In our first blog on the future of cashless supply chains, we explored the immense benefits for suppliers and the role the significant role they can play in promoting cashless ecosystems.
Today we explore the impact of blockchain on supply chains and the clear-cut benefits of implementing blockchain tech in your supply chain.
Managing inventory, shipping and trading, creating products and buying materials are some of the oldest known human activities. As such, they’ve evolved along with sophisticated technologies—especially information technology—to make them more efficient. Few people realize, for example, that ERP was launched in 1974, almost half a century ago. The first major eCommerce standards were released more than 35 years ago. They were followed by web browsers, offshoring work with high-bandwidth data connections in the 90s, robotic process automation and, today, Bitcoin and blockchain.
Distributed Ledgers, Smart Contracts and Better Bottom Lines
Imagine, instead of sending copies (of copies) of transactions, documents, purchase orders, transportation, inventory receipts, transfers and so on, all of the players in an industry could store transactions that they must share among parties in one place. The purchase order, the inventory receipt and more could go into a ‘master ledger’ that everyone could write to, but then only permitted members can read. Blockchains give these supply chain networks the chance to create one shared truth without one all-powerful, centralized intermediary. Each participant has a copy of the ledger, and all transactions and movements are part of that ledger. If any participant tries to game the system or perpetrate fraud, that company is manipulating only its ledger and is immediately out of sync with the rest of the ecosystem, a powerful deterrent to bad behavior.
The ledger must be tamperproof. Parties must not be able to change a transaction or falsify transactions after they have been written. Only parties writing valid transactions to the ledger can be allowed to update it, and the system should be able to verify that the partners are who they say they are. Only parties that are allowed to read a record should be able to—the transactions must be protected with security such as dual-key public encryption. This ‘public ledger’ system with such attributes is, of course, what is known as blockchain.
Having a single public journal does not necessarily mean the end of all bad transactions. However, this is where blockchain comes into play again—this time, with ‘smart contracts.’ Imagine a contract with terms and conditions that are not just statements. For example, consider this scenario: Service level A is price $X, Service Level B is price $Y, invoicing is 30-days after proof of delivery, issues must be registered within 15 days of delivery, and after 1000 units, the unit price goes down 3 percent, and so on. Now, imagine instead that each one of these variables was a line of code, stored in a master system-of-record. When a new record is written, the public record-keeping system automatically checks to determine if there was an out-of-balance condition. If that occurs, the system would prevent the record being entered. That is what is called a ‘smart contract.’
See results immediately
Even basic applications of blockchain technology in supply chain— particularly, where contracts occur—can yield substantial cost reductions and efficiency benefits to supply chain operations. This can be done both from the ‘connecting with’ suppliers and customers phase through read/write, and to one point for millions of participants, and the ‘ongoing communication’ phase by enormously reducing transaction volumes and irregularities. The shift to a common blockchain journal of data for all parties—which will avoid unnecessary reconciliation, miscommunication, and poor enforcement of joint contract standards—will create an order-of-magnitude opportunity for those who adopt.