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How can blockchain influence businesses supply chains?

by jcp
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By Sayan Debroy, supplier risk intelligence solution manager at The Smart Cube

The popularity of blockchain has skyrocketed in recent years, with this showing no immediate signs of slowing down. In fact, according to a study by TripleA and Grandview research, blockchain will grow at a rate of nearly 86 per cent from 2022 to 2030.

The technology has a wide range of applications across many industries, in part thanks to its ability to significantly reduce transaction costs. For example, blockchain is used in the healthcare industry to limit health care costs, as well as to improve access to information across stakeholders and streamline business workflows, while it’s used by financial services organisations to increase the efficiency of payment processes. Now, blockchain is radically transforming the way in which organisations conduct their supply chain management process.

Businesses are positive about blockchain’s prospects

The use of blockchain technology in the supply chain enables businesses to track goods as they move from part of the supply chain to another, with vital information at each phase recorded and every party supplied with a copy for record-keeping and validation. From this,audit trails can be created from origin to destination that are difficult to tamper with, which significantly improves visibility and traceability of products within a supply chain. Given these features, blockchain can be leveraged at various points of the supply chain management process, such as for risk and quality assurance, origins of goods assessment, contract compliance and invoice reconciliation.

In the last few years, the global logistics industry has emerged as one of the biggest supporters of blockchain technology, with some of the largest organisations in the global logistics and transportation industry founding the Blockchain in Transport Alliance (BiTA). This group has become the largest commercial blockchain alliance in the world, with around 500 members spread across 25 countries. The aim of this partnership is to increase the adoption of blockchain technology in the logistics industry by developing industry standards, to educate members and the wider audience on blockchain solutions, and to encourage the use of new solutions.

Further to this, last year, the World Economic Forum’s Centre for the Fourth Industrial Revolution launched a project with the aim to “accelerate use of blockchain” alongside 100 companies made up of supply chain providers, large shippers, and government institutions. The overall goal of the project is to develop governance frameworks for “impactful use of blockchain” in port systems in a manner that is “strategic, forward-thinking, and globally interoperable”.

Many leading global companies have already begun piloting blockchain solutions to drive supply chain transformations.In fact, according to the 2022 MHI Annual Industry Report, 10 per cent of supply chain professionals stated that their companies are already using blockchain in some form, with 68 per cent claiming their organisations are planning to use it within the next five years or less. For example, Walmart has integrated the technology into its supply chain for the food category, which has allowed the leading US-based retailer to track every touchpoint a product goes through from its source through to its end customer delivery. By implementing blockchain, Walmart can now trace the source in real-time whereas beforehand, this could take up to a week even if all the data had been captured.

But blockchain adoption isn’t all smooth sailing

Despite there being a large amount of optimism surrounding blockchain, the scale of adoption and application is currently limited in most organisations. More than 80 per cent of blockchain projects are currently in the proof-of-concept stage, with only a small percentage of this figure heading towards large-scale deployment of the technology. This is because there are numerous hurdles and challenges when it comes to blockchain adoption and scalability.

One area which must be addressed before blockchain can be considered a viable technology for supply chain transformation is the issues surrounding data access and reliability. Private or permissioned blockchains tend to be controlled by various different parties. This differs from public blockchains, where a large number of unknown entities are involved. As such, these private or permissioned types of blockchains are capable of restricting data access or admission of a new party. This defeats the very purpose of blockchain, which is meant to support open data-sharing agreements. Adding to this, there is the possibility that a few bad actors in a private or permissioned blockchain may reduce the overall reliability of the data being used.

What’s more, there are environmental concerns regarding blockchain adoption, particularly regarding its energy usage and emissions. Currently, the technology requires large amounts of energy in order to run, producing a huge amount of greenhouse gas emissions. Although those operating in the blockchain industry are studying energy conservation techniques, in its present form, the technology necessitates a large amount of energy, causing it to have a large carbon footprint.

Additionally, further concerns regarding blockchain adoption in the supply chain include a lack of industry standards, data privacy and confidentiality worries, challenges regarding integrating the solution with existing legacy systems, and a general shortage of blockchain developers. Considering the aforementioned challenges and hurdles, it is of little surprise that Gartner has listed blockchain for supply chains in the category of“peak of inflated expectations” technologies in its 2021 hype cycle for supply chain strategy due to the fact it is “yet to mature and demonstrate a staying power”.

Why a measured approach is required

For businesses considering adopting blockchain technology to transform their supply chains, they should strongly consider starting off their journey with a handful of pilots or proof-of-concept projects. Alternatively, and perhaps preferably, is for organisation to join an existing project in partnership with other companies.

To ensure blockchain solutions are implemented effectively, organisations must make certain that a number of conditions are met at the outset of the journey. This includes making sure that all parties agree to exchange data with one another for everyone’s benefit, as well as ensuring that the cost-benefit trade-off is favourable for the execution of the entire project from the outset and that all parties are in agreement when it comes to making investments enabling the blockchain solution to capture and share pertinent data. The latter should include investments which can be integrated with internal system within organisations to support supply chain management.

While it appears that blockchain is here to stay, it needs to evolve further before it can beimplemented from a practical perspective by procurement and supply chain departments.

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