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- Thesis Statement
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0px; font: 11.0px ‘Trebuchet MS’; color: #000000; -webkit-text-stroke: #000000}span.s1 {font-kerning: none}ol.ol1 {list-style-type: lower-alpha}Application of Blockchain Technology in Supply Chain ManagementThe blockchain is one of the most buzzed word which we come across in this transforming world which has often been described as a ‘VUCA’ world, i.e., Volatile, Dynamic, Changing and ambiguous. Often people confuse Blockchain with bitcoin which is not so, as they are not synonyms. The blockchain is the concept and bitcoin is an application.
Bitcoin is an unregulated shadow-currency and was the first popular blockchain application. Most if not all business operates on public or private networks. Tangible and intangible assets must be transferred across networks to network participants.
Ledgers are used to document all those transactions, and networks are governed by a contract. At the highest level, a blockchain is a trusted, distributed ledger with shared business processes. When we talk about Blockchain implementation in the business process we emphasise on the three factors, which are:Identity over anonymitySelective endorsement over proof of work Broad set of assetsBusiness networks today are often inefficient because each participant in the network keeps records, or a ledger, of all transactions between all the parties that the supply chain interacts with on a daily basis. Multiple manual ledgers are one of the most difficult challenges that the businesses in Supply Chain Management are facing; this means that all participants in a network must update or audit their ledgers, which is inefficient, error-prone, and insecure.One solution to these problem is blockchain, which provides a shared ledger technology that allows any participant in the network to see the one system of record or ledger. By using blockchain technology, businesses can benefit from a more efficient and transparent transfer of goods and services. A blockchain is chain of information storing blocks wherein every block contains information such as transactions, parties involved and amount.
A blockchain database retains complete history of all the assets and transactions executed. Every transaction authenticity in blockchain is validated by network of users often called as miners. This distributed validation method makes it transparent and trustworthy.The change in permission given to a particular node and whether or not there exists a centralised authority divides the blockchain in three different parts; public blockchain, private and hybrid/consortium blockchain.
These blockchains have slowly started finding applications in supply chain as well. It helps participants to store price, date, quality certifications and location of the materials. These information increase traceability of the materials, prevent losses from counterfeit products, improve compliance and reduce administration paper work. The requirements for a Blockchain for business are a shared ledger, smart contract, privacy, and trust.Here shared ledger is an append-only distributed system of the record shared across the business network. Privacy ensures appropriate visibility, transactions being secure, authenticated and verifiable. Smart Contract is the business terms embedded with transactions which link the information collected in a blockchain to its consequence. The last aspect is a trust which means that the transactions are endorsed by relevant participants.
Material tractability feature originates many applications in food and cold supply chain industry. According to a survey by Deloitte, 90% of the consumers consider food product transparency as a critical factor in deciding food products. The journey towards this change in food industry starts with registration of farmland on the Blockchain.
This’ll make it easier for the consumers to track the origin of their food and helps in improving food safety while reducing the potential for frauds. This will also help in increasing demand for organic farming as producers will know that customers have a visibility of their name and product and same goes for customers. Currently it takes up to two weeks to track down the source of contaminated foodstuffs but latest blockchain implemented methods can give its members access to a constantly-updating ledger of food, from source to store. For the growing supply chains having multiple suppliers to deliver the parts and ingredients, traceability becomes even more important.
The famous case of Chipotle Mexican Grill outlets which left 55 customers ill and company couldn’t trace the contaminated food which hugely impacted their reputation and shares overnight tells us about the need to bring in more transparency into the systems. Provenance, a supply chain transparency startup, recently completed a six-month pilot for tracking responsible sourcing of tuna in Indonesia via blockchain. Similarly, Walmart in partnership with IBM has already run two blockchain experiments to track Chinese Pork and Mexican Mangoes.This provenance tracking through blockchain is finding its way into pharmaceuticals industry as well.
Drugs giants like Pfizer and Genentech have completed a successful pilot to track drugs last year and are now working on project MediLedger which will imbibe the delivery of drugs from drugs maker to wholesalers to hospital to customer in blockchain.Blockchain can also help in fighting the scourge of counterfeiting. Counterfeit goods account for 2.5% of global trade or $461 billion. In fact, Amazon has begun taking counterfeit resellers to court.
Using blockchain, retailers can provide their customers with unchallengeable proof of the origin and authenticity of their products at every step in the supply chain. The diamond industry is working with Everledger to verify the origins of precious stones and they have already added over 1.6M gems to a ledger.
One sneaker manufacturer is using blockchain and 3-D-printed smart tags to prove product authenticity. Businesses can effectively maintain more compliance over the outsourced contracts since it can reduce communication and data transfer errors. Less time can be spent verifying the data and more time can be spent on improving quality and reducing cost. Maersk has completed the first test of a system last year that would manage the company’s cargos using blockchain.Blockchain can work in synergy with other enterprise applications like ERP, CRP and WMS. Using blockchain will only increase capabilities of existing ERP in multi-echelon and multi-staged supply chain of the organisations. Blockchain can still find applications in many unexplored areas of SCM.
For e.g., as per IBM there exists more than 100 million dollars of invoice worldwide which are in dispute between buyer and supplier at any given time and takes and average of 44 days to be resolved. With contract, proof of origin, receipt, delivery and payment transmitted through blockchain this all can be avoided upto 90-95%.But the still the road to wide acceptance in supply chain management has some challenges for blockchain. Data privacy – These counterfeit combating systems need to find a right balance between privacy and transparency. Another issue is performance – increasing number of traded products and the requirement to generate unique id at the point of every transaction will lead to huge chuck of data and the performance of blockchain with this high chuck of data is another challenge. The cost of providing the processing speed to deliver instant transaction in bitcoin is also one of the reason that it’s not getting accepted as it should have been and currently most of blockchain application is in high value assets not in high volume assets.
But companies have started to find solutions to these challenges for e.g., BlockChain as a Service (BaaS) has already been contributed by companies like Microsoft(Azure) and IBM(Bluemix service console with Hyperledger project). It just shows that blockchain is going to find even more SCM applications in coming future.