Omnichain CEO Pratik Soni defines Blockchain technology and its benefit to supply chain management.
Blockchain seems like the new buzzword, but it has actually been around for about a decade. Its growth has been leisurely yet steady. But transformational technologies often start slow and gain momentum as companies realize practical applications. Think about the internet. Though it can trace its earliest roots to the 1960s, the World Wide Web as we know it didn’t achieve widespread adoption until the 1990s and early 2000s. Right now, Blockchain is on the threshold of a similar revolution and is set to transform industries.
One of Blockchain’s newest horizons is the supply chain industry. According to MHI’s 2018 Annual Industry report, although adoption of Blockchain within the supply chain is only at six percent today, “it is projected to reach 54 percent over the next five years, and 71 percent in the years beyond.” With projections like that, can supply chain executives afford to ignore its potential?
The growth of Blockchain
First developed in 2009 as a ledger for the cryptocurrency Bitcoin, Blockchain is an immutable and transparent ledger of transactions. An anonymous person—some speculate a group of people—under the name Satoshi Nakamoto outlined the theory behind Blockchain in a 2008 white paper titled, “Bitcoin: A Peer-to-Peer Electronic Cash System.”
Other consensus algorithms sprouted from Nakamoto’s initial premise, leading to Blockchain’s growing popularity. Today, Blockchain is behind over 2,000 cryptocurrencies and is impacting a wealth of other industries far beyond crypto applications.
- Financial institutions adopted the technology first for its clear, tamperproof methodology. Recently, its use has extended to smart contracts and smart bonds, and even clearing and settlement.
- Insurance companies are using it to defragment data sources in an effort to identify fraudulent claims and streamline processes.
- Music content platforms can distribute music without a third party while simultaneously protecting artists’ rights, avoiding piracy and guaranteeing transactional transparency.
- The healthcare industry is looking at Blockchain to enhance privacy and consumer service. It can manage the integrity patient records, patient consent forms, clinical trial data, and electronic medical records while maintaining client privacy and regulatory compliance.
How does Blockchain work?
A transaction is made and recorded in a digital block. These blocks log transactional information, such as date, time, cost, location and the parties involved. Each block is assigned a unique cryptographic signature. When the next transaction occurs, a block records new transactional information, but also incorporates the original information of the previous block, linking the two together. The chain continues so on and so forth. The process forms a chain of historic, traceable information, providing the provenance and current status of a transactional series.
Authorized network users can access the chain in real time through any internet server, creating a transparent and decentralized process. No silos. No tampering. And because the Blockchain assigns a unique digital cryptographic signature to each transaction, it creates a clear and unchangeable audit path.
How does Blockchain benefit supply chain management?
Today’s supply chains involve parties stretching across the globe—from suppliers, production facilities, to warehousing, transportation, and retailers. More often than not, each one will use different enterprise resource planning (ERP) and supply chain management software to manage their own value chains. Unfortunately, these systems typically can’t “speak” with one another, creating disconnects that make it hard to properly forecast demand, plan production and deliver adequate replenishment to market.
Blockchain creates a more holistic supply chain, with improved accountability and information exchange. This presents a number of advantages:
- Transparency and traceability: Supply chain managers can follow a product from source to shelf using the permanent records stored in the Blockchain. In the case of the unexpected, such as a product recall, the technology provides an indisputable means for locating where the issue happened. Such traceability is also beneficial in delivering requested documentation during audits.
- Enhanced security: The cryptographic and decentralized nature of the ledger makes it nearly impossible to hack and alter logged data. Data is available across the network, so no single point can compromise the system, averting fraud and verifying authenticity.
- Increased efficiency: The real-time information provided by Blockchain helps companies find greater connectivity across their value chain. With increased accuracy and visibility throughout the network, they can manage potential shortfalls in meeting demand or overstock, identify lags in fulfillment, and cut down on waste—all of which promote business growth and profitability.
Blockchain technology has the ability to positively impact numerous industries. For supply chain management, the possible efficiency improvements, cost savings, enhanced security, transparency and traceability will help brands and retailers not only keep up with market demand and scrutiny, but also foster greater trust between partner organizations and among the consumer market.