How Blockchain Improves the Supply Chain

Blockchain / April 4, 2019 / Comments: 0
blockchain improves the supply chain

Howdy, folks, and welcome to the great “Hall of Mirrors,” also known as the global supply network. Hope, you’re in the mood for a new story about P2P technology adoption. Let’s see how blockchain improves the supply chain.

This time we’ll figure out the ways decentralized ledgers make the international business web more user-friendly. Stay tuned. We have research to do!

“Hall of Mirrors”

When it comes to information sharing, supply chains can boast of enormous complexity. No seriously, like a classy hall of mirrors, a large distribution network deals with trillions of priceless papers, paper copies, copies of the paper copies, etc. The point is, every single piece of data needs to be shared with all parties making the network.

As you can imagine, tracking, approving, signing the whole mess of bills, receipts, shipments is a real challenge.

Blockchain and supply chain: a perfect duo

Luckily, there’s a solution that can solve the “paper hell” issue. Captain Blockchain to the rescue! Seriously, though, a decentralized ledger containing and processing tons of vital documents for every single side involved will be a big help for businesses in need.

However, before we learn how blockchain improves the supply chain, let’s take a closer look at components an average supply chain has.

An inside peek at a supply chain

To give you a better picture of a hypothetical supply network, let’s take a closer look at the components that make it. But first, we need to decide what is a supply chain. Put simply, a supply (aka distribution) network is an end-to-end system that creates products and sells them to consumers. Besides, the system should have a two-way communication channel for products to move up and back (a must-have option for “unhappy customers”).

Now, let’s get to the components of our hypothetical distribution chain:

Natural Resources

Suppose, you make a living out of furniture manufacturing. In this case, your business depends on regular wood supply. So you need a partner reliable enough to take care of natural resources.

Raw Materials

To create a table or chair, you need to produce materials (make a couple of wooden planks).

Components and ingredients

Now, to move to the next step, you need someone capable of providing elements you can’t do internally: nails, upholstery, etc.

Finished products

Once you have raw materials and components, you can create full-on items to sell.

Transportation & Warehousing

Well, your products are ready to go! If it’s so, you need to spend some time and effort and get the furniture to your point of sale or warehouse.

E-Commerce & Retail

Here, at last, consumers can get their hands on your products in your brick-and-mortar shop or on a specialized website.

Returns, Refunds & Recycling

Not the best part of the network, that’s for sure. However, a high-Q supply chain has to help consumers get rid of products they don’t want/need.

So, to get back to the point, how blockchain improves the supply chain? In terms of supply network management, blockchain adoption offers the following “goodies:”

Modern supply systems: challenges that never end

Here’s the thing: modern supply networks are enormous and involve lots of complex processes. As a result, some links got too heavy to make the whole chain business and user-friendly.

Challenge #1: Hard to Trace

These days, most businesses deal with overseas partners (Asian markets) to get natural resources, raw materials, and components. As a result, consumers don’t always know the true value of finished products they buy.

Another serious issue is, it’s hardly possible to pinpoint where defective items or materials come from.

Challenge #2: Corruption

Hope, there’s no need to remind you that corruption is evil. Still, you can face it here, there and everywhere in the world of business. The same situation is true for the supply network as you have to do with a great many people responsible for various links.

In this paper, we give you a few corruption cases that can infiltrate your distribution network:

  1. Someone in your system insists on getting resources or components from a specific supplier without considering other options.
  2. Some suppliers you deal with obtain privileges from your officers/partners due to personal relations.
  3. To get rare assets, you need to deal with a monopolist who uses his/her position to swindle you.
  4. One (or some) of your suppliers secretly delegates work to subcontractors who don’t comply with your company policies/rules.

Well, you get the idea, don’t you?

Challenge #3: High Expenses

Here’s an easy one. If you run a traditional supply chain, you know it for sure that every serious move you make costs tons of money. Procurement costs, transportation expenses, quality and inventory costs: as a business owner, you have more than enough reasons to lose some cash.

Challenge #4: Global Reach

Ain’t that sweet when your company gets big enough to enter the global market? On the one hand, you definitely have a good reason to celebrate. On the other hand, your supply chain gets longer, as well. The situation, in turn, opens up a few extra challenges. In fact, you will need to run the supply chain through many countries to buy various elements for the business. It will be a real pain in the… leg for you to manage the “web” and make sure all parts do their jobs properly.

How blockchain improves the supply chain

blockchain improves the supply chain

So far we know, the current supply chain is outdated and needs improvements. Improvements only blockchain technologies can offer.

Finally, we got closer to the main point of this piece. How blockchain improves the supply chain? It makes it automated and manageable with just 3 features:

Feature #1: Transparency

Now, here’s a “blockchain phenomenon:” decentralized networks make your sensitive data both private and… visible to all network users. The idea is, your real identity is “open,” but it is securely encrypted. So, instead of “John received 1 BTC” line in your transaction history, your partners will get something like “1MF1bhsFLkBzzz9vpFYEmvwT2TbyCt7NZJ received 1 BTC.”

Every operation performed in your supply chain will be recorded in blockchain so you could view it in case of need. That means true accountability for your business.

Feature #2: Immutability

In terms of the blockchain, this means nobody can change data saved inside the decentralized ledger. In other words, nobody can “cook the books,” alter or remove the whole parts of essential data, etc.

The blockchain relies on hashing technology, and alert you every time someone is trying to change vital records. Even slight changes get “tagged” and visible to everyone in your supply chain.

Feature #3: Decentralization

P2P nature is the backbone of blockchain technology. It means that all information stored in the blockchain does NOT belong to a centralized entity. Every single piece of data belongs to all and everyone. Want to know, what prevents network users from data related scams? Refer to Feature #2!

Yep, blockchain improves the supply chain, alright. Now you know it. Next time we’ll talk about hacker-proof data storages using blockchain technologies to keep your info for years to come.

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