What is Blockchain in Supply Chain Management (SCM)?
From Block to Stocks: untangling the role of blockchain in supply chain
Blockchain is one of the most commonly used ledger technologies, transforming the supply chain by increasing its transparency and operational efficiency. The present article explores blockchain in supply chain management (SCM).
What Will We Cover?
Blockchain is a decentralized ledger technology meant to securely, efficiently, and transparently record transactions across multiple segments.
Did you know? According to a survey conducted by Deloitte[1], businesses’ initial doubts about blockchain’s usefulness are fading.
First, let’s get to know what supply chain management is before diving into other details.
What is Supply Chain Management?
To be precise, Supply Chain Management (SCM) is the coordination and movement of goods, finances, and information throughout the supply chain. SCM’s importance lies in its ability to forecast demand, streamline logistics operations, and much more. It looks over every stage from the sourcing of raw materials till the delivery of the final product to the customer.
Doing SCM properly also provides stronger supplier relations, customer satisfaction, improves inventory control, and provides businesses with an edge in the competitive market.
What is Blockchain Technology in SCM?
Blockchain for supply chain management is an entirely decentralized and tamper-proof ledger for verifying and recording every supply chain step. In blockchain technology, each transaction is logged in a block and linked to the previous block entries, creating an immutable data chain.
For example: The journey of coffee beans becomes effortless and hassle-free when farmers, processors, customers, and retailers have access to the same transparent data with blockchain technology.
Unlike the traditionally used database, blockchain offers real-time visibility, builds trust, and reduces manual intervention.
The best use of blockchain technology in the supply chain is to create a fully tamper-proof and fully transparent record of the transactions that is easily accessible to all stakeholders at all times.
At its very base, blockchain is a distributed ledger that stores all the records in the nodes. Once all the information is recorded, entries cannot be changed without anyone’s consent. This maintains secure transactions, assures traceability, and ensures accountability without the role of any central authority.
| Feature | Traditional SCM | Blockchain SCM |
|---|---|---|
| Data Storage | This is centralized and siloed | Blockchain is decentralized and distributed |
| Transparency | Limited and vulnerable to errors | Better visibility across the supply chain |
| Data Integrity | This can be easily tampered with or manipulated | This is immutable and cryptographically secure. |
| Trust | It requires intermediaries | It is based on consensus |
| Efficiency | The process is slow due to manual verification | Automated and real-time verification is done |
How Does Blockchain Work in SCM?
Blockchain in supply chain management works by recording all the transactions in a secure and decentralized ledger. Each blockchain transaction gets verified through a consensus mechanism to ensure better transparency and immutability.
Once the data is validated, it becomes a new block in the supply chain. This entire process adds traceability, reduces fraud, and streamlines various operations across distributors, manufacturers, and suppliers.
Blockchain in supply chain management records every transaction in a secure, decentralized ledger. Each transaction is verified through a consensus mechanism, ensuring transparency and immutability. Once validated, the data is added as a new block.
This process enhances traceability, reduces fraud, and streamlines operations across suppliers, manufacturers, and distributors.
Why Use Blockchain For SCM?
Blockchain offers the highest transparency, security, and efficiency for managing the supply chain. It enables real-time tracking, automates transactions through smart contracts, and maintains high data integrity across stakeholders. It also reduces fraud, minimizes delays, improves overall accountability, and addresses key SCM challenges like fraud prevention, lack of visibility, and traceability.
To understand the advantages and benefits of blockchain in supply chain management, let’s learn more about it.
Advantages And Benefits of Blockchain in Supply Chain Management
The most significant advantage and benefit of blockchain in supply chain management is that it transforms global logistics. Blockchain increases supply chain transparency by producing a shared, immutable ledger for all stakeholders.
This reduces the chances of any fraud and human errors, too. The technology also boosts efficiency through automation with the help of smart contracts that increase speed and improve data security. This builds a bond of trust, and operational excellence improves greatly.
1. More Transparency and Traceability
One of blockchain’s most important advantages in SCM is that it brings more transparency to the supply chain, by recording every transaction of goods in a secure ledger. This visibility expands all over the participants in the supply chain, which allows them all to view the same and exact verified data.
Transparency:
Blockchain technology provides an immutable and decentralized ledger on which all stakeholders, such as suppliers, manufacturers, distributors, and consumers, can access real-time data from a single platform. An open and transparent environment with equal access leads to better reliability.
Traceability:
Blockchain greatly enhances the ability to trace the journey of any product through the supply chain. Each step is recorded on the blockchain, from the origin of raw materials to the final delivery. This means that in the case of a product recall or quality issue, the exact source can be quickly identified and addressed.
Example: When a customer scans a QR code on a cup of coffee, they can see the exact farm in Colombia where the beans are grown, the harvest date, and even the farmer’s name etc.
2. Increased Efficiency and Speed:
When all the preset conditions are met, smart contracts can trigger the required actions, such as payments, quality inspections, reorders, etc. Also, using smart contracts leads to no intermediaries in between and less manual labor, which leads to better efficiency, better speed ,and better precision.
Automation:
Blockchain can provide automation of warehouse in supply chain management with the help of smart contracts. Smart contracts are self-executing agreements coded on the blockchain. These contracts perform actions automatically once the predefined conditions are fulfilled, eliminating intermediaries and manual approvals.
Example: For example, the payments can be automatically released once the goods are received and delivered.
Reduced Delays:
Blockchain enables better, faster, and streamlined communications to minimize delays and increase customer satisfaction. This is possible because blockchain ensures real-time-tracking data is available throughout the whole supply chain, which helps in preventing bottlenecks, minimizing miscommunication, and quicker resolution of challenges and issues.
3. Higher Security and Trust
The immutable nature of Blockchain keeps sensitive items, such as drug supplies safe, making it nearly impossible to tamper with the records of transactions, which develops trust among the supply chain stakeholders, and ensures compliance with laws and regulations, and keeps the shared data intact.
Immutability:
Once the data is entered, it cannot be changed. Hence, the blockchain is entirely secure. Data stored in the blockchain cannot be altered or deleted, leading to more security across the supply chain. This increases accountability and resolves disputes, if any.
Fraud Deduction:
Blockchain reduces the risk of tampering so that no fraud can be detected. When each entry is cryptographically linked to the last one unauthorized changes are not possible and any fraudulent measures are prevented.
Example: Shipment logs, which are stored in the blockchain, provide evidence of delivery.
Blockchain enhances collaboration, improves operational efficiency, unifies data, and more.
Let us now look at the blockchain use cases in supply chain management.
What Are Blockchain Use Cases in Supply Chain Management?
Blockchain is used in many industries in the supply chain. Here are some of the top use cases of blockchain in supply chain management:
1. Logistics & Transportation:
Blockchain benefits the logistics and transportation industry in several ways. It enhances real-time tracking, promotes route optimization, and secures cargo, leading to better logistics management and optimized workflow.
Blockchain provides a single and tamper-proof record of all the transactions. It also eliminates data silos, reduces disputes, and improves collaboration between the carriers, shippers, and customs. This in return, results in smoother operations, lesser delays, and an efficient supply chain.
Shipment Tracking:
It ensures visibility at every point, right from the warehouse to the last-mile deliveries. Shipment tracking provides real-time tracking, enabling customers and businesses to monitor the status of goods, their exact location, etc., all across the supply chain using technologies like IoT sensors, GPS, and blockchain. Companies can predict delays, ensure transparency, and manage any disruptions in the supply chain.
Real-time tracking of shipping increases customer satisfaction by providing an exact estimate of deliveries. This improves inventory control and leads to better operational efficiency.
Cost Reduction:
Blockchain can save time and money by reducing paperwork, verification time, and many other manual tasks. Also, automated processes like smart contracts speed up the payment cycles. By streamlining compliance checks, reducing technical errors, and preventing fraud risks, blockchain also reduces costly delays and chargebacks.
2. Pharmaceutical & Healthcare
Blockchain helps authenticate drugs, manage recalls, and ensure pharmaceutical companies comply with the latest regulatory compliance rules.
In pharmaceutical and healthcare industries, blockchain provides an advanced way to record and verify all the products’ lifecycle. This way, it helps medical organizations reply quickly to recalls, and maintain trust of hospitals and patients.
Drug Traceability
Blockchain enabled total end-to-end visibility of the medicine movements. It verifies sources of the medicines that can prevent fake and counterfeit. By providing an immutable record of each step, right from manufacturing till dispensing, blockchain ensures authenticity and safety. Thus, this transparency improves the quality control and supports faster resolutions to the problems when irregularities happen a lot.
Regulatory Compliance
Blockchain in supply chain management maintains ultra-secure and audible records, complying with the latest Government rules and regulations. Blockchain allows businesses to meet regulatory obligations such as Good Manufacturing Practices (GMP) and pharmaceutical serialization laws. Automation of the verification process reduces the percentage of human error, and immutable data storage makes sure that all the records are ready for audits.
3. Retail and Manufacturing:
Blockchain verifies where the product has come from and its sustainability, which can boost trust in the brand. It also checks the quality standards followed in the production process. So, this allows retailers and manufacturers to provide customers with verified proof of the authenticity and responsible sourcing.
Blockchain in SCM also helps in detecting inefficiencies, which prevents counterfeiting, and creates more transparent relationships between the brands and consumers.
Product Authenticity
Blockchain in supply chain management confirms if products are genuine before reaching the customers. This verification process is essential for winning customers’ trust in the long run. Also, long-term traceability establishes a good reputation for the brand, resulting in returning customers.
Environment Friendly
Tracks the sourcing practices to confirm they abide by green logistics strategies (eco-friendly practices). For instance, a global giant Unilever leverages blockchain to trace its palm oil supply chain.
Blockchain helps companies meet their ESG goals with ease. Thus, use of blockchain in industries is growing constantly, and new safety, accountability, and transparency standards are being set.
However, blockchain has a set of challenges in supply chain management, too.
What Are The Challenges of Blockchain in Supply Chain Management?
Supply Chain Management also faces several challenges. However, the right strategies can help meet these challenges.
Flexibility and Expenses
Though blockchain indeed offers the best transparency and traceability, it also has certain limitations, like the high costs associated with its setup and widespread adoption.
Also, with the growth of the network, transaction fees on the large-sized blockchains can become very expensive, especially when you choose the peak season.
Scalability Issues:Several factors influence blockchain scalability, such as:
These limitations can slow down processing times and cause inefficiencies and prevent people from having an edge.
Cost Barriers:There can be a number of cost barriers, such as the costs incurred in maintaining regulatory compliance, infrastructure costs, operational delays, and frequent upgrades.
These are some of the expenses that make blockchain an impractical choice for mid and small businesses.
Espousal and Integration
Adopting blockchain was difficult because of the stakeholders’ resistance and difficulties in the integration process. Supply Chain firms rely heavily on legacy ERP. Most of the time, people have clear-cut goals.
Stakeholders Buy-in:Gaining stakeholders is challenging because of the resistance to change and concerns over disruptions in established ERP systems. Successful advocacy requires clear communication of blockchain’s long-term value.
Integration Challenges:There can be a number of integration challenges. Because of the large datasets, technical and operational issues may lead to increased storage and data processing costs.
There can be duplication of systems where the blockchain and legacy run parallel. There can be data silos which can make synchronization between partners difficult. There can be wasted resources when organizations struggle to adapt to the existing workflows.
Let us move on to find the five best practices for blockchain integration in SCM.
5 Best Practices for Blockchain Integration in SCM
Adopting these five best practices for blockchain integration in SCM can put your business a step ahead. Following these best practices is really helpful for supply chains who are integrating Blockchain.
1. Define Objectives & Use Cases
As a first step in implementing blockchain, it is essential to know your clear goals. So, get to know the customers’ pain points first. Supply chain challenges may include a lack of traceability, fraud, and even inefficiencies in the data sharing process.
So, as a first step, you need to know your specific requirements. Once you have them, you should go ahead with the following steps.
The inefficient process coordination leads to wasted resources and increased operating costs. This misalignment affects customer service and overall profitability.
2. Select The Right Blockchain Type
Choosing an appropriate blockchain model largely depends on your business’s use cases and the various types of stakeholders involved.
3. Focus on Data Integrity & Security
Security is not a choice; it is essential for the supply chain management. It protects sensitive data from unauthorized access, such as tampering. Regularly auditing smart contracts prevents loopholes and helps companies stay ahead with the latest regulatory compliance.
Strong data governance safeguards the supply chain against data breaches and cyber threats.
4. Pilot Before Deployment
A phased approach is essential for implementing the software in a controlled way and obtaining a desirable outcome. So, you need a pilot program for targeting specific areas. Some of the most important things to be taken care of are Monitoring the Key Performance Indicators, gathering feedback, etc., to cut down risks and maximize the impact.
5. Educate & Train Teams
Successful blockchain adoption requires cross-functional collaboration. It is important to train your supply chain workforce, especially IT and operations teams, and help them understand the principles of blockchain, its practical implications, and more. When the teams understand the principles and the practical implications, the various departments can integrate seamlessly without hassles.
Let us know the future trends for blockchain in SCM that are going to
What Are The Future Trends for Blockchain in SCM?
The future trends for blockchain in SCM are increased adoption of transparency and traceability, integration with AI and IoT, an enhanced level of security, and a complete focus on sustainability.
These trends aim to improve efficiency, reduce the chances of fraud, and build a loyal bond among different supply chain participants.
Extensive Adaptation of Blockchain Tech
The trend in blockchain technology is skyrocketing, and in the coming years, it is expected to enhance transparency and keep records tamper-proof. For this reason, enterprises are shifting from pilot projects to full-scale deployment in supplier verification, inventory tracking, and more.
Many enterprises are shifting to blockchain technology and focusing on its full-scale deployment.
Emerging Technologies
The future of Supply Chain Management lies in the convergence of AI and IoT technologies with a secure blockchain. This integration also enables valuable predictive insights and real-time decision-making with advanced predictive insights.
The emerging technologies will be warehouse robots and intelligent routing systems, which boost the overall efficiency, reduce costs, and increase overall efficiency, leading to high costs.
IoT Integration
Integration of IoT in logistics has transformed the industry. It has revolutionized supply chain work by providing predictive maintenance, asset tracking, and real-time visibility.
Smart sensor technology collects vast data and offers complete insight into fleet performance and sometimes environmental conditions. IoT devices like RFID tags, GPS trackers, and smart sensors collect much data about fleet performance. 5G deployment will be the trend for better efficiency in the future.
AI in SCM
Artificial Intelligence is all set to transform supply chain operations in various ways. Various features of AI in logistics are predictive analytics, intelligent automation, and dynamic decision making. It can also analyze a vast amount of data, optimize routes, and forecast demands to mitigate risks.
Final Thoughts
Blockchain in supply chain management has transformed the industry. It has revolutionized how goods are traced, verified, and transported worldwide. Despite hurdles like integration and cost, it has some sure-shot benefits, too, that make it a powerful and must-have tool.
TL;DR – Key Takeaways:
Frequently Asked Questions (FAQs)
Let us know whatever you have in mind. We are always here to clear your doubts.
1. Why is blockchain used in SCM for transparency?
In SCM, blockchain enables stakeholders to access real-time data, enhance trust, and reduce disputes.
2. Who uses blockchain in SCM?
Some of the top companies, such as Maersk, Walmart, and Pfizer, have been using blockchain to track goods and improve regulatory compliance. This has reduced fraud.
3. What are the disadvantages of blockchain for SCM?
Certain disadvantages of blockchain for SCM include its high setup costs, scalability limitations, and integration difficulty.
4. How to select the best blockchain-integrated software for SCM?
Several factors must be considered when choosing the best SCM software which is blockchain-integrated. First, you must identify all the use cases, assess the peculiar needs, and evaluate the top features like transparency, integration, and scalability.
5. What types of software are used with blockchain in SCM?
Blockchain frameworks, IoT integration software, smart contract development tools, supply chain management software, and Enterprise Resource Planning are different types of software used with Blockchain in SCM.
Integrate Blockchain with SCM Software
Supply chain management software provides tools like automatic verification, real-time tracking, and fraud detection. CommuteLogix is a one-stop solution for reducing paperwork, improving operational visibility, and automating complex logistics operations.
Benefits of Integrating CommuteLogix:
References
1. Deloitte – (Source)
Irshad Pathan
Web Development Expert
Irshad is a senior technical expert at iCommuneTech. He manages the iCommuneTech’s Web Development Team, and has hands-on expertise in web development, Laravel development, Logistics, fleet management, and Supply Chain Management. He mentors the in-house team and enjoys describing his experience in words.