I cannot believe that I have not written a post on blockchain, until now. The matter of fact is that I have been teaching blockchain for a number of years, and I do think blockchain holds great promises in the digital future of supply chain management.
But first let’s back up for a second. Why blockchain in supply chain? What is wrong with supply chain mangement?
The problem is that today’s supply chains are mostly global, and have a number of parties (or layers/nodes depending on how you describe it). Each of the parties involved has limited visibility of the entire supply chain. For example, consider a supply chain for a mango juice that is sold in the supermarkets in the US. The supply chain probably starts somewhere on a mango farm, and the supply chain parties involved are:
- Farmers
- Wholesaler/exporter
- Port
- Customs/Inspection
- Shipping
- Banks/Payment platforms
- Importers
- Manufacturer
- Warehouse
- Shipping
- Transportation
- Retailer
And the amount of links among them are numerous. Just pick the payment step. Itself will involve half a dozen(!) parties and a dozen steps, as illustrated by the following chart for a typical online credit card transaction process:
As you can probably imagine, it will probably take at least a few weeks to complete the entire supply chain process. But what if I tell you that there is a tool that can potentially cut down the lead time to a few days? Would you believe, or rather, use it?
This tool is blockchain. As a quick primer, we know that blockchain is an immutable distributed (or decentralized) ledger (or just tables). When used in the context of supply chain, people call it smart contracts.
So what do smart contracts exactly do? Here is a list:
- They digitally and securely store the rules of transactions. For example, a smart contract can store all the specifications of a typical contract: price, quantity, quality level, delivery time, penalty clause, etc..
- They verify those rules in a decentralized manner.
- They execute themselves automatically and securely. So if a supply chain party fulfills its obligation, and it will immediately be paid upon verification.
- Everyone in a supply chain can see details of a particular transaction. Therefore smart contracts facilitate trust.
As you can probably imagine, automating the paperwork as an application alone can speed up the supply chain quite a bit. I will describe a concrete application in my next post, but here is an interesting video on blockchain applications in the food industry in Singapore and China.