How Blockchain Will Affect Supply Chain Management

Article by Tom Serres

Whether it’s apples from Turkey or computer chips made in Korea, there is a constant movement of goods being shipped around the world. Although the year may be 2018, much of how these global supply chains are managed is a relic from the previous century. Our new white paper, “Introducing Asset Chains – The Cognitive, Friction-Free and Blockchain-Enabled Future of Supply Chains”, discusses how supply chains have evolved from local community trading to gigantic international webs of contracts, customs policies, and freight transactions.

The New Technology

It’s not that everyone had been satisfied with this aged system, but until recently there hadn’t been a lot of meaningful alternatives. However, now, technology is improving rapidly in the fields of artificial intelligence (AI) and the Internet of Things (IoT). When combined with the distributed ledger technology called blockchain, these advancements are creating possibilities for an entirely new approach to supply chain management.

This revolution relies on two key factors: supercharged analytical capabilities that are adaptive and continuous, and transparent, distributed communications and record keeping systems. Below we discuss some of the most exciting recent manifestations of these developments.

Smart Contracts

Trust is an essential component of modern commerce. In fact, billions of dollars are spent every year by companies trying to determine who and what they can trust in their business operations. The reason is simple: When you provide a good or service, you want to get paid for it.

Blockchain offers a new way to mitigate challenges related to trust through something called smart contracts. A smart contract is a digital way to encode and automatically enforce the terms of a transaction. If an agreement says party A will receive a deed when they pay a certain amount to party B, a smart contract will verify that the correct payment has been made and automatically transfer the deed to party A.

There’s no option for either party to scam the deal because the contract is executed only when the set terms are satisfied. Establishing and maintaining terms was once a simple process when trade was all local, but the truth is that goods can now change hands hundreds of times across dozens of locales before arriving at a final destination. Smart contracts can eliminate all the paperwork—and the human errors that go along with it—by automating these transactions.

Instantaneous Tracking

As the latest E. coli outbreak highlighted, our current system of tracking food provenance is antiquated at best and broken at worst. Regardless of the resources invested, it can be nearly impossible to track down the facility or farm where a food item was produced. However, as we highlight in our white paper, today companies like Walmart are investing in emergent technologies to better track the sourcing of their food and other products.

With the help of IoT sensors, a product can be tracked along every step of the way, from origin to destination. As the product changes hands, an asset chain is also created that references information from its previous location. That means that a product can be traced back to where it began through a secure, self-referencing blockchain. Not only does this guarantee the validity of the information, it reduces the tracing process from weeks to seconds.

Where’s the Third Party?

Currently, a third party is needed to perform most transactions. Whether that’s a bank, escrow service, or broker, every time another party is involved in a transaction it becomes more expensive. However, blockchain has the power to remove the necessity of third parties, as well as the billions of dollars in fees that are paid to them every year.

In short, blockchain is creating an entirely new framework for supply chain management that will change the foundations of global sourcing and procurement. To learn even more, check out our white paper.