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Blockchain and the Future of Supply Chains

January 27, 2022 - 9 min read

Blockchain Can Reduce Fraud and Waste While Providing Better Outcomes for Suppliers, Distributors, and Consumers 

Across the globe, the COVID-19 pandemic has revealed our dependence on and the inherent weaknesses of current supply chains. In our globalized world, countries have never been more reliant on foreign trade, and moving physical goods on time is essential for the healthy functioning of the global economy. 

Blockchain can revolutionize supply chains through better information sharing, reducing fraud, waste, and mismanagement.

With supply chains often slowing down, consumers are facing increased prices, and difficulty in getting ordinary goods, such as food products and paper products. Supply chain issues also greatly impact companies who build larger consumer products, such as new homes, due to shortages of wood, concrete, and other industrial materials. 

As with many other industries, supply chains are often reliant on traditional paper and pen methods to track and record essential data, which can be extremely inefficient, as well as prone to accidental errors and fraud. Data problems can also exacerbate demand forecasting issues as well as port congestion problems. 

Blockchain is poised to address many of these issues, and the blockchain supply chain industry is growing fast. According to one report, the blockchain supply chain industry is expected to grow at a compound annual growth rate (CAGR) of 81.7% by 2026, faster than almost any other industry on earth. 

In addition to discussing these impactful applications of blockchain technology, we’ll also review some of the most exciting startups in the industry; specifically, companies that are attempting to increase efficiencies, reduce costs, and get supply chains working better for the people who rely on them. 

Blockchain Can Increase Supply Chain Transparency and Reduce Fraud 

In the United States, major health insurance providers and medical services companies, including Optum, Humana, UnitedHealthcare, and Quest Diagnostics began working together to create a shared blockchain database for medical records, which may eventually be able to interface with hospitals, doctor’s offices, and other healthcare providers. 

Currently, patients’ medical records may be scattered through many institutions, which makes it difficult for institutions to provide high-quality, low-cost care to patients. 

A similar problem of scattered, complex data leading to suboptimal outcomes is also prevalent in the supply chain and logistics industry. In today’s world, a single good can have hundreds of points of contact with global supply chains. 

For instance, each component of a computer may be sourced from different companies in different countries, with subcomponents also sourced from different suppliers in different locations. Furthermore, each of those subcomponents may have been assembled using a diversity of raw materials, themselves also coming from different locations. 

This incredibly complex process means that it can be difficult to track the quality of components and raw materials, which can lead to fraudulent, defective, or contaminated products. Verifying the quality, location, price, inspection date, and any relevant certifications of products could be a game-changer for the logistics industry, and shared blockchain ledgers are primed to do just that. By creating an immutable record of each stage in the supply chain process, companies can work together to ensure the products they deliver are what they say they are. 

This can apply to a wide variety of situations, such as: 

  • Tracking electronics supply chains to ensure product quality and source raw goods and components more efficiently. 
  • Tracking food and agricultural supply chains to reduce the potential of contamination. 
  • Tracking factory locations to ensure that goods are not produced using slave labor or under unsafe or abusive working conditions. 
  • Tracking goods to reduce the proliferation of fraudulent or counterfeit products. 
  • Help create more accurate sustainability and ESG ratings via detailed supply chain tracking. 

Most likely, blockchain protocols will be combined with physical tools, such as RFID tags, sensors, and IoT (internet of things) devices, in order to accurately track products throughout the supply chain process. 

This may necessitate the use of third-party software applications, known as oracles, which help relatively closed blockchain systems integrate “real-world” off-chain information, such as sensor data, weather forecasts, or port congestion information that could increase supply chain efficiencies if known by suppliers and distributors. 

Shared Blockchain Ledgers May Be Able to Help Forecast Demand 

Inaccurate demand forecasting is another one of the biggest problems that currently impact global supply chains, but blockchain solutions may be able to help. Overestimation of consumer demand can lead to items stuck in ports, distribution centers, and store shelves. In contrast, underestimation of consumer demand can lead to major shortages of increased goods, and with that, severe price inflation. 

While companies may be wary about sharing their sensitive data with potential competitors via shared blockchain databases, doing so could be beneficial for all parties. For instance, if one supplier knows another is delivering a large amount of a certain product to a certain port, it may wish to reduce its shipping volume in order to prevent an oversupply of product. 

Shared ledgers can also be integrated with ports and air cargo distribution centers in order to track the flow of goods and ensure that buyers, transportation companies, and other stakeholders know exactly where, when, and how they can collect goods they have purchased or need to transport. 

One study suggests that while shared consortium blockchain ledgers between suppliers and retailers may at first decrease profits, they may later lead to profit increases via reduced information asymmetry. This means that shared ledgers may have a slow adoption rate, but could end up being extremely beneficial for all parties involved. 

Getting Beyond “Just In Time” Shipping and Transportation 

Right now, the world of supply chains operates using a system referred to as “just-in-time” or JIT delivery. This means that the production process only begins when a customer places an order, leading to products only delivered as needed. While this system can reduce product stock, open up warehouse space, and increase profit, it can also lead to supply chain slowdowns when product needs begin to accelerate beyond what suppliers can handle. 

Using the benefits of blockchain to forecast consumer needs, as described above, could lead to suppliers modifying their just-in-time systems to produce or purchase additional goods in order to prevent future shortages. Much like the use of shared blockchain ledgers among competitive stakeholders in supply chains, using blockchain forecasting in supply chains may at first lead to additional costs, but will later likely increase profits by reducing friction and the number of trips needed for suppliers to satisfy demand. 

Blockchain Can Reduce Port Congestion 

Port congestion is among one of the most severe issues impacting global supply chains, particularly since the COVID-19 crisis led to difficulties in demand forecasting and the need for new types and volumes of different types of products. Blockchain tech cannot directly reduce congestion, however, by increasing the speed and pick-up times of products, it could help port storage areas clear out faster. Perhaps more importantly, however, blockchain ledgers could help divert shipments from severely congested ports to less congested ports in nearby areas. 

Blockchain Could Also Help Worker Supply Shortages

Another one of the biggest issues plaguing supply chains is the lack of workers, particularly qualified workers such as longshoremen or truck drivers. No technology can induce people to work who don’t want to, particularly if wage prices are not sufficiently high to motivate workers to return to the workforce. 

Global supply chain disruptions are a serious global issue, having increased steadily since falling to a relative low at the beginning of 2020.

Despite this pressing issue, it is conceivable that blockchain technology could assist in the creation of protocols and organizations that could relieve this shortage. For example, blockchain could be used to create applications similar to Uber or Lyft for commercial truck drivers, which would be able to help increase wages by tying driver pay to current supply and demand, which itself could be calculated via accessing the blockchain databases of major shipping or transportation companies that have partnered with the service. 

Blockchain technology, and perhaps even the creation of DAOs (decentralized autonomous organizations) could also lead to innovative profit-sharing mechanisms which would eliminate middlemen and allow supply chain workers to garner higher wages. Ideally, this would reduce employee shortages and thus reduce supply chain issues, both in the U.S. and abroad.  

In addition to providing unique and innovative solutions to the supply chain labor shortage, the efficiencies that blockchain databases provide will likely slightly reduce the need for workers, which could further alleviate worker shortage issues. 

Public vs. Private Blockchains for Supply Chain Management 

Both public and private blockchains have the potential to improve the supply chain management industry. Private blockchains are generally permissioned, meaning that nodes need to be specifically approved before beginning operation, and data is generally kept private, meaning that it is not accessible to the general public.

In unpermissioned blockchains, however, anyone can operate a node and contribute to the consensus and data verification process by adding new transaction blocks. Public blockchains, which can be permissioned or not permissioned, are generally accessible to the general public. 

Private blockchains are more likely to be utilized in certain types of supply chains that involve sensitive data, such as military or defense contracting, or the delivery of proprietary technologies that companies may not want to expose. In contrast, public, permissioned blockchains are more likely to be utilized in situations where companies want to increase public transparency about the quality of their products, such as luxury brands sourcing diamonds or precious metals, or companies that wish to reassure consumers about the ethical and environmental sourcing of their products. 

Examples of Blockchain Startups in the Supply Chain Industry 

While we’ve mentioned many of the real and theoretical uses for blockchain in supply chain management and logistics, there are quite a few real-world companies putting these ideas into action. 

  • Everledger: Everledger is a blockchain-based supply chain tracking and verification protocol, which helps verify the origin, quality, sustainability footprint, and compliance standards for products, with a major focus on luxury goods, such as diamonds, art, wine, and high-end clothing. 
  • OpenPort: OpenPort operates a blockchain system that directly connects shippers and carriers, greatly reducing cost, increasing transparency, and increasing both supply and financial liquidity. Specifically, OpenPort provides digital, near-irrefutable Proof of Delivery (POD) certificates, which have been traditionally slow, paper-based, and open to dispute, which delays cash flow between supply chain participants. 
  • Provenance: Provenance helps both suppliers and customers track a product through its global journey to ensure sustainability through a shared blockchain ledger. 
  • SyncFab: SyncFab helps high-tech manufactures and other organizations in need of high-quality parts and components track supply chains from end-to-end to ensure corporate and regulatory compliance. Specifically, the service is designed for engineering departments to source, plan, procure, and track precision parts. The company claims that it can cut costs by up to 60% via its innovative, secure blockchain tracking system. 
  • OriginTrail: OriginTrail is a decentralized knowledge graph protocol that companies can use to digitize assets and track them through complex supply chains. OriginTrail’s services are currently being used to ensure security audits for U.S. imports, trace food back to farms to track animal-friendliness conditions, as well as to track and trace supply chains for clothing and fashion products.

Oracles Will Be Essential for Blockchain Supply Chain Management 

As we mentioned earlier, blockchains are closed systems and generally need third-party software applications, called oracles, to incorporate “real-world” off-chain data. This includes outside sales data, environmental, political, and regulatory data, as well as information from tracking devices, such as RFID tags and similar technologies.

Oracles, however, present a major problem to blockchain protocols and applications in the sense that they provide a weak link in the security of the blockchain. Verifying the information received from oracles, and ensuring that it has not been tampered with is one of the most pressing challenges in blockchain technology today. 

SupraOracles Provides A Unique Solution to the Oracle Problem 

By combining strong decentralization via multiple data sources and unparalleled randomness via a unique nested node architecture of tribes and clans, SupraOracles is poised to provide a data solution for blockchain protocols throughout the supply chain industry. In addition to strong decentralization and cutting-edge cryptography, SupraOracles provides full blockchain finality in 2-3 seconds, orders of magnitude faster than the current market competition.

References

  1. Allision, M.(2021, Oct.) Labor shortage, supply chain challenges slow down home construction. KATU2abc. 
  2. (2021, Jan.) Blockchain Supply Chain Market – Growth, Trends, COVID-19 Impact, and Forecasts (2021 – 2026). Research and Markets. 
  3. Zhou, Z. (2020, Jun.) Demand Forecast and Update Based on Blockchain Technology. SSRN. 
  4. Victor, R. (2018, Aug.) How Just-In-Time Delivery Affects Supply Chain Management. Hollingsworth. 

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