Blockchain is gaining popularity because of its unique feature that can solve the conflict between two or more parties. Why is it so unique compared to other technology? Because it is decentralized in nature, which means the data that used to be in a centralized server is now distributed among multiple servers and the particular server or peer is so secured that unidentified participants cannot get access to it (in case of permission blockchain). Scalability is another important feature of blockchain where the platform shall have the ability to support the increasing number of transactions by adding more resources within the network. We mostly hear that blockchain is tamper-evident (immutable) but what does that mean? It means any transaction we create within the blockchain cannot be updated, but an update happens by adding a new block (record) referencing the parent block. So once a transaction is logged, it is logged permanently, and nobody can change it. Because of this feature, it should be able to solve conflicts between stakeholders. I think that's it about basic blockchain for now.
How can Blockchain solve problems of Supply Chain Management? Before I dive into the solutions, I would like to discuss a little bit about the problems.
Customers are often cheated on the quality of the food, coffee, apparel, they assume that they are getting the quality of the price they pay for but in fact they may not. If we want to trace whether the coffee beans from Brazil or Colombia, or mad-honey and tea from Nepal are real, how can we do that? Reading the label on the bottle sometimes doesn't work because the item inside may be different from what it says on the label. So what if we start to trace activities from the day of sowing the seeds to the customer’s basket and provide the detailed info? What we can trace using blockchain are:
- How many plants of coffee/tea or any food have come out of the seeds?
- What kind of seeds are sowed?
- Who is the farmer? (Details of the farmer.)
- How much area is used for the coffee/tea?
- How many laborers are used per day? Are they child labor, in most of the case, child labor are not legal.
- What type and amount of pesticides are used? Nowadays, pesticides are heavily used in the crops for fast growth which ultimately harms the health of customers and soil (land) .
- What quantity of coffee is produced? How is it packaged? Who are the wholesalers, dealers and retailers?
In this way we can make sure that the product is produced and distributed from a valid and reliable source. Just imagine the customer’s satisfaction when, while buying the product, they are able to scan a QR code on the bottle, and will instantly know all the history of the product. It helps to trace the material within the supply chain network and make sure that this meets the industry standards. We are clearly seeing that there is no space for the mediator who is taking unfair advantage from the farmers. If farmers, wholesalers, dealers, and retailers are in the same blockchain network owning their own node, each of them would know how much the farmer makes in each package he sends to wholesalers. This creates price transparency throughout the whole supply chain network and among all stakeholders, and the farmer gets the price that he deserves. If all the stakeholders of a particular business, for instance, coffee, agreed to do business using blockchain, then they will all get their own node where all the information from day one to the packaging/delivery date are stored in the nodes. Access to the node is made on the basis of given permission, so each stakeholder will have their required info safely stored in their own node, and nobody can tamper with it. This eliminates reconciliation pain among multiple parties by allowing each party to bring their real data down to the table.
Additionally, it also reduces the paperwork and administrative cost. Since most stakeholders including regulators, shipments, insurance, and others shall be included within the network by giving their own node, sharing data, and regulatory reporting, and audit documents could become easier, requiring less manual processing, which helps employees to focus on their qualitative work. So we can say that blockchain increases the data transparency and data integrity in the business, which ultimately strengthens the image and trust of the business.
Finally, we can say that blockchain has become a key tool for supply chain management for the accurate traceability of the materials from origin to the destination, to gain trust from customers, settle the conflicts among its stakeholders like reconciliation of transactions, and for the validation of the contract.