When you order a pair of jeans from a big-box retailer, or buy some coffee grounds from the grocery store, you probably don’t think about all of the things that had to fall into place to make that purchase possible. Materials had to be extracted, shipped, processed into products, shipped again, processed some more, and on and on.
Indeed, the global supply chain has become a vast and intricate system businesses use to produce and distribute their products globally. Its complexity has led to an immense amount of technological innovation over the last several years, including the adoption of blockchain technology.
Blockchain is probably best known as the backbone of cryptocurrency and non-fungible tokens (NFTs), but it has since evolved to become a solution for all kinds of global industries. Today, blockchain technology is revolutionizing healthcare, government and even video games. And lately it has become widely popular in the supply chain space.
5 Top Uses for Blockchain in the Supply Chain
- Improve tracking and transparency
- Address food safety issues
- Promote more ethical and sustainable sourcing
- Make payments more efficient
- Better communication and collaboration
Benefits of Using Blockchain in the Supply Chain
Blockchain is fast, cost-effective, efficient and transparent, which can be of great benefit to the global supply chain — from food to diamonds to cars.
At blockchain’s core is the decentralized ledger, which is made up of encrypted blocks, or nodes, of data stored and chained together, forming a chronological single source of truth that can be shared among multiple parties. Blockchain ledgers are transparent and secure, making it a prime technology for almost every sector, including supply chain and logistics.
Blockchain-based public ledger systems allow companies to manage their inventory as it moves through the supply chain. And smart contracts — digital, programmed contracts that automatically enact or document relevant events when specific terms are met — offer a way for supply chain stakeholders to collaborate and share information (and money) more efficiently.
How Is Blockchain Used in the Supply Chain?
To Improve Tracking and Transparency
Implementing a blockchain alongside Internet of Things, or IoT, devices such as smart sensors and RFID tags can more efficiently record when certain products move throughout the different stages of the supply chain, and what their condition was (temperature, vibration, humidity and so on). That data is then stored in a blockchain and smart contracts are applied to ensure real-time visibility.
This means more detailed and accurate visibility in the tracking process, which can then help companies detect and address issues faster. It also means potential cost savings. A distributed network that shares resources and data digitally could reduce stock loss and waste, and it eliminates the need for a paper-based workflow — eliminating any ancillary costs related to storage and labor required to process and manage physical documents.
To Address Food Safety Issues
For the most part, the food we eat is the result of a complex global supply chain, comprising a complex web of production, processing, packaging, storage and distribution. All of this brings us further and further away from the source of our food supply, which can be pretty bad for food safety. Many food safety issues like cross contamination and the spread of foodborne diseases are difficult to track in isolation. And the lack of data and visibility in traditional supply chains makes it hard to act quickly when an issue arises, which can affect a company’s bottom line and reputation.
Blockchain’s reliability and integrity make it especially well suited for handling these issues.
In 2017, several leaders in the food industry came together to figure out ways blockchain can be used to improve global food safety. And today, companies like Unilever, Nestlé and Walmart are using blockchain technology to cut down the time it takes to find and remove the source of foodborne illnesses.
“The food marketplace is evolving and we have this scale of operation, providing this healthy food throughout the world — but it’s about showing customers where we’re sourcing it and what we put in place to ensure that you know the food is good and healthy,” Benjamin Dubois, a global sustainability performance and innovation manager at Nestlé said in a 2020 interview with TechHQ, adding that data and transparency are “critical” to consumer trust.
To Promote More Ethical and Sustainable Sourcing
Over the past several years, consumers have become much more conscious of the environmental and societal impact their shopping habits have, whether that be the clothes they wear, the food they eat or the car they drive. And they want assurances that the companies they buy these products from are doing their due diligence to source their materials ethically and sustainably.
“There’s a complete shift in how companies see their role, and it’s enabled by supply chain transparency,” Leo Bonanni, the founder and CEO of supply chain mapping startup Sourcemap, told Built In in an interview earlier this year. “Companies today don’t just see themselves as dealing with their customers and suppliers. They see themselves as global actors.”
Blockchain can help with this in two ways. First, it can verify the provenance, or origin, of a given product or material, and pass that information onto consumers so they can decide whether they want to buy it or not. Second, the traceability and tamper-resistant nature of blockchain technology offers a more transparent way for customers to verify where certain materials and goods came from, how they were manufactured, and how and where they were shipped over the course of the supply chain.
To Make Payments More Efficient
Supply chains are made up of many suppliers, intermediaries and third-party services, which can make it challenging to manage the movement of goods, goods pricing and supplier payments. Traditional invoice payment terms usually take weeks or even months. But, if blockchain-based smart contracts are set up instead, payments can be made right away.
The distributed nature of blockchain technology can be helpful in creating a transparent payment system that allows all parties involved in a given supply chain to see payment transactions — reducing fraud and human error. Plus, blockchain-based cryptocurrencies enable supply chain players to pay each other without the need for banks, thus reducing incurred fees and speeding up the payment process.
To Better Communication and Collaboration
Between all the invoices, order requests, and contracts, there’s a lot of back and forth between the various disparate players in a modern supply chain, which can cause friction and delay.
But supply chains using blockchain technology can improve this communication and collaboration for all parties involved. By sharing databases between multiple parties, blockchain can essentially remove the need for intermediaries to verify, record or coordinate these transitions, according to a report from shipping and logistics company DHL. “By facilitating the move from a centralized to a decentralized distributed system, blockchain effectively liberates data that was previously kept in safeguarded silos,” the report said.
Plus smart contracts encourage all parties to meet their agreed-upon obligations in a “timely, complete and accurate fashion,” Michael Higgins, the CEO and founder of spend management firm Planergy, wrote in a recent Forbes column. “Full visibility of financial information and performance improves financing options for small businesses and lowers processing times by reducing uncertainty and risk.”
Companies Using Blockchain in the Supply Chain
Although blockchain is a fairly recent addition to the supply chain conversation, several leading companies are already leveraging the technology’s capabilities.
As one of the largest shipping outfits in the world, Fedex is perhaps one of the most important advocates for the adoption of a blockchain-based industry standard. The company has integrated blockchain into its chain of custody in an effort to improve trackability, thus providing a more trustworthy, timely record they can use to rectify customer disputes and answer questions. Fedex also joined the Blockchain in Transport Alliance, or BiTA, and Fedex launched a pilot program in an effort to set clear standards for what data should be stored on the blockchain to best handle customer needs.
Ford uses blockchain technology offered by IBM to ensure the ethical sourcing of cobalt — an essential ingredient for electric car batteries that requires quite a bit of environmental destruction to mine. Ford receives a ledger when cobalt is mined, which it can then use to track where it goes from there. (Ford isn’t alone either. Volvo invested in blockchain traceability Circulor for the cobalt traceability in its electric car batteries, and Porsche works with blockchain plastic traceability startup Circularise.) Last year, Ford also teamed up with nonprofit mobility alliance MOBI and other leading car makers to create new blockchain-based supply chain standards for the automotive industry.
De Beers, one of the world’s largest diamond companies, uses the blockchain-based tracking capabilities of Tracr to monitor the source and progress of every single natural diamond they mine. Despite major global efforts to clean it up, diamond mining is still a notoriously dangerous and harmful business, both environmentally and for the people who participate in it. So De Beers uses Tracr to help verify the authenticity of its diamonds and address consumer concerns about the ethical sourcing of its gemstones, ensuring they are not from conflict zones where gems may be used to finance violence.
The 150-year-old Swiss food giant has been investing significant resources into making the traceability of its product supply chain more transparent over the last few years, betting specifically on the promise of blockchain technology to do so. Nestlé is a founding member of the IBM Food Trust, a SaaS product that provides users with access to actionable food supply chain data such as a complete history and current location of a given food item, as well as any certifications, test data and temperature data. And in 2019, the company reportedly became the first major food and beverage company to pilot a blockchain platform to create more supply chain transparency. Through a collaboration with OpenSC, the company allows consumers to track their food’s ingredients all the way back to the farm, from milk sourced in New Zealand to palm oil sourced in the Americas. Nestlé is also an Amazon Managed Blockchain customer, and uses the platform to get end-to-end visibility of its entire production and supply chain process.
Walmart has long been known as a leader in supply chain management, and has taken a serious interest in blockchain technology within the last few years, especially as it relates to its food supply chain. Using Hyperledger Fabric, the company built a food traceability system, making its food supply chain process more transparent and reliable — from tracing the origins of mangoes in the United States to tracking an E. coli outbreak among leafy greens. Walmart Canada also uses blockchain technology to solve data discrepancies in its invoice and payments process for freight carriers (a common supply chain problem) by creating an automated system for managing invoices and payments to its dozens of third-party freight suppliers.