The global supply chain has been considerably affected by rapid manufacturing growth and increasing technological advancements in the present era. Several improvements have disrupted the supply chains in multiple ways. Artificial intelligence is taking over the world, replacing the old means of management and survival.
Organizations are still learning to adapt to technological advancements and becoming more flexible and considerate. Only those firms make their place in the market that remains dynamic yet relevant in the competitive market and keep on bringing innovations through supply chains continuously.
However, with the increasing adaption to change, transparency and security of supply chains integrated with the organizations are highly at stake. But this problem can be sorted out using blockchain technology. Here is a detailed guide article that will help the readers understand the concept of supply chain management and how integrating blockchain technology with the supply chain can solve multiple issues being created at present.
What is Supply Chain Management?
The process of acquiring raw materials for a product to finally deliver the required product at its destination and controlling this complete process is referred to as Supply chain management (SCM). From planning the product to plan about future productions to satisfy the customers, it streamlines the supply-side operations of a company.
Moreover, it also handles the information related to the materials required, finances associated with the services and materials, and the movement of materials till their final destination.
How Does Supply Chain Management Work?
Many people confuse the two concepts of Supply chain management and Logistics though logistics is a sub-division of Supply chain management. There are specific steps that are involved in Supply chain management that may include initial planning, finding sources, manufacturing the product, and looking after the services post-sale in order to keep central control over the supply chain.
The initial step of Supply chain management is to decide the ways that can satisfy the needs of customers. Then the next step is to look for sources of raw materials to prepare the products and suppliers who can provide them conveniently. After that, it is crucial to examine if the delivery process will be carefully handled by the manufacturer or not.
The services after the sale will be provided by a proper network after the successful delivery of the product. These services may include returning and repairing the products, training customers about handling products, etc., to ensure the satisfaction of the clients.
On the other hand, the management processes are carried out by software systems in the modern Supply chain management machinery. All the required steps, such as the provision of services, creation of goods, warehouse management, looking after inventory, completion of orders, tracking the information, delivering products and services, and providing assistance after the sale, are all handled by using the software.
At present, Amazon is using several robotics and automated technologies that handle the chores like storing and stacking products to picking up and packing orders. Moreover, in some areas of the United States, electric drones are being used by the company to deliver packages that weigh less than five pounds.
How is the Modern Supply Chain Growing?
Integrating multiple technologies into the digital supply chain, such as robotics, blockchain, and Artificial Intelligence (AI), has brought revolutions. Data and information from various sources are combined, and then services and goods are distributed all along the value chain.
A complete functional physical system that links together a network of data, activities, and assets makes the infrastructure of the Supply Chain. The algorithms used in Artificial Intelligence can be utilized by businesses and organizations to get the perception of large data sets, manage the inventory actively, run the processes at warehouses, enhance the connections of critical sourcing, increase the time of delivery, increase sales and develop good experiences with the customers.
In addition, several manual tasks performed by humans are also automated by robots powered by artificial intelligence. These tasks may include picking up orders, packing them, providing raw materials on time, delivering the prepared products, locomotion of products for storage purposes, distributing them, boxing them, and scanning them.
It has been claimed by Amazon that using robots in the supply chain has enabled the company to complete the commitments of prime shipping on time, as robots have the capacity to hold about 40% more inventory than humans.
As we all know that blockchain has a rigid nature. The data stored cannot be manipulated easily. The sources of products can be tracked and traced, and in case of any scam or fraud, illicit activities can be identified using blockchain.
This can be understood by an example if a food item is transported by a business that has to be kept under a specifically defined temperature. It can be determined by the company responsible for transporting it to keep a check during the journey if the temperature has been kept intact and not increased beyond the prescribed limit. This also helps decrease the problems integrated with the quality of food items.
Role of Blockchain Technology in Improving Supply Chain Management
Supply chains based on blockchain are entirely different from traditional supply chains. Whenever any change is made in the transaction records, the data gets updated automatically in blockchain-based supply chains. This helps in increasing the tracing ability of the supply chain overall.
Unlike blockchains based on Bitcoin or other finances that are usually open for public access, in the supply chains that are based on blockchain, the number of actors is generally limited, and the system is private and closed that cannot be accessed without permission. But there is still a convenient chance for creating partnerships.
What are the Key Actors in Supply Chains based on Blockchain?
There are four key actors that play an essential role in the supply chains based on a blockchain network. These key actors are mentioned below.
Network actors that have distinct identities are provided by registrars.
Blockchain rules are developed by these standard organizations. Moreover, they also chalk out standard schemes such as Fairtrade or technical specifications and supply chains that are eco-friendly.
The people involved in supply chain management are certified by these certifiers.
In order to retain the credibility of the system, actors such as buyers, sellers, and producers need to be certified by any authentic certifier or registered auditor.
An essential characteristic of the structure and flow of supply chain management is the way it owns a product and then sends it to a specific character. The experts count it as one of the most significant advantages of Supply chain management.
How Blockchain Provides Transparency to Supply Chain Management?
The overall transparency of the system is improved as smart contract conditions are fulfilled by the required parties. The transaction information is updated on the blockchain ledger after the compilation of duties and processes by all participants. This is done before transferring or selling any product to some other actor to validate the services and goods.
In addition to that, blockchain technology look after the transparency of certain characteristics keenly, such as ownership, location, quality, quantity, and nature of products. Therefore, the process provides the opportunity for the customers to observe the complete procedure from the initial stages of raw materials till the product getting sold.
This also eliminates the requirement for any mediator, such as a central organization, for administration purposes or maintenance of the supply chain digitally.
How is Traceability in Supply Chain Improved by Blockchain?
All kinds of information regarding the supply chain, such as date, quality, origin, price, destination, and certification of the product, can be gained by the concerned parties using the blockchain. Blockchain technology has made the traceability of all activities integrated with the supply chain much more straightforward.
The ability to find out the location of the inventory at present and in the past and keep a record of custody of the required product is usually termed traceability. As the products undergo a convoluted process and pass through multiple geographic regions, keeping track of all these procedures, from the initial stages of raw materials to final delivery to traders and customers, is all included in traceability.
The supply chains driven based on blockchain enjoy this considerable benefit of traceability. The data is recorded over the blockchain using several decentralized ledgers that are accessible to everyone. Whenever a transaction is carried out, the information is locked over the blockchain, and it can be replicated into multiple copies to avoid any confusion in the future.
Hence, as the products can be tracked easily, the supply chains built based on blockchain are more secure and more innovative than the traditional ones. Moreover, the products have to undergo a full audit trial before reaching their final destination that is accessible for everyone to be viewed.
Blockchain ensures the frictionless movement of products between the creators and the customers by connecting the supply chain with a decentralized system. In addition, using the collaborative blockchain network, the suppliers and distributors can easily detect the nutritional value of food items, the quality and origin of products, and the presence of any harmful organism.
Moreover, the sustainability of products is also enhanced as the buyers have access to the history of the products they buy, ensuring that they get reliable products produced by authentic producers. Keeping a check on the traceability details stored on the ledger in blockchain, immediate and necessary action is taken in case the legal authorities discover any non-compliance or health concern in the quality of food.
How Tradability in Supply Chain Improved by Blockchain?
One of the very significant advantages of the integration of blockchain technology in the supply chain is tradability. In blockchain technology, tokenizing the assets ensures tradability. Any tangible product is turned into a digital asset using the tokenization method. These tokens can then be exchanged in the market between the customers, as there is only one token for each product.
An asset is divided into multiple shares to represent its ownership at different platforms when it is tokenized at platforms integrated with blockchain. Without the need to exchange the existing assets, these tokens can be exchanged between the users in order to transfer ownership of the product. In addition to that, software, services, and products can be licensed quickly by making payments through automated smart contracts.
Moreover, blockchain technology provides the consensus to customers that the transactions recorded over the blockchain are authentic, and there is no disagreement regarding anything related to it. As the exact version of the ledger is used by every product, therefore, utilizing the unique features of the blockchain, it is possible to track the ownership records of all physical entities such as digital assets and real estate, etc.
Instead of making payments directly in fiat, companies usually prefer tokenized products. It is because of the number of benefits provided by using smart contracts in blockchain technology. These benefits may include speeding up the transactions by enabling peer-to-peer payments and decreasing the time required for reimbursing businesses to supply goods and services.
Moreover, making payments in tokens also helps in keeping back cybercriminals from stealing from businesses by taking any benefit of their chargeback situations. The wallet account of the company receives the payment after a transaction is carried out, and it cannot be withdrawn in any case without approval.
What are the Possible Problems with Blockchain Technology?
Using blockchain technology, all data and information are stored on computers. Sometimes, the traders do not want to reveal the actual cost to their suppliers. Therefore, they may use a permissible blockchain instead of a public blockchain where all the data can be accessed by anyone. However, it is helpful in case multiple contributors are using it.
In addition, the security of data and the consensus mechanisms are also some of the issues to be addressed. The security of data can be ensured in case the login credentials are kept safe while using the permissible blockchain, as all data is visible to the users in other cases.
Moreover, there are two kinds of consensus mechanisms known commonly, proof of stake (PoS) or Proof of Work (PoW). However, while dealing with them, the number of votes, the threshold for accepting the new block in the chain, and the people who are voting are the factors that become noticeable.
At times different technologies are used by various blockchains, creating a problem of compatibility among them. However, using the interface developed by the blockchains, these problems can be then solved. Some users also claim that using blockchain technology also proves to be costly. The transaction charges also vary for each network, which may not be affordable for some customers.
Last but not least, the laws and regulations applied to blockchain technology in some countries may also hinder the use of blockchain technology in supply chain management systems.
What is the Future of Supply Chains Based on Blockchain Technology?
Customers need to know the actual sources of their items and whether they are made according to the correct standards are the factors that decide the demand for the supply chain based on blockchain in the market. The concerns that bother customers in traditional supply chains, such as eliminating the need for the initial burden of paperwork, etc., can be addressed by applying blockchain technology in supply chain management.
In addition to that, the record related to all transactions held by organizations that cannot be manipulated, physical assets being exchanged in the form of digital tokens has enabled a more transparent and accessible supply chain system where the users can easily track the recorded history from the initial stages of the product to its final delivery destination.
However, experts and professional traders still have to figure out the benefits integrated with the use of blockchain technology in supply chain management and thus making it standard practice in daily life trade. In addition to that, as blockchain technology is still growing and becoming mainstream gradually, there are certain regions where various laws are implemented over it. This may result in decreasing the supply network systems.
However, it should be kept in mind that the shift from traditional supply chains to supply chains based on blockchains will take place slowly and gradually and not at once. But there is a hope that blockchain-based supply chains will replace traditional ones shortly.
Blockchain technology can be used as a considerable tool to address the deficiencies in traditional supply chain management systems. In terms of financing, delivery speed, coordination, and traceability of products, there is still enough space for improvement in conventional supply chains.
Therefore, it is now high time for professional traders to understand and discover the applications of blockchain technology in supply chain management and take it towards the better side. Sincere efforts are needed to conduct experiments with various technologies, develop new regulations, build unique ecosystems with organizations, and integrate different blockchain platforms in supply chains. It will demand time and effort, but it will be worth a shot.
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