Supply Chain Management Using Blockchain

Author : Swati Jadhav, Sahil Adhav, Aditya Sood, Ayush Prasad & Niharika Rathi

What is Supply Chain Management?

Supply chain management involves coordinating the various activities of procuring materials and services, transforming them into intermediate or final products, and delivering them to customers. Effective management of the supply chain enables companies to reduce unnecessary expenses and provide faster and more efficient product delivery to consumers. Moreover, sound supply chain management practices help companies avoid negative publicity and costly legal actions resulting from product recalls or other issues.

SCM comprises five essential components, namely strategy development, raw material sourcing, production, distribution, and returns management. The primary responsibilities of a supply chain manager include cost control, preventing supply shortages, and minimizing operational expenses.

Issue in current SCM System

Centralized Inventory

The concept of centralized inventory is similar to how data storage and Internet access used to be in the 1990s. At that time, businesses and households would have their own servers to store information. However, if the server experienced any issues, data could be lost. Nowadays, we have shifted towards a decentralized approach, utilizing cloud servers to store data securely and avoid potential losses.

Limited or Insufficient Visibility

Both B2C and B2B companies rely on a variety of platforms and partners to facilitate their order fulfillment and shipping processes. These may include partnerships with various trading, manufacturing, and retail partners, as well as freight and parcel carriers. Additionally, they may employ an enterprise resource planning (ERP) system in conjunction with multiple sales channels to manage their operations effectively.

Patchwork Logistics

Relying on multiple third-party logistics (3PL) providers for fulfillment and shipping can lead to a disjointed supply chain that lacks transparency and fails to meet specific requirements. Connecting different components, such as an ERP, order management system, warehouse management system, and retail partners, can be challenging and result in a lack of clarity on the actual state of affairs. Attempting to integrate these disparate systems can be costly, time-consuming, and often unsuccessful. As a result, information remains segregated and outdated, causing further issues.

Complexity

In recent years, customer expectations have undergone significant changes. Modern buyers expect transparency and flexibility in the purchasing process and have transformed previously innovative fulfillment concepts into necessary components. This is especially true for companies seeking to retain or expand their customer base. The increasing complexity of business transactions is causing challenges for both companies and their customers. To retain revenue, it is imperative that businesses adapt their customer experiences to meet these elevated standards.

So how can we fix this?

Hyperledger Fabric

Hyperledger Fabric[8] serves as a solid basis for building applications or solutions that have a modular architecture. This blockchain technology enables components, such as consensus and membership services, to be added or removed with ease. Its flexible and adaptable design accommodates a broad range of industry use cases. Hyperledger Fabric also employs a distinctive consensus approach that allows for efficient scaling while maintaining privacy. Incorporating this technology into supply chain management has the potential to enhance its overall efficiency and effectiveness.

Benefits of Blockchain in SCM

Traceability

Blockchain technology facilitates the mapping and visualization of every step in a supply chain due to its interconnected and comprehensive nature, which bridges all actions involved. This enhances the traceability of every element that constitutes a supply chain, including supplier information, procurement, and delivery of goods, among others. By leveraging blockchain, supply chain management can efficiently and accurately track every aspect of the process, allowing for greater transparency, accountability, and efficiency throughout the entire supply chain.

Transparency

One of the key advantages of blockchain technology is that it builds trust among all parties involved in a supply chain by providing open access to the critical data points it captures. This level of transparency, coupled with the enhanced traceability afforded by blockchain, helps to establish trust between all stakeholders within the supply chain. By enabling all parties to access and verify the data, blockchain technology removes the need for intermediaries and streamlines the supply chain process, resulting in a more secure, efficient, and cost-effective system.

Speed

Blockchain technology incorporates smart contracts, which are self-executing contracts represented as code within a single block of a blockchain. Smart contracts automatically update actions when predetermined conditions of the actions are met, eliminating the need for slow and manual processes that require time-consuming confirmations. This automated feature of smart contracts streamlines the supply chain process, allowing for faster and more accurate execution of actions, while reducing the potential for errors or disputes between parties.

Immutability

Blockchain’s distributed ledger is composed of multiple copies, making it extremely difficult to tamper with a specific transaction since altering one copy would require changing all the copies simultaneously. This makes blockchain technology a highly trustworthy and secure solution for supply chain management, as it is resistant to fraudulent activities. By providing a transparent and immutable record of all transactions and activities within the supply chain, blockchain technology helps to prevent unauthorized alterations, increasing trust and reducing the potential for fraud within the supply chain ecosystem.

Consensus

Consensus is a critical component of any successful supply chain, as all parties involved must agree on the actions to ensure that transactions can follow one another seamlessly. Blockchain technology is advantageous for ensuring and sustaining consensus over the supply chain process because all parties can trust that the transactions are automated, valid, and secure. By providing an immutable record of all transactions within the blockchain network, blockchain technology ensures that all parties can access the same data and verify the authenticity of each transaction, thereby promoting transparency, trust, and collaboration within the supply chain ecosystem.

Use Cases

Project Proton

PepsiCo[1][2] has been exploring the use of blockchain technology in its supply chain management (SCM) operations to improve the efficiency, transparency, and traceability of its supply chain. One way the company is using blockchain technology is through its partnership with the blockchain-based platform, Digital Retail Anchor (DRA). DRA is designed to provide real-time insights into the supply chain, allowing retailers and suppliers to make data-driven decisions that can improve supply chain efficiency. By tracking products on the blockchain, DRA enables greater visibility and transparency, helping to reduce the risk of counterfeit products, increase supply chain security, and enhance the accuracy of inventory management. By leveraging the transparency, traceability, and security offered by blockchain technology, PepsiCo can enhance the accuracy and speed of its supply chain operations, ultimately leading to a more efficient and sustainable supply chain.

Walmart

In 2018, Walmart[3][4] announced that it would require all its suppliers of leafy greens to use blockchain technology to track their products. The company worked with IBM to develop a blockchain-based platform called the “Food Trust,” which enables suppliers to track the movement of their products from farm to store. By using blockchain technology, Walmart can quickly trace the origin of any contaminated products, reducing the time it takes to identify the source of a foodborne illness outbreak. This allows the company to quickly remove any contaminated products from store shelves, reducing the risk to consumers.

In addition to improving food safety, Walmart’s use of blockchain in SCM can also improve supply chain efficiency by reducing the time it takes to track and trace products. By providing real-time insights into the supply chain, blockchain can help suppliers and retailers quickly identify and address any issues that may arise, improving the accuracy of inventory management and reducing waste.

Maersk

Maersk[5][6] has partnered with IBM to develop a blockchain-based platform called “TradeLens,” which is designed to streamline the complex process of global trade. The platform uses blockchain technology to provide a secure and transparent digital ledger of all the activities involved in global trade, including the movement of goods, customs clearance, and payments.

By using blockchain technology, TradeLens enables Maersk and its customers to track shipments in real-time, providing greater visibility and transparency into the supply chain. This can help reduce the risk of lost or damaged shipments, and improve supply chain efficiency by allowing for faster decision-making and better coordination between supply chain partners. TradeLens has been adopted by a number of companies in the shipping industry, including customs authorities, ports, and freight forwarders. By bringing all these parties onto a single, secure platform, TradeLens aims to create a more efficient and transparent global trade ecosystem.

Nestle

Nestlé[7] has been exploring the use of blockchain technology to improve the traceability of its supply chain, particularly for its coffee and palm oil products. The company has partnered with a blockchain platform called OpenSC to create a transparent and traceable supply chain for these products. OpenSC uses blockchain technology to track products from farm to store, creating a digital record of all the activities involved in the supply chain. By scanning a QR code on the product, consumers can access information about the product’s origin, production, and environmental and social impact. By using blockchain technology, Nestlé can ensure the authenticity and quality of its products, while also promoting transparency and sustainability in its supply chain. This can help the company to build greater trust with consumers and other stakeholders, and differentiate itself from competitors.

References

[1] PepsiCo’s partnership with DRA: https://www.blockchain-council.org/blockchain/pepsico-to-use-blockchain-to-improve-supply-chain-transparency/

[2] PepsiCo’s use of IBM’s Food Trust platform: https://www.ibm.com/case-studies/pepsico-blockchain

[3] Walmart’s use of blockchain to track leafy greens: https://www.reuters.com/article/us-walmart-blockchain/walmart-sets-out-new-blockchain-tie-up-for-u-s-lettuce-produce-idUSKBN1JF21X

[4] Walmart’s partnership with IBM’s Food Trust platform: https://www.ibm.com/case-studies/walmart-blockchain-food-trust

[5] Maersk’s TradeLens platform: https://www.maersk.com/tradelens

[6] IBM’s partnership with Maersk for TradeLens: https://www.ibm.com/case-studies/maersk-blockchain

[7] Nestlé’s partnership with OpenSC: https://www.nestle.com/media/news/nestle-and-opensc-pilot-blockchain-food-supply-chain-transparency

[8] OpenSC’s website: https://www.opensc.com/