As any supply chain professional will attest, it is an industry challenged with massive amounts of data and enormous complexity. Information is often siloed, hard to access, inconsistently formatted or difficult to analyze. Thinking about driving change in an industry like this could be overwhelming, but the silver lining is that even the most basic applications of blockchain technology could significantly increase productivity and profitability.
With widespread use cases throughout the finance industry, the potential impact of blockchain in procurement and supply chain management is beginning to get more attention. Given its inextricable tie to a company’s bottom line, supply chain efficiency — or lack thereof — is a performance measure that can’t be ignored. And as new use cases are discovered, organizations are realizing blockchain’s untapped potential to tackle long-standing issues around efficiency, information sharing and traceability.
Efficiency: Increasing Automation Through Smart Contracts
Large, complex datasets are business as usual for supply chain professionals. Especially for lower-tier suppliers, this can mean massive bottlenecks and delays. Enter smart contracts, which are essentially pieces of code that sit within an individual block on a blockchain and automate actions once certain conditions are met. This defines rules around a transaction and automatically enforces any obligations. Applied to supply chain management, blockchain could allow organizations to create tamper-proof smart contracts that automatically implement terms of multiparty agreements.
Leveraging smart contracts could streamline and automate anything from purchase orders and shipping notifications to inventory management and reporting. According to a Business Insider report (via BeInCrypto), Coke One North America (CONA), the IT firm behind Coca-Cola’s bottle manufacturing supply chain processes, partnered with a German software provider whose blockchain-enabled system “allows Coca-Cola franchises to identify whether another franchise can help to fulfill an order without revealing proprietary information about their clients and order volume.” CONA expects to reduce order reconciliation from weeks to just days.
Coca-Cola’s biggest rival, PepsiCo, ran its own blockchain pilot, Project Proton, and used smart contracts to automate part of its programmatic ads supply chain, leading to a 28% boost in efficiency.
Integrating smart contracts for automation isn’t without its challenges. In addition to external factors such as regulatory issues, increased automation can require changing the company’s internal processes and policies significantly — and most executives will agree that managing change effectively can be difficult for even the most innovative organizations. With this in mind, companies interested in implementing blockchain technology should start small. Begin with a pilot, and test, learn and expand from there.
Information Sharing: Breaking Down Silos With Blockchain
Most companies would agree that access to information is important, but in supply chain management, information flow is critical. With supply chains having an increasingly strategic role, siloed information doesn’t just create inefficiencies, but can expose the organization to significant risk. Blockchain solutions can make it easier for the right people to access mission-critical data and improve the flow of information both within an organization and among stakeholders.
The pharmaceutical industry is one of the world’s few trillion-dollar verticals, expected to hit $1.5 trillion in 2023. Greater transparency within the pharmaceutical supply chain could be groundbreaking, as the industry has had to grapple with counterfeiting, return fraud and other challenges stemming from siloed data and regulatory requirements.
MediConnect established a blockchain platform to provide a single source of prescription data for all pharmacies, allowing U.K. healthcare professionals to access up-to-date records of their patients’ prescription histories and helping to cut down on the overuse of prescription medication.
Traceability: Tracking The Production And Procurement Process
With blockchain technology, information at each step of the supply chain process is logged in a secure and public database, which none of the parties involved can modify without it becoming immediately apparent to others.
Should something go wrong during the shipping process, the chain of custody can be traced to easily discover when and where the issue occurred. Detailed tracking allows more transparency around the production of retail products or the sourcing of resources such as coal, oil or gold. In addition to adding an extra layer of accountability, this also mitigates the risks of criminal activity.
The IBM Food Trust platform partnered with Raw Seafoods in October to bring blockchain-based traceability to the seafood supply chain after an Oceana investigation found that 21% of tested seafood was mislabeled. In cooperation with stakeholders such as fisheries, distributors and restaurants, initiatives like this will be tackling one of the biggest issues within the food supply chain sector.
The supply chain sector is also seeing an increased demand for information from consumers who simply want to know more about the production, shipping or preparation of the products they are buying. Starbucks is working with Microsoft to harness its Azure Blockchain Service in bringing digital, real-time traceability so customers can know more about their coffee beans. This not only empowers farmers with more information and visibility about where their beans are ending up, but also lets consumers see the impact their coffee purchase has on the people behind the scenes.
Leveraging blockchain won’t solve every problem supply chain professionals face. For a blockchain-based solution to be valuable, it needs to scale and have a large group of active users. The network effect particularly impacts blockchain applications in the supply chain space given that so many different entities are involved. A lack of agreed-upon standards and a shortage of technical talent are also barriers that this sector will face in adopting blockchain technology.
Despite these challenges, there is a lot of potential. Moving toward greater decentralization, transparency and immutability will let the industry address huge challenges that previously seemed impossible to solve. From chemicals to consumer packaged goods, from pharmaceutical applications to the hospitality sector, procurement professionals and their respective organizations have a lot to gain from exploring and experimenting with blockchain solutions.