Implications of blockchain to supply chains

The key message is that there is now an emerging technology, the basis of Web 3.0, that offers the supply chain a shared and trusted digital platform to streamline activities, make payments and establish credentials in a way that has never been possible.

This platform, powered by blockchain, stands to revolutionise the supply chain, and in this article, we will explore some of the opportunities and implications.

According to American Express,

“Blockchain technology promises to facilitate fast, secure, low-cost international payment processing services (and other transactions) 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.” ^[1]

Along with improving payment processes, such a system can also reduce duplication of orders and quickly weed out fraudulent invoices.  

A key implication of the use of blockchain in the supply chain is related to transparency. In a blockchain-based system, each participant that accesses the system is given a unique identifier that is associated with every transaction that they are involved in. This means that the involvement of specific companies and service providers can be tracked along the supply chain to make sure that such involvement is transparent. This underpins a range of self-executing transactions, such as releasing payments and transferring insurance liability between parties as an item travels along the supply chain. This not only creates a trusted record of transactions, it allows for the providence of items to be established, which can significantly reduce cases of product fraud and loss, and reduce duplication and lengthy processing times for items such as bills of lading.

A bill of lading is typically a hard copy record of goods on board and is used to establish an agreement between a shipper and a transportation company for the transportation of goods. Moving the bill of lading to the blockchain allows tamper-proof records to be available in real-time to all necessary parties in the supply chain, which stands to significantly reduce transaction costs and time. Europe’s largest port, the Port of Rotterdam (working with the City of Rotterdam), has created the company ‘BlockLab’ to focus on harnessing blockchain to enhance their supply chain operations, such as replacing the paper-based bill of lading system.

Another key implication for supply chains is establishing the providence of items, which means:

• where the product actually came from
• what it is actually made of
• who actually made it

The providence of products can be established using blockchain, as once inputted the information can not be changed. However, it is important to establish an appropriate and trustworthy process to input such information. For instance, a trusted authority may be needed to provide product information directly to the blockchain so that it cannot be amended by the company offering the product. This may include evidence of testing or verification of claims by a trusted entity that then sends the findings directly to the blockchain so that it can be accessed by customers. For instance, a claim that a particular wine is grown organically can be tested by a suitable entity, and the findings are then attributed to the product in the blockchain.

According to the International Federation of Organic Agriculture Movements (IFOAM), it is crucial that trust is established and maintained in the organic food sector and that “supply chain data could be connected and secured from manipulation through blockchain technology”. ^[2]

Along with the providence of items, another key area of the supply chain that stands to benefit from blockchain technology is the cold chain. The cold chain refers to the ability of a supply chain to ensure that appropriate temperatures have been maintained while the product has been in transit, such as refrigeration for food or pharmaceuticals. Currently, there is no way to identify if a freight vehicle such as a truck or a shipping container had an issue with its refrigeration unit and that the products were not kept at the right temperature for a period of time. When using a blockchain however, an IoT (Internet of Things) device can be used to automatically send data directly to the blockchain to identify if there are any breaches in the cold chain, which would be a requirement of payment.

The key implication for the supply chain here is that the data would come from the device and not the driver or logistics company, so it will be very difficult to conceal a breach of conditions. This means that logistics operators need to be ever vigilant around refrigeration, and customers can trust that the products have been transported as agreed without spoilage or temperature-related deterioration.

References

_{1. Faden M. Live Blockchain Deployments Promise to Accelerate Payment Processing Services and Trade Finance in 2017 [Internet]. Americanexpress.com. American Express Foreign Exchange Services; 2019. Available from: https://www.americanexpress.com/us/foreign-exchange/articles/blockchain-to-accelerate-payment-processing-services/}

_{2. Using blockchain technology in organic [Internet]. IFOAM Organics Europe. [cited 2023 Aug 8]. Available from: https://www.organicseurope.bio/news/using-blockchain-technology-in-organic/}