How Blockchain Will Revolutionize Supply Chains and Logistics

By on December 16, 2019
Blockchain

There have been a lot of promises made and broken surrounding blockchain over the last few years. To listen to some of its most dedicated proponents, you would think that blockchain held the solution to just about all the world’s problems. Of course, the truth is more nuanced than this. While blockchain undoubtedly holds a lot of promise, it is not in itself going to change the world.

Cryptocurrencies are the best-known implementation of blockchain, but they are not the only ones. Blockchain technology actually has a lot of potential uses in a variety of different sectors. In trying to sell blockchain to the wider public, proponents have been trying to shift the discussion away from cryptocurrencies and towards the other implementations of the technology.

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One of the most commonly cited potential uses for blockchain is as a means of auditing supply chains. Depending on the industry in question, and who you ask, blockchain could completely revolutionize both supply chains and the wider field of logistics.

The Current System

There are a number of issues with supply chains as they exist today. A century ago, when we had localized economies rather than the globalized economy that we have today, supply chains were considerably simpler. Today, even the most mundane of products can have an incredibly complex supply chain behind it.

Throughout human history, advances in technology have enabled us to innovate in the way that we manufacture, distribute, and transport goods to people who need them. For example, the introduction of freight trucks in addition to the existing rail freight was revolutionary for supply chains. Similarly, the introduction of the computer, and later the internet, were both incredibly important in enabling us to rewrite the rules for forming supply chains.

The results of these highly complex supply chains have been concentrating ultimate power in just a few hands, China is responsible for a significant portion of global manufacturing, for example, while also making supply chains more opaque. Unfortunately, many businesses are unconcerned with the morality or ethics of how their products are produced. But even those businesses that care often struggle to establish exactly where the materials they work with have come from.

Where there is a suspicion that a business is engaged in unethical or illegal practices, it is often very difficult to prove, and even more difficult to get anything done. Some countries have a financial incentive to not investigate the abuse of workers. In other cases, it’s not clear exactly who has jurisdiction for the offenses being committed.

How Can Blockchain Help?

The key feature of the blockchain when it comes to supply chains is its immutability. Once something has been recorded in a block on the blockchain, it is, barring any malicious takeover of the network, impossible to change that information without the consensus of the network. Because the blockchain is distributed among a number of peers, there is no central point that can be corrupted.

Whether it’s medical equipment or Subaru aftermarket parts, blockchain can be used to record each stage of an item’s journey through the supply chain. By combining this with GPS tracking, it would be much more difficult to introduce unethically sourced materials into the supply chain. It would also be easier to spot the points of diversion, where products are diverted out of the supply chain for illicit resale.

As well as enabling us to better audit supply chains, blockchain can also open up other possibilities. For example, businesses could automatically pay suppliers once the supplies they order reach a certain point in the chain. These payments could also be set to only occur if all of the parts in the order pass an audit. Blockchain would enable you to set up smart contracts to make these payments, as well as providing a digital token that can be used in lieu of cash. Once an order has been completed to everyone’s satisfaction, these tokens can then be exchanged for money.

Some suppliers have already begun enabling their clients to pay them through Bitcoin. However, if these suppliers all adopted a blockchain-based approach, there would be nothing to stop them from designing their own cryptocurrency to use as a means of payment.

Who Would Benefit?

Ultimately, everybody who used a blockchain-based supply chain would benefit from it. Everyone at every stage of the chain would be able to rely much more on the information that they are being given and would have a greater degree of certainty that it is accurate. In fact, a number of supply chains already exist that incorporate blockchain. 

The food industry is one where it is incredibly important that everything is correctly labeled. This doesn’t just apply to food in a kitchen; it also applies to meat and other produce as it makes its way from source to the dinner plate. Walmart, for example, already uses blockchain to track its pork from China. Every piece of pork that it orders are logged on the blockchain, as well as information about where it has come from, how it has been stored, and its sell-by date. There is also an Australian vehicle manufacturer who pays its suppliers using bitcoin on top of a blockchain-based supply chain. The world’s largest mining firm has also announced that it plans to use the blockchain so that it can provide more accurate data to its vendors.

The list of businesses that are already using blockchain in their supply chains and logistics operations is growing by the day. In the long-term, blockchain could help us to reduce the amount of illegal and unethical behavior that taint global supply chains today. It is currently difficult to ascertain the exact journey that any item in the chain has taken; blockchain could change all that by providing us with reliable, immutable, and incorruptible records of every stage of an item’s journey.

Of all the things that blockchain’s most vocal proponents have promised us, this seems like the most realistic and easily attainable. Businesses across the board are already eager to introduce this technology into their own supply chains. As more businesses make the transition, we can expect others to follow suit.

 

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How Blockchain Will Revolutionize Supply Chains and Logistics