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Improving supply chain management with blockchain

03 July 2020

The lockdown and decrease in brick-and-mortar retail has brought blockchain to the forefront of business minds. For suppliers, a spike in online delivery has made traceability of orders and efficient automation of supply chains a necessity for survival, writes Rob Sinfield, Vice President Product, Sage Business Cloud X3

Connectivity and data exchange are more important than ever and this is where blockchain comes into play. The blockchain is unquestionably an ingenious invention, but it has gone through what Gartner calls in their hypercycles as the ‘trough of disillusionment’.

So, what’s holding blockchain back from mainstream adoption? There are a few elements here, but broadly speaking it comes down to cost, scalability and trust. With industry leaders, such as Amazon or Microsoft committing to building services around blockchain, we will begin to see accelerated adoption as they tackle the issues that have previously stopped it making its way into the mainstream – with real-world solutions coming into play this year.

Traceability solution

Right now, supply chains aren’t particularly agile – an issue in industries where companies need to change configurations quickly and meet constantly changing supply and demand.

Businesses in supply chains can vary in terms of their technology level and the way they communicate (many firms still use paper, for example), causing it to sometimes be impossible to share data and collaborate.

The blockchain has the potential to create a smarter and more secure supply chain

A blockchain is a database stored in multiple locations that can maintain increasing records (or blocks) which are timestamped and linked to previous blocks in a way that cannot be undone. It’s a method of recording data – anything that needs recording and verified as happened. Once data has been recorded, it cannot be changed – only added to and updated on the entire network. The blockchain has the potential to create a smarter and more secure supply chain, as products can be tracked through a clear and solid audit trail with near real-time visibility.

Frictionless movement

Inventory management has traditionally been a complex and laborious process, especially for global organisations, but blockchain has the potential to significantly streamline operations by uniting supply chain networks through a decentralised system.

Blockchain is decentralised, meaning no one entity controls it and it has no central point of failure in its infrastructure. A decentralised supply can allow frictionless movement between suppliers and manufacturers, whatever their size.

Companies are also able to automate business processes with blockchain through the use of ‘smart contracts’, which essentially enforce a relationship with cryptographic code. Similar to setting up automatic payments, smart contracts can remove the need for businesses to send invoices and chase payments, saving significant time and ensuring that everyone is paid promptly.

Supply chain innovation charge

Business leaders might be interested to see that companies are already working with technology firms on blockchain in the supply chain projects. On the visibility side, blockchain ERP systems can enable everyone involved to track the product’s journey from the manufacturing floor to the retailer’s shelf, without having to worry about records being lost or tampered with.

Nowhere is this more prevalent than in the food and drink space, where blockchain will provide transparency and product provenance that is validated from farm to fork. Businesses across all industries can track materials, determine where they arrived, who received and handled them, and how and when they were transported to a next stage.

Multinational retailer Carrefour has gradually applied blockchain to its Carrefour Quality Line products, joining other businesses in IBM’s Food Trust – an initiative aimed at implementing a global food standard across all the links in the chain – from producers to sales.

Through a collaborative blockchain network set up between manufacturers and distributors, information such as traceability details about product origin and quality, the nutritional properties of products, and the presence of any allergens or questionable substances can be stored securely. Having reliable data from the whole supply chain can help in the event of a product recall, a health issue or non-compliance with specifications or a particular label.

Compliance, reliability & security

Blockchain and the Internet of Things (IoT) can be combined to impact supply chain management in powerful new ways. Like blockchain, IoT is heavily hyped – it’s a system that allows computing devices, such as sensors and smartphones to connect and talk to each other.

But modern sensors are already advanced enough to track items, containers and pallets across the supply chain. With IoT and blockchain in combination, businesses can get true end-to-end visibility across the different stages of the supply chain, across different countries and companies they are working with.

With IoT devices, you can track goods as they move through the supply chain, sharing this to a blockchain-based framework where data can be accessed by all participants. In practice, this could see a UK manufacturer raise a purchase order with a German supplier, for example, and at the same time task a distributor to deliver these goods to the UK on completion.

If the supplier could publish the production status of these products through an IoT/blockchain enabled platform, both distributor and manufacturer would work with the same information. All parties, including the custom officers that may be involved, could track the status in real time through the supply chain.

The UK manufacturer and German supplier could even work with smart contracts, which eliminate the need to reconcile documents. Using IoT devices that monitor the status of the shipments and execute payments upon delivery, the finance teams would have visibility of the contract, sales order and delivery status. This could speed up the payment cycle.

IoT is already used in highly regulated industries such as food and drink, and pharmaceuticals. This is because devices are capable of measuring conditions such as temperature using sensors, which is important in countries where perishable goods might be strictly controlled. Blockchain can ensure the reliability and security of this data, which will show that a business is being compliant with regulations and addressing safety.

Applying blockchain

Businesses interested in integrating blockchain technology into their supply chains should closely evaluate their strengths and weaknesses, understanding their pain points and where blockchain may be able to help.

It’s wise to start with small projects, reviewing these regularly in terms of progress and moving forward if suitable. This may involve the creation of internal blockchain, which will soon need collaboration with suppliers, distributors and customers. You should also look at how blockchain can support your existing Enterprise Resource Planning (ERP) software.

It would allow you to see the processes and interfaces you already do but with the advantage of seeing the inventory of the entire supply chain instead of just your own, as well as relevant prices instead of placeholders. In addition, if your business is looking at working with partners, the blockchain could be built into a web interface using electronic data interchange (EDI) connectors.

The blockchain has the potential to revolutionise ERP and supply management software, providing your business with visibility and insight into where all your products are, at any given moment. The technology underlying our complex supply chain is undergoing a revolution – and the businesses that want success should ride this technological wave.