Discovering Blockchain's Potential for Supply Chain Management
Abdullah Sheikh
Fulfilling Businesses' Vision with Customized IT Solutions | Founder of Exteed | Founder of Global IT Professionals Forum
The rapid evolution of global supply chains has made them more complex, dynamic, and interdependent than ever before. Companies are increasingly facing challenges such as delays, fraud, inefficiencies, and a lack of transparency. To address these issues, many organizations are exploring the use of blockchain technology, a powerful tool that could revolutionize supply chain management by enhancing traceability, improving efficiency, and streamlining financial transactions.
In this article, we’ll delve into how blockchain is transforming supply chains across industries, the specific benefits it offers, and what supply chain leaders need to know to capitalize on this emerging technology.
1. Enhancing Traceability with Blockchain
One of the most compelling use cases for blockchain in supply chains is end-to-end traceability. Blockchain provides a decentralized, immutable ledger that can track the journey of every product from raw material sourcing through production and delivery. This level of transparency is invaluable for industries where quality control and product integrity are crucial, such as pharmaceuticals, food, and high-end consumer goods.
A Case for Quality Control and Safety
Imagine a scenario where a company discovers that a batch of its products is defective. With blockchain, it can immediately trace the origin of the faulty products, identify all suppliers involved, and pinpoint exactly where and when the issue occurred. This allows the company to quickly and efficiently issue a targeted recall, limiting financial losses and protecting consumer trust.
This capability is particularly beneficial for perishable goods. For example, refrigerated goods like fresh produce or certain pharmaceuticals can be tracked using blockchain integrated with IoT (Internet of Things) devices. If a refrigerated container experiences unsafe temperature fluctuations, the blockchain would record that data, enabling stakeholders to take corrective action in real-time. This automatic quality monitoring significantly reduces risks and enhances product safety.
Fighting Counterfeiting
Blockchain also plays a key role in preventing counterfeit goods from entering the supply chain. Counterfeits are a major issue in industries such as luxury goods, electronics, and pharmaceuticals, where fraudulent products can pose severe risks to consumer health and brand reputation. Blockchain enables each product to have a verifiable digital history, which makes it easy to spot fake products that don’t have the necessary provenance on the blockchain. This not only protects companies from reputational damage but also ensures consumer safety.
2. Increasing Supply Chain Efficiency and Speed
Supply chain disruptions can have a cascading effect on inventory levels, production timelines, and customer satisfaction. Blockchain can streamline these processes, enhancing efficiency and speed across the entire supply chain. Two companies that have successfully explored blockchain for these purposes are Emerson and Hayward, multinational manufacturers with highly complex supply chains.
Overcoming Delays and Bottlenecks
Michael Train, the president of Emerson, explains that long, unpredictable lead times and limited visibility into inventory often result in either stock-outs or excess inventory. A disruption in the production of a single component can cause delays that ripple through the entire supply chain. For instance, if product A requires components C1 and C2, and product B requires C1 and C3, a delay in producing C3 might cause product B’s production to halt. Meanwhile, product A may face a shortage of C1, even though there’s an excess of C1 available for product B. Without transparency between suppliers, these kinds of mismatches are common.
Blockchain can mitigate these issues by enabling all parties to share real-time inventory flows on a decentralized ledger. Each company can see the availability of components across the supply chain, enabling more effective resource allocation. For example, in the case of Emerson, blockchain allows the company to temporarily redirect inventory from one product to another during disruptions, preventing bottlenecks and ensuring production continuity.
Solving the Double-Spend Problem
Hayward, a global manufacturer of swimming pool equipment, uses blockchain to address the "double-spend" problem—where the same unit of inventory or machine time is inadvertently allocated to two different customer orders. According to Don Smith, Hayward’s Senior Vice President of Operations, by treating work-in-process inventory, raw materials, and machine capacity as digital currency on a blockchain, the company can ensure that each unit is reliably assigned to the appropriate customer order. This prevents overbooking and ensures that resources are used optimally.
Walmart Canada is another example of a company using blockchain to enhance supply chain efficiency. By using a shared blockchain with the trucking companies that transport its inventory, Walmart Canada has been able to synchronize logistics data, track shipments more accurately, and automate payments. These improvements have been achieved without requiring significant changes to the trucking firms’ internal processes or IT systems, making blockchain an attractive option for streamlining operations.
3. Revolutionizing Supply Chain Financing, Contracting, and International Transactions
Beyond improving traceability and efficiency, blockchain has the potential to revolutionize supply chain financing, contracting, and cross-border trade. These aspects of supply chain management are often riddled with friction, inefficiency, and manual intervention, which blockchain can help alleviate.
Solving Information Asymmetry in Financing
One of the key challenges in supply chain financing is the information asymmetry between banks and borrowing firms. Banks often have limited visibility into a company’s business, the quality of its assets, or its liabilities. As a result, firms may secure loans from multiple banks using the same assets as collateral or use loans for purposes other than what was disclosed. This creates significant risk for banks, who respond by increasing transaction costs, limiting credit, and delaying access to working capital—especially for small firms.
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Blockchain can solve this problem by linking inventory and financial flows. When companies post their inventory on a blockchain, it becomes transparent and accessible to all relevant parties, including banks. This eliminates the need for manual reconciliation and allows banks to offer financing with greater confidence. For example, once a supplier receives an order and posts it on the blockchain, a bank can immediately provide working capital. Similarly, when the goods are delivered, the bank can promptly process payments without the need for time-consuming verifications.
Streamlining Accounts Payable and Cross-Border Transactions
Another area ripe for disruption is accounts payable management. Despite the existence of ERP systems, many steps in the process—from invoicing to payment approval—still require manual intervention. Blockchain can automate these processes, reducing errors, conflicts, and the need for manual reconciliations. By providing a shared, real-time ledger of purchase orders, invoices, and payments, blockchain eliminates discrepancies between buyers and suppliers, speeding up payment cycles and reducing administrative costs.
Blockchain is also particularly valuable for cross-border trade, which often involves a maze of physical documents, manual checks, and multiple intermediaries. These processes slow down transactions and reduce visibility into the status of shipments. Blockchain can streamline these transactions by digitizing documents and automating verifications, which reduces both the time and cost of international trade.
4. Addressing the Challenges of Implementing Blockchain in Supply Chains
While the benefits of blockchain in supply chain management are clear, implementing this technology is not without challenges. Blockchain protocols need to be adapted to meet the specific needs of supply chains, which differ from those of cryptocurrency networks.
Private, Permissioned Blockchains
Unlike cryptocurrencies such as Bitcoin, which operate on public blockchains where participants remain anonymous, supply chains require private, permissioned blockchains. In a supply chain, every product must be associated with the identity of its owner at each stage. Therefore, only known participants are allowed to join the blockchain, and they must be vetted and approved to ensure security and privacy.
This raises governance challenges, such as determining who controls access to the blockchain, what data is shared, how disputes are resolved, and how smart contracts and IoT integrations are managed. Companies must also address how blockchain will impact pricing, inventory allocation, and competitive intelligence. These issues need to be carefully managed to build trust among supply chain partners.
Simplified Consensus Protocols
In addition to privacy concerns, blockchain speed is a significant factor in supply chains, where transactions occur far more frequently than in cryptocurrency networks. For instance, the U.S. pharmaceutical industry handles 4 billion salable units annually, with each unit changing hands multiple times. A typical supply chain may require tens of millions of transactions per day—far exceeding the capacity of public blockchains like Bitcoin.
Fortunately, because supply chains operate on permissioned blockchains among known participants, they can use simpler consensus protocols that don’t rely on the resource-intensive proof-of-work method used in Bitcoin. For example, a round-robin protocol, where the right to add a new block rotates among participants, is both faster and more efficient.
Conclusion: The Time to Explore Blockchain is Now
Blockchain offers a powerful solution to many of the challenges that plague modern supply chains, from ensuring traceability and improving efficiency to streamlining financing and contracting. However, to fully unlock its potential, supply chain leaders must take action now. This means assessing the potential of blockchain for their specific business needs, developing use cases, conducting pilots, and building ecosystems with other firms.
While implementing blockchain requires resources, the return on investment is clear. As more companies adopt blockchain and the technology matures, the benefits will only continue to grow. Supply chain managers who seize this opportunity will not only improve their operational efficiency but also gain a competitive edge in a rapidly changing business landscape.
Now is the time to explore how blockchain can transform your supply chain.
About the Author:
Meet Abdullah Sheikh, the Founder & Chief Executive Officer at Exteed, where he leads a talented team of developers specializing in Web2 and Web3 applications, Custom Smart Contracts, and Blockchain solutions. With over 5 years of experience, Abdullah has honed his skills in building cutting-edge technologies such as CRMs, Crypto Wallets, Exchanges, and AI-powered systems that drive business efficiency and innovation.
His expertise spans key technologies like Blockchain, Crypto & Tokenomics, Artificial Intelligence and Web Apps, ensuring scalable, secure, and high-performance solutions tailored to meet each client's unique needs. Whether you're looking to explore Blockchain, AI integration, or develop advanced applications, Abdullah's passion for creating impactful tech solutions makes him a trusted partner in exceeding project goals.