The use of Blockchain in the supply chain for security and visibility?
Blockchain is a digital ledger technology invented for use in cryptocurrency networks. In these networks, anonymous parties execute encrypted transactions according to a predetermined protocol. Users may transfer digital assets without contracts or third-party negotiation using blockchain ledger technology, which is a distributed system that does not require centralised management. The use of blockchain technology in supply chain is an emerging application of the technology.
How Blockchain Technology Works
The main components of blockchain technology are digital ledgers and computer (node) networks. Each node has a copy of the digital ledger, which is constantly updated based on transactions. In blockchain technology, any transaction between two users will be added to this digital decentralised ledger. Because blockchain technology is transparent, every node in the network will be aware of every transaction and will update as necessary.
Suppose A on the blockchain network below wants to transfer 10 currencies to B.
Each node in a blockchain network maintains a digital ledger that contains a list of all transactions performed on that network.
The digital ledger receives a new block (or entry) when A transfers money to B. A copy of the updated ledger will then propagate across the network, creating two problems:
How can A be sure that malicious nodes will not tamper with the ledger?
How can a node ensure that the ledger updates it receives from neighbouring nodes are real and not injected by hackers?
Blockchain technology uses public-private key pairs to effectively solve the above two problems. A encrypts transactions using its private, secret key whenever it conducts a transaction, which is simply a ledger update. In essence, this serves as the transaction’s digital signature. If any node attempts to modify the transaction’s data, such as the transaction amount or the recipient’s name, the digital signature will have to be tampered with. This means that no node can tamper with the transaction without breaking the digital signature of the transaction, thereby invalidating the transaction.
The second problem is solved by every node having the public keys of other nodes. When a node receives a ledger update message from another node, it verifies it with the corresponding public key of the originating node. Verification succeeds and the node updates its copy of the ledger if the ledger has not been altered. In this way, transactions propagate through the blockchain network and join the ledger stored in each network node.
Why does the supply chain need blockchain technology?
Here are some reasons why supply chains need blockchain technology:
Supply chains are Increasingly Complex
Supply chains used to be linear with just a few parties. Current supply chains are complex and often disorganised. A modern supply chain is a multi-tiered system with a large number of suppliers, manufacturers, logistics partners and warehousing partners, etc. When a system becomes very complex, it is difficult to perform efficient and transparent operations. Verification succeeds and the node updates its copy of the ledger if the ledger has not been altered.
Increasing illegal Activities and Counterfeit Products
One of the biggest challenges facing supply chains is ensuring the legality of raw materials and components. Keeping track of every step can be difficult when supply chains span several locations and involve hundreds of partners. For example, it can be difficult to know if a supplier is using unethical methods to obtain raw materials. Another challenge is knowing whether a product is real or fake. Without a system in place to trace the origin of each product, counterfeit products could find their way into the supply chain. Therefore, supply chains need a technology that enables the network to trace the origin of each product. A key feature of blockchain ledger technology is traceability. This capability will help supply chains combat illegal practices and counterfeit products.
What are the benefits of adopting a smart supply chain?
To adopt blockchain technology, organisations need to digitise their supply chain operations. This is the use of artificial intelligence (AI) and machine learning (ML)Solutions open up new possibilities. These technologies create a smarter supply chain with many advantages:
Supply Chain Optimisation
With a smart supply chain, it is easy to identify bottlenecks. From the warehouse to the workshop, these technologies optimised supply chain deals and Inventory.
Enhanced synchronisation
Artificial intelligence and machine learning can better synchronise supply chain logistics. They help coordinate logistical activities across geographical locations and various modes of transportation.
Data unification
Organisations may unify all data, including data in different formats, with the use of blockchain technology and smart supply chains. A smart supply chain enables organisations to make data-driven decisions and enhance supplier collaboration.
What are the applications of blockchain in supply chain networks?
Blockchain technology ensures transactions are transparent, traceable and tamper-proof. Modern supply chains have numerous transactions between hundreds of different partners. The nature of blockchain technology naturally meets the requirements of supply chain networks; from financial transactions to product tracking, blockchain technology has multiple applications in supply chains.
Product Traceability
Most supply chains start with raw materials and end with finished products. Blockchain technology tracks the journey of products from raw material suppliers to customers. Take canned tuna, for example. Suppose a supermarket discovers a quality problem with their canned tuna. They will immediately contact the supplier, and the supplier will contact the manufacturer. If manufacturers source tuna from multiple suppliers and process it in multiple plants, they may find it difficult to pinpoint the exact location of damaged shipments.
Blockchain technology solves this problem by ensuring traceability. Using blockchain technology, manufacturers can trace a can of tuna to the precise vessel it came from. At every stage a product moves through the supply chain management is added to the blockchain as a transaction. It is immutable and transparent. This is how blockchain can help ensure product traceability, thereby minimising recalls and loss of revenue.
Pay by Cryptocurrency
The flow of funds in supply chains, while not yet widely adopted, can be managed with blockchain technology. Some businesses have already started adopting blockchain-based technologies such as Bitcoin on financial exchanges. Money transfers that use blockchain technology are simple to monitor, transparent, and don’t need a centralised authority.
Manage contracts between parties
Blockchain technology can be used to enforce smart contracts between supply chain partners. Thousands of contracts and hundreds of partners are involved in complex supply networks. Each of these contracts can be added to a block in a blockchain transaction. Each of these contracts remains tamper-proof due to the immutability of blockchain transactions, and neither party can rewrite or tamper with the contract.
Keep information flow Immutable
In large supply chains, large amounts of information flow from one stakeholder to another. This may be a product specification or quality specification provided by the manufacturer to the component supplier. In some cases, this information is misplaced or misunderstood by various partners, especially if paper information is used. Even with digital streams, data can get lost in emails or messages. By increasing the openness and traceability of information transmitted between parties, including every information exchange as a block can address this issue.
What are the benefits of using blockchain in supply chain?
Transparency
Every participant on the blockchain can see every transaction. Transactions among two parties, such as the producer and the store, may not be visible to third parties in a typical supply chain. Every transaction in the supply chain is added as an immutable, tamper-proof block using blockchain technology. Every transaction is visible to all parties in the supply chain. With the help of blockchain technology, the supply chain becomes more transparent.
Detect Execution errors
For supply chain networks with hundreds of stakeholders and thousands of transactions per day, the potential for execution errors is high. These errors can include lost shipments, incorrect inventory data, and payment issues. In traditional supply chains, these execution errors are difficult to spot in real time. Extensive review and document analysis may be required to verify the root cause of the error. Implementation errors may only be revealed after routine audits.
With the use of blockchain technology, every transaction is permanently recorded. Using a blockchain-based supply chain, the cause of execution issues can be detected and discovered faster, saving businesses a lot of money and effort.
Increased Security
Blockchain transactions are encrypted with the private key (or the user’s digital signature) that initiated the transaction, making blockchain transactions tamper-proof. In a supply chain with a large number of partners, each partner has a unique digital signature. When a transaction is initiated (such as a purchase order), it is secured with the user’s digital signature. the deal is unchangeable, the receiver’s party (such as the supplier) can verify that the purchase order is from a real customer. Since every transaction in the supply chain is added as a block to the blockchain, it is impossible to forge transactions. Blockchain leaves a tamper-proof, trusted audit trail of ordered transactions.
Improve speed and Responsiveness
Blockchain technology speeds up supply chain operations. It digitises manual or paper-based processes. With streamlined real-time data transfers between all supply chain participants, blockchain technology enables high-speed operations that are highly responsive to changes in the business environment. With blockchain, all contracts and transactions are kept in a tamper-proof blockchain. This means business logic is embedded in the supply chain network, rather than hidden in unverified offline documents.
In Conclusion
The use of blockchain technology in the supply chain brings significant improvements in terms of security and visibility. By leveraging blockchain’s immutable and decentralised nature, companies can establish trust and transparency throughout the supply chain network.
Author Bio
I’m Yokesh Shankar, the COO at Sparkout Tech, one of the primary founders of a highly creative space. I’m more associated with digital transformation solutions for global issues. Nurturing in Fintech, Supply chain, AR VR solutions, Real estate, and other sectors vitalising new-age technology, I see this space as a forum to share and seek information. Writing and reading give me more clarity about what I need.
Hey, Guys Let’s build conversations, build communities and build friendships through sharing thoughts instead of sharing content. I like talking…and I like listening. Let’s build threads!
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