Blog - Reimagining Supply Chain Management with Blockchain

Global trade has grown in scale and complexity over the years, but several chronic problems have plagued supply chains globally including fragmented, siloed systems, lack of multi-tier visibility, manual and opaque processes, inadequate security and general lack of trust between the participants, which have all contributed to increased friction, costs and risks within these business networks. Distributed ledger technologies like blockchain have the potential and the promise to address many of these existing challenges and radically improve information connectivity, privacy & security, trust & transparency, operational efficiency, risk & resilience, compliance and governance within supply chain networks, like never before. Let’s briefly examine how blockchain addresses each of these challenges in this article.

Information Connectivity

Multi-tier visibility of data is a key prerequisite for supply chain orchestration, optimization and risk management. A structural problem that prevents effective data sharing is inherent in sequential way the various links or entities within a supply chain are connected which typically restricts data sharing or communication beyond adjacent links in the chain. It is precisely the lack of connectivity and data-sharing that results in supply chain opacity and which in turn impedes communication, collaboration and innovation in supply chain management. With a blockchain-based solution, you can set up a hyper-connected data network that allows different modalities of data sharing between network members in a tier-aware manner. By enabling these information pathways, participants can share data with individual or multiple participants, as required, across multiple tiers.

Privacy and Security

Privacy is essential in supply chains and many participants across the chain are not comfortable sharing all their information and prefer to keep certain sets of data private and secure. Further, the added concern of data security, especially with data theft, data loss, data tampering and other breaches that lead to billions of dollars lost annually to businesses worldwide.

With blockchain, you can create a private, permissioned, cryptographically secured network of suppliers that are registered and approved to join and participate in the network. Within a blockchain-enabled supply chain, all identities are cryptographically secured with PKI (Public Key Infrastructure), and new protocols such as Zero Knowledge Proof (ZKP)* can be employed to verify business facts without requiring participants to share or reveal actual data – leading to a new level of data privacy and security. Blockchain significantly fortifies the security of supply chains through its many inherent properties including immutability, redundancy, and consensus-based validation of all data.

Trust and Transparency

Typically, all entities in a supply chain use their own applications to capture and record data within their respective databases. This creates silos of information where no one has a complete view of data, requiring cumbersome, manual reconciliation that leads to costly delays, errors and disputes. This could be potentially solved with a common database, but who do we trust?.

With blockchain, you get a decentralized database that no single entity controls. Further, a programmatic consensus mechanism ensures that only data approved by all relevant nodes in the network is recorded on the blockchain, in an immutable manner ensuring data integrity. By providing a shared ledger, blockchain serves as a single source of truth that brings a new level of transparency to transactions and agreements, thereby reducing requirements for independent data processing, burdensome reconciliation and disputes.

Risk and Resilience

Legacy supply chains are extremely vulnerable to various sources of risks including operational, financial, geographic, repetitional, security, market, technology, and regulatory risks. As suppliers become increasingly specialized, many downstream manufacturers are dependent on components/ingredients that come from a small pool of suppliers. With almost no visibility beyond tier-one suppliers, and no holistic view of the supply chain for any participant, relatively small upstream disruptions lead to cascading downstream impact.

With blockchain, you can capture verifiable operational and financial info about all participants. You can closely track and trace all product flows across the chain to quickly intervene in case you find any defective or contaminated products in the chain. IOT sensors can be used to reliably gather important data about product and storage conditions such as temperature and humidity or even vibrations, and send this data directly to a blockchain to present a tamper-proof way of capturing and verifying product quality, composition, condition and sustainable practices to provide transparency and build trust amongst consumers. Blockchain-enabled ‘Smart Contracts’ can be deployed to automate timely or proactive interventions in the event of a supply chain disruption. For e.g., smart contract that monitors the liquid assets and compares it to the working capital needs of a supplier, and automatically presents a secure, tailored financing option (a collaterized loan for example), if the supplier is facing financial distress.

Operational Efficiency

Despite considerable efforts to digitize supply chain management, modern supply chains remain heavily reliant on paper-based documentation that are manual, error-prone and slow. While digitalization has helped create ‘digital twin’ versions of paper documents and physical goods to make data processing efficient, Blockchain enables auditable tracking of these digital assets while embedding the authentic, verifiable proof of the original physical good or document, thus providing a trusted linkage between the physical and digital worlds. With verifiable, trusted, auditable data, Blockchain cuts out many intermediary steps required for manual verification of data. It uses smart contracts to automate many of the rule or contract-driven processes and transactions.

Smart contracts can help multi-party processes and business agreements to be codified and automated using blockchain. Once deployed, they self-execute reliably and bring new levels of efficiency, accuracy and reliability to inter-enterprise processes and transactions. A combination of instant access to complete and accurate data, self-executing smart contracts and independence from intermediaries make shared business processes more accurate, efficient and cost-effective.

Compliance and Governance

Supply chains are subject to many regulations across jurisdictions with company policies and rules involving many participants within the business network. Blockchain’s traceability, auditability and automation contribute to improved compliance and governance across business processes and transactions across a supply chain. Recording data in an immutable manner on Blockchain creates a trusted audit trail that cannot be tampered with thus recording the business truth in an immutable, verifiable, and unprecedented manner. Further, incorruptible smart contracts ensure transactions are automatically executed as per agreed terms, rules, and policies by eliminating errors and other contract exceptions. Data recorded on Blockchain also infuses trust in an audit process and improves regulatory and corporate compliance. Blockchain structure and attributes create a reliable audit trail of processes making it verifiable in real-time. Combining this accuracy with automatic contract execution drives improved compliance and efficient regulatory compliance and reporting.