GUEST COMMENT The impact of blockchain on the supply chain

Blockchain technology is synonymous with cryptocurrency, but how might it impact supply chains? 

Supply chain management can be overwhelmingly complex without the right technologies in place. Technologies within the supply chain have helped today’s organisations master sprawling and elaborate supply chain networks that involve various parties, multiple stages and dispersed locations. Then there are the transactions and associated documents such as purchase orders and invoices that must be tracked and kept in check to ensure the smooth running of supply chain operations.

While existing technologies such as supply chain modelling software, RFID tagging and social media can be powerful tools for facilitating more sufficient supply chain operations, emerging technologies that are becoming increasingly prominent in other fields could soon impact the way supply chains are managed. One such technology is blockchain, a seemingly new and often little-understood technology commonly associated with a certain cryptocurrency.

Fool’s Gold?

If you’ve heard the term ‘blockchain’ it’s more than likely that you have heard it in association with the name ‘Bitcoin’. Invented in 2008, blockchain has only entered the wider public consciousness over the last couple of years through its association with the growing phenomena of Bitcoin. But blockchain can be used in a wide variety of applications beyond distribution digital currency.
Perceived by many as a ‘digital ledger’, blockchain technology enables the distribution of digital information but prevents that information from being copied. Each piece of data shared across the blockchain can only have one owner, yet it is stored across a dispersed network of computers and regularly updated in real time. Its purpose is to bring speed and transparency to digital transactions.

One Twitter user provided a succinct high-level explanation of the way blockchain works as “computers yelling random numbers at each other until they find a match”. Perhaps the simplest and easiest way to understand blockchain is to imagine a spreadsheet that is duplicated across thousands of computers and one that cannot be corrupted.

A second entertaining description from another Twitter user describes it as a “computationally burdensome way to hate the government”, referencing the fact that there is no central authority governing or regulating blockchain transactions.

But the benefit of blockchain lacking any central authority is that there is no central storage location for that data exists across it. Adopters of the technology believe this increases security as well as transparency. However, you choose to visualise blockchain, there’s no doubting that the distributed data that simultaneously exists across different locations is harder to hack.

A Transformative Force for Supply Chains?

The globalisation of commerce has meant that supply chains, which have traditionally been simple operations spanning only local markets are now increasingly complex as they spread out further into various global markets. Blockchain has the potential to simplify the way global supply chains work because its transactions work quite literally in chain of linked-up blocks linked with the associated transactions that have already taken place.

This type of dispersed ledger removes the opportunity for transactional disputes which are a common cause of disruption to supply chain operations. There is no opportunity for documents stored in the supply chain to be edited, tampered with or deleted. Effectively, blockchain can ensure honesty and transparency where traditionally, all parties involved in a supply chain have had to rely on trust.

Beyond security, blockchain can increase efficiency in the various aspects of supply chain management. Where end sellers require a reliable record of the product’s journey from its source, blockchain can provide quick and easy access to a transparent and unadulterated record of that journey. Where an organisation needs to gather data from all of its suppliers, locations and buyers in order to inform its supply chain design software, blockchain can be the fastest way to gather and access this information with the peace of mind that it is correct.

Far-Reaching Advantages

Seemingly complex to comprehend at first, blockchain certainly appears to have its merits. For the supply chain industry, these merits will include improved transparency, increased efficiency and reduced costs. But there will be other benefits too.

As the growing consumer demand for ethics and environmental responsibility drive businesses to adopt more sustainable means of producing, sourcing and transporting products, the need for transparency between supply chain partners will grow. Through blockchain, transparent records can help organisations ensure that they are living up to their claims of operating more sustainably and reducing their carbon footprints.
Whether Bitcoin will begin to play a prominent role in supply chain transactions, we’ll have to wait and see how things unfold.

Author: Don Brenchley, director industry strategy EMEA, LLamasoft 

Image credit: Fotolia