Finance for supply chains using blockchain
What is blockchain in the supply chain?
Supply chains are being significantly impacted by blockchain technology,
which provides a more thorough and secure means to trace transactions.
Companies may track a product's history from its inception to its present
location and securely record each iteration, from production to sale, with the
use of a storm-proof distributed ledger.
The phrase "blockchain" refers to a technology that makes it
possible to store and transport data transparently, securely, and at a low
cost. By extension, it is a distributed register, a digital database that
records all transactions between its users going back to the beginning of the
system.
Supply chain management (SCM) refers to the supply chain steps that
allow a business to deliver a product to a consumer. The global market for this
service is now projected to be worth over $22 billion, and it is anticipated to
reach $31 billion by 2026.
However, the supply chain involves a number of phases before the
customer receives their product. Various flows make up the supply chain.
Physical flows, information flows, and financial and administrative flows are
all terms used to describe them. The major difficulty is to handle these flows
as efficiently as possible.
The logistics chain, which includes warehouse management, internal and
external transport movements, procurement, and ultimate product delivery to
clients, should not be confused with the supply chain.
The ultimate goal is to provide the correct goods at the lowest feasible
cost, in the right numbers, at the right time, and in the right conditions. It
is merely one component of the supply chain, although it is a crucial one. The
two terms are so complementary to one another that neither could exist without
the other.
Supply chain using blockchain
This innovative technology enables parties to work together on a single platform, cutting down on transactional delays, extra expenses, and human error. By removing intermediaries and maintaining accurate records, businesses may immediately pinpoint fraud sources and avoid data breaches.
Overall, the shared
ledger of a blockchain offers a trustworthy, unchangeable audit trail of
financial and inventory data along a supply chain. As a result, businesses
coordinate logistics, track shipments, and automate settlements while only
sharing pertinent data with little to no change to their current systems.
What advantages does blockchain have for the supply chain?
Blockchain-based traceability
Due to its disruptive potential, blockchain technology has the ability
to significantly enhance supply chain management. Due to its extremely
trustworthy, open, and anti-fraud features, relationships between raw material
suppliers, producers, distributors, wholesalers, and retailers can be improved,
leading to the diversity of advantages listed below.
Blockchain makes it easier to map and visualize the various phases of the supply chain because activities are connected and fully reconciled. This boosts the effectiveness of the supply chain. Every element on the blockchain is traceable, including supplier data tracking, purchasing, shipping, etc.
Transparency
By enabling transparent access to the crucial data points it collects,
blockchain encourages trust in direct commercial interactions between supply
chain players.
Speed
On the blockchain, smart contracts are chunks of code that, when certain
criteria are satisfied, automatically alter actions. This capacity replaces
laborious, repetitive confirmations needed for slow, manual operations.
Immutability
A distributed ledger with several copies, such as a blockchain, makes it
nearly hard to change just one copy at a time. This makes using this
cutting-edge technology incredibly trustworthy and fraud-resistant.
Consensus
If all parties concur, transactions in a supply chain must successfully
follow one another. As all users are aware that transactions are automated and
validated, blockchain is useful for ensuring and maintaining consensus on the
process.
Using blockchain in the supply chain: Supply Chain Use Cases
Supply chain transactions in a blockchain network are started by
authorized participants or smart contracts that are triggered by a
predetermined event. Authorized blockchains are typically used for supply chain
security, allowing only participants with specific rights to validate data.
After being verified and encrypted with a hash function, blockchain data
is stored chronologically in time-stamped blocks. A distributed ledger thus
offers a trustworthy source of truth for controlling supply chain operations
and verifying the provenance of inventory.
transparency and traceability of the supply chain
End-to-end visibility of all procurement-related data and transactions can be used to increase transparency and improve control over supply chain operations. Additionally, traceability makes it easier to quickly and cooperatively resolve operational problems, such as supplier information, sourcing, and product delivery.
For instance, a Distributed Ledger Technology
(DLT) is a decentralized database that ensures data confidentiality and
immutability by distributing transactions and data storage over numerous nodes.
inventory control
With the use of blockchain, it is now feasible to track stock availability across several locations and record and trace data on inventory movements across various facilities. By quickly recognizing issues and making the required adjustments, streamlines inventory control and assures timely resupply.
For instance, blockchain oracles are external data suppliers who
offer blockchain networks with information about the real world. This enables
smart contracts to communicate with off-chain data sources and to be triggered
by the occurrence of real-world events.
Risk management
Thanks to blockchain capabilities, a supplier's interaction history,
performance information, and documentation (including accreditations and
certificates) are recorded and monitored to ensure responsible sourcing
practices and mitigate legal and commercial risks. The result is robust and
resilient supply chains, immune to fluctuations in stock levels and delivery
times.
financial administration
It can be difficult to coordinate the flow of items, pricing, and payments
across various contractors, suppliers, middlemen, and third-party services in
supply chains. Instead of waiting weeks or months to pay an invoice, smart
contracts based on the blockchain enable rapid payments.
All stakeholders in a supply chain can use a payment system created
using blockchain technology, which eliminates digital fraud and human mistakes.
Additionally, supply chain participants can now make payments without the
assistance of banks, which lowers expenses and expedites transactions.
In particular, the Ripple network is a decentralized, blockchain-based financial network made to make cross-border payments quick and secure. In order to provide more effective transactions and financial management throughout supply chains, it links enterprises, banks, payment providers, exchanges for digital assets, and payment processors.
Ripple provides decision-makers with
end-to-end transparency, faster payments, cheaper costs, interoperability, and
smart contract capabilities. In summary, by offering a quicker, more secure,
and more affordable alternative for cross-border transactions and seamless
connection with other financial systems, this decentralized financial network
can dramatically improve the financial management of supply chains.
management of documents
A similar guarantee for document movements within businesses is provided
by blockchain. Distributed networks can be used to validate and verify all
papers coming into and exiting the company, either anonymously or as a part of
a private, delimited network.
Each document in a blockchain-based file system is given a distinct
fingerprint (an identification produced by an algorithm) that allows users to
track its origin, location, and change history. Only members with the proper
authorization have access to information, ensuring complete transparency in the
workflow approval process. Additionally, the blockchain-based approach does
away with the age-old duplicate file issue by automatically documenting any
edits made to a document.
Zero-knowledge proofs (ZKP) cryptographic techniques also enable parties
to control access to sensitive data without disclosing sensitive information.
In essence, a ZKP enables one party—the prover—to show to the other—the
verifier—that it is aware of a certain piece of information without revealing
it. This method can be used by programs like digital identity management to
establish identity without revealing personal information.
Using blockchain technology to provide safe, effective, and open
document management, Filecoin is a decentralized network that intends to turn
cloud storage into an algorithmic market.
Logistics administration
Blockchain can streamline administrative processes, speed up
transportation, and meet logistics needs thanks to immutable documents serving
as proof of transfer of responsibility for goods, automated archiving of
electronic documents, and tracking of location and storage conditions during
transit.
Future of blockchain technology
The supply chain will be a key area of application for this technology, even
though it is still in its infancy and needs to be demonstrated, therefore
supply managers must thoroughly understand it. We will be able to manage a
variety of operations, such as orders, stock management, finance, etc., and it
is in keeping with the dematerialization movement that has been prevalent for a
number of years.
Blockchain might not be able to fix every problem with the supply chain,
but it will surely make improvements. Major corporations like Walmart and
Amazon wouldn't be spending a lot of money on investigations into its potential
and applications if this weren't the truth. Since it currently only takes a few
minutes rather than a few days to track the origin of a product recorded on the
blockchain, testing conducted since 2016 appears to be successful.
Finally, Blockchain technology has the potential to completely transform supply chain management by accelerating supply chain operations' traceability, transparency, speed, immutability, and consensus. Improved traceability, more transparency, easier inventory control, better risk management, effective financial administration, secure document management, and improved logistics are some of its possible advantages.
Even though not all supply chain
problems can be solved by blockchain, the fact that major companies like
Walmart and Amazon have adopted it shows that it can make a
substantial difference. The future of supply chain management is expected to be
significantly shaped by this technology as it develops.