Blockchain for Supply Chain
What is Blockchain – in short?
According to IBM (link to: https://www.ibm.com/topics/what-is-blockchain), “Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (e.g. a house, car, cash, land, etc.) or intangible (e.g. intellectual property, patents, copyrights, branding, etc.).” Blockchain (aka DLT – Distributed Ledger Technology) technology can be used to track and trade anything of value, making it very useful for supply chains. Using DLT while cutting costs for everyone involved in a transaction, reduces possible risks in as well.
To begin discussing what are the benefits of using this technology for supply chains, we need to understand the key features of it. Then we can go further and relate them to the demands of a supply chain control and management system.
Distributed ledger technology
A ledger is a record-keeping system that records transactions for various user accounts. When the word “distributed” is attached to it, it means that all users have access to a copy of it. In other words, all participants of the Blockchain network can access the distributed ledger and the immutable record of transactions it keeps stored.
No one can alter or amend a transaction once it has been added to the distributed ledger. Thus improving security and accuracy. In the case of an error happening in a record, a new transaction must be added to reverse the error, while still both transactions are being kept in the ledger and are visible.
A smart contract is a set of rules stored on a Distributed Ledger, defining conditions for transactions (e.g. terms for travel insurance payments). It will get executed automatically on demand.
How does Blockchain work
Blockchain’s goal is to let digital information be recorded and distributed, but not edited. It is the foundation for immutable ledgers which will not get altered or deleted. Hence why it is also called Distributed Ledger Technology (DLT).
The process of a transaction
When a new transaction enters the network, some process has to be done in order to execute and record the transaction. First, it will get transmitted to a peer-to-peer network of computers. The network will then process and validate the transaction. After the validation and confirmation, the transaction is done but it needs to be recorded. Thus several transactions will be clustered together into blocks; Next, the blocks will make a chain, consisting of the whole history of transactions of the network. And here it ends.
How does transparency work in Blockchain?
As Distributed Ledger Technology (likely the name suggests too) is a decentralized network, all transactions can be easily visible to any user using either a personal node or a Blockchain explorer (such as Blockchain.com, Block cypher, Token view, etc.). Of course, exchanges have been hacked in the past, where a Bitcoin owner lost all of their credits. Although one might never find the hacker as the users are always anonymous (only the owner of a record can know the identity using a public/private key pair), the extracted Bitcoins are easily traceable. So the hacked Bitcoins cannot be spent easily as the target wallet will be known.
How Blockchain achieves security?
There are in fact, several ways that Blockchain achieves security and trust. One of which is the fact that new blocks are stored in a linear and chronological way. So the new ones are always added to the end of the chain of blocks. After that, it is extremely difficult to go back and alter the content of a block. One possible case to alter a block is if the majority of the network has reached a consensus to do it.
DLT ensures that it is almost impossible to edit the blocks by using hashes. A is a string of numbers and letters, made by a mathematical function from digital information. So, the algorithm gets the data block, executes the function, and then outputs a hash. Hashes are like a fingerprint, each data/ digital information has its unique hash that even with the smallest change in the data, changes entirely. The mathematical function is irreversible, making it impossible to reverse the process and make a new file with the same hash.
Each block stores its own hash and the hash of its previous block, along with the aforementioned timestamps. Then if someone changes a block, it makes an inconsistency in the hashes, causing the network to find the problem, making the edited copy of it illegitimate.
There is only one way a hacker can edit and alter a Distributed Ledger and that is to have access and control to at least 50% + 1 of the copies of the DLT so they can make a consensus in the network. But now they also have to redo the entirety of the block because now the timestamps and hashes are inconsistent across the network. Making it a nonsense hack that needs more money being paid that possibly being stolen.
Blockchain for supply chain
A supply chain usually consists of manufacturers, suppliers, logistics companies, and in the end, retailers. All these parts work together for the goal of delivering products to consumers. As technology grows, all of the industries that technology can be useful for them grow as well. Resulting in more complexity as they can rely more on technology for the challenges they may face. A supply chain is not an exception. Usually, traditional supply chains use paper-based disjointed data systems. As it is probably obvious, this leads to data silos which makes product tracking a very slow process. Not only that, but it also lacks traceability and transparency; an industry-wide problem resulting in errors, delays, and increased costs.
Modern supply chains – in order to overcome these challenges – let their participants have a unified view of data and at the same time, verify transactions (such as production and transport updates) privately and independently.
Green plus’s Blockchain-based supply chain solution provides end-to-end visibility needed by modern supply chains. This solution helps them track and trace their entire production process with a mostly automated and highly efficient system.
What is Track and Trace?
In the supply chain industry, Track and Trace means identifying the location history and the current location, as well as the product custody history for all product inventories. This process is done by tracking the product in a long and complex pipeline starting from the raw materials, going into various geographic regions, having different processes and manufacturing steps, continuing on with regulatory controls, and ending with retailers, giving the product to consumers. This is where Blockchain has the biggest benefit for the supply chain management.
How Blockchain will radically improve Supply Chain Management
Normally, as said above, there are a lot of problems regarding the accessibility of data, continuity of it, reliability, and security of it to not get changed or tampered without being recorded, besides the obvious problem, lack of speed and efficiency.
With DLT though, almost all of the aforementioned problems will be gone for good. The transactions, no matter who is the participant, can be done and then recorded directly from themselves via a peer-to-peer network. So there is no need for a central authority to manage and verify every single transaction.
Speed and efficiency
The removal of central authority on its own, increases the efficiency as the process of a transaction will change from:
ask the authority -> authority checks it -> authority executes -> authority records it -> authority gives the participant the report of the transaction to:
ask the Blockchain network -> it then network checks, executes, records, and reports at the same time at a glance.
Accuracy and security
The removal of middlemen as a side effect reduces the risk of human errors, unnecessary changes, and intentional tampering. Which might be even more beneficial to the supply chain than the increased speed.
With Distributed Ledger Technology, a single shared ledger can be used to document production updates. It provides complete visibility of data, on a single source of truth. This source of truth is trustworthy as it is automated to just do the job, and is transparent and records everything. It is the most accurate way of recording as of now because transactions always include necessary metadata such as time stamps, location, etc. while happening in real-time; So the records are always up to date, avoiding duplicated actions. This helps avoid issues such as counterfeit goods, compliance violations, waste, and delays.
The real-time nature of the management system makes it possible to take immediate action on large scales during an emergency. This happens while regulatory compliance is ensured by the ledger audit trail automatically.
All possible errors are reversible while being recorded as well as their reverse transaction. So if someone makes an error and even if they fix it, all the records are visible and the necessary following action can be taken.
Blockchain use cases in supply chain
Even though right now there are only a handful of examples in long supply chains for this technology, there is an increasing number of investigations for use cases of it in supply chain management, including:
Supply chain finance
Using Blockchain in the field of supply chain finance can increase the efficiency of invoice processing. It provides more transparent and secure transactions. Usually, it takes around 30 days or even much longer for an invoice payment to get completed. By using Distributed Ledger Technology’s smart contracts, this time-consuming task will become immediate as soon as the product is delivered and signed for payment.
Supply chain logistics
Normally, there is massive friction in a modern supply chain regarding the go-betweens and back-and-forth between partners. In fact, all parties should interact via a third-party central authority rather than directly. DLT helps the logistics of a supply chain by verifying, recording, and coordinating all transactions automatically without the involvement of third-party authority. Thus eliminating an entire layer of complexity from global supply chains.
As American Express says, “Blockchain technology promises to facilitate fast, secure, low-cost international payment processing services through the use of encrypted distributed ledgers that provide trusted real-time verification of transactions without the need for intermediaries such as correspondent banks and clearing houses.”. So yes, not only DLT eliminates the need for a third-party authority in the logistics, but also the same is right for payments.
Yet as this is a fairly new method of payment, one might not trust it just for the sake of their feeling. Thus giving an example can be helpful here. One of the examples is within the coffee industry. Bext360 is using the Distributed Ledger Technology to boost its supply chain productivity. By using this technology for supplier payment, they can better track all elements of their worldwide coffee trade – beginning with the farmer and ending with the consumer-. This way it is possible to directly and immediately pay the farmers as soon as the product is sold.
Cold chain traceability
Foods and pharmaceuticals need special treatments in shipping and storage. DLT paired with the Internet of Things (IoT) and sensors attached to products, can record vibration, humidity, temperature, and many other environmental metrics.
Using this combination, the data traced by the IoT sensors can then be stored in the Blockchain. Next, the network will apply a smart contract, which lets it automatically redress if any of the readings get out of range.
Continuing on from the previous paragraph’s subject, the improved traceability helps protect products more efficiently and more easily. Without DLT+IoT, many food safety issues, such as cross-contamination, can occur and get noticed when it is too late; Thus no action can be taken to stop the growing problem. It results in a lot of waste and delays. Even more importantly, it can be problematic to a company’s reputation.
Thanks to the DLT-IoT combination provided by Green plus, implemented sensors can react to environmental abnormalities faster than the food product itself, letting the managers of the supply chain prevent further corruption of their products as soon as ever before.
Green plus provides the aforementioned technology as well as a variety of other technologies for the technological infrastructure of the supply chain of your company. You can use our Blockchain-IoT service for the finances, logistics, payments, and product monitoring of your supply chain, improving both the quality and efficiency of the process. You can also use our HyperLedger Fabric service integrated into our cloud servers to manipulate the problems of public Blockchain servers. Also, you can embed Kubernetes to your server effortlessly and make the complexity of your applications used in the supply chain simpler to manage and handle.
Blockchain in a supply chain, while improving security and reliability along with transparency and traceability, can also affect other aspects of the process positively. Aspects such as time efficiency, payment security and financial efficiency, correction and reduction of errors, monitoring the products and preventing problems before them happening, and many more to be found out.