Blockchain Implementation in Supply Chain Management (SCM)
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.
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.
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.
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.
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.
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.
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).
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.
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.
In 2019, Chronicled partnered up with leading life sciences and healthcare companies launching the MediLedger platform. It's a developed 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.
FedEx has integrated blockchain into its supply chain management system to improve traceability and provide reliable records to help resolve disputes with customers. The company has also joined the BITA Standards Council (BSC) and is actively advocating for a blockchain-based industry standard. In addition, FedEx also plans to use blockchain technology, smart contracts and non-interchangeable tokens to track and store records for strategic planning and analysis.
"We have millions of records stored in our system every day and we are thinking of blockchain as a robust supply chain that can transform the logistics industry. We believe it's promising in this area and will simplify all this data sharing in a very secure way," says Dale Christie, FedEx's vice president of strategic analysis.
The world's largest diamond mining company, DeBeers, uses the Tracr blockchain platform to track the source and condition of every natural diamond they mine. In addition to improving efficiency and inventory management, Tracr will also help the company solve problems regarding ethical sourcing of gemstones.
Blockchain is key for businesses ready to redesign their supply chains to reduce costs, increase efficiency and strengthen their position in a crowded and competitive marketplace. If you would like to learn more about how blockchain can be useful in your supply chain, contact us at +1-206-785-16-88 or via email at email@example.com. Our consultants will answer all of your questions and advise you on the best way to integrate blockchain into your business.