a third party to guarantee the security and accuracy of the transaction. In addition, a smart contract works according to predetermined algorithms and specifications that can be easily verified because it is open-source software.

How smart contracts work in the blockchain world. Source

KYC, AIM, GDPR compliance. According to the RiskScreen survey, 8 out of 10 employees at financial services companies still spend a ton of time on manual processes when blacklisting companies that are banned from any contact due to sanctions, terrorism financing and/or money laundering. Blockchain technology can speed up and simplify these processes by standardizing and automating them. In addition, blockchain will also be useful for enforcing the standards and regulations of GDPR and other similar laws.

A blockchain model for managing consent to use personal data. Source

Big savings. Automating processes, eliminating intermediaries and increasing the efficiency of financial transactions can significantly reduce supply chain management costs for companies. It will also help reduce paperwork and the various costs associated with correcting data errors and inconsistencies.

Examples of blockchain usage in SCM

# 1. TradeLens: shipping freight

Perhaps the most prominent example of blockchain integration in supply chain management systems is the TradeLens platform, which was launched in 2018 by Maersk in collaboration with IBM. Maersk is a Danish multinational business conglomerate specializing in shipping and port terminal services. Maersk operates more than 600 vessels today, with a gross tonnage of more than 3.8 million registrant tons, giving it more than 16.5% of the global liner fleet.

In 2017, Maersk began testing with IBM an enterprise blockchain solution, Hyperledger Fabric, developed by the Linux Foundation, to replace outdated paper and digital processes in shipping cargo management and tracking of ships, containers and cargo. The result of this collaboration is TradeLens, an open, neutral platform that collects and aggregates shipping data into a single, neutral blockchain network and provides secure access to this data for all stakeholders (cargo owners, freight forwarders, terminals and ports, shipping and inland freight, customs and other government agencies).

In addition, TradeLens allows the automation of virtually the entire document flow and typical business processes, including such operations as financial transactions, receipt of a bill of lading, customs fees and transfer of title / responsibility for cargoes (containers).

The scheme of the goods' path in the TradeLens blockchain platform. Every step, every transaction, every transaction is tracked and recorded on the blockchain.

# 2. Food Trust IBM: Food

Another prime example of blockchain integration into an SCM system is IBM's Food Trust blockchain platform. This solution focuses on food supply chains. The platform collects and tracks data on food production, transportation and storage around the world, thus creating an end-to-end "history" of each product. In addition, the platform also aims to automate business processes.

Now Food Trust IBM is used by major players such as Walmart, Nestlé, Unilever, Tyson Foods and many other food manufacturers, distributors and retailers around the world. Nestlé, for example, is using the network to track its coffee brand Zoégas from farm to cup, allowing consumers to track individual coffees from their origins in Brazil, Rwanda and Colombia to retail shelves in the United States, the EU and other countries.

Consumers will also be able to access some information about the coffee, including harvest time and location, roasting period, transaction certificate for specific shipments, and farmers by scanning a QR code on the package.

To get information about the goods at the Food Trust IBM it is enough for the buyer to download the corresponding application and scan the QR-code on the package. Source

# 3. Lockheed Martin: parts and equipment

In 2021, Lockheed Martin, the largest U.S. aerospace and defense contractor, signed an agreement with SyncFab, Silicon Valley's distributed manufacturing platform, to optimize supplier capabilities across Switzerland. Under the agreement, SyncFab will give Lockheed Martin direct access to its supply management platform.

The SyncFab platform works as an intermediary between OEMs and SMEs, allowing SMEs to compete for long-term contracts with large companies. At the heart of SyncFab's SCM system is the Hyperledger Fabric enterprise blockchain, which tracks the supply chain for parts and equipment and tracks their delivery from manufacturer to end customer. In Lockheed Martin's case, this is the delivery of U.S. aerospace and defense equipment.

What makes SyncFab special is that the platform is able to aggregate supply chain data from different blockchains and output it in a user-friendly format. Source

# 4. MediLedger: Health Care

In 2019, Chronicled partnered up with leading life sciences and healthcare companies launching the MediLedger platform. It's a blockchain-based SCM system that focuses on transparency, security, privacy and automation of healthcare supply chains in compliance with DSCSA and other industry standards.

MediLedger is used by the pharmaceutical giant Pfizer, drug makers Gilead Sciences ($20 billion revenue) and Genentech (40 years on the market, $17 billion revenue), medical distributors McKesson (serves over 50% of US hospitals and 20% of doctors) and AmerisourceBergen ($150 billion revenue).

Like other similar projects, MediLedger aggregates data on the movement of equipment and drugs from manufacturers to consumers and allows physicians, pharmacies, insurance companies and other market participants to verify the authenticity of origin, production date, expiration dates and other information. A special feature of MediLedger is that this network, among other things, collects data on the storage and transportation conditions of pharmaceuticals so that interested parties can verify their quality.

In addition, MediLedger has also built-in anti-fraud and anti-counterfeiting tools. The platform automatically collates various data to identify discrepancies that could indicate violations of the law and sends that information to law enforcement.

The high-level blockchain architecture of the pharmaceutical supply chain management system underlying MediLedger. Source

# 5. Covantis: Agriculture

In 2021, two of the world's largest grain and oilseed companies, American giants Bunge and Cargill, launched the blockchain platform Covantis, which aims to optimize supply chains, first in Brazil and then globally. The project involves sharing information about the movement of agricultural commodities from farmer to buyer to achieve the following business goals:
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