Blockchain in supply chain management: opportunities and challenges.
The use of blockchain is increasingly growing in various business sectors. Its use affects the profitability and security of companies. That also applies to supply chain management, as it continues to grow and is expected to be on an upward trend. In addition, globalization has expanded the need to coordinate suppliers and customers. It has accelerated organizations turning to innovation to face these challenges. Blockchain is one of the most revolutionary methods for transferring, storing, and securing data, which helps overcome these issues in previously impossible ways. This article will examine the advantages and disadvantages of blockchain technology applications in supply chain management.
Supply chain management (SCM)
What problems does blockchain help overcome in SCM? Globalization is, first and foremost, essential, meaning goods are shipped locally and worldwide. It draws more and more parties and countries into the transportation process. The supply chain usually goes through several phases and locations, depending on the transfer. Malfunctioning in this process can cause delays, the creation of counterfeits, problems with product authenticity, and money laundering. Blockchain makes it possible to track the entire path of a logistic process and increases the transparency of the records of the organizations involved in it.
The data in the process is vulnerable to change and human error. Supply chain management can be improved with innovative solutions to secure data and records and support the visibility and traceability of the system. Lack of transparency has burdened the logistics business for decades. To meet the challenges of the worldwide globalization of organizations and the complexity of the process, companies are supporting themselves by integrating management systems with blockchain technology.
It is worth noting that there are four main types of blockchain networks: public blockchain, private blockchain, consortium blockchain, and hybrid blockchain. Private or consortium blockchain is most often used in supply chain management. In situations where the blockchain needs to be cryptographically secure and the controlling entity does not want the information to be publicly available, private blockchains are most effective. A blockchain consortium, on the other hand, is a good payment solution. For example, different banks or organizations could form a consortium to decide which nodes would approve transactions. Furthermore, this type of blockchain is an excellent solution for supply chains, especially for food and medical supplies.
Benefits of applying blockchain technology in SCM
The distribution and flow of products at various levels are complex. However, the blockchain revolution is helping to manage data effectively. Data collected from supply chains is securely stored, integrated, and retrieved with high efficiency. What are the benefits of using blockchain in SCM?
Enhanced transparency
Blockchain is a public transaction ledger that stores immutable and fully traceable data. It can be compared to an ordinary database. However, it differs in how it stores data - blockchain collects data in blocks chained together. What is written on the blockchain cannot be changed. The following information is appended as another block. It provides enhanced transparency and is resistant to change.
Improved traceability
Since product counterfeiting is one of the biggest problems facing commodity manufacturers, tracking the entire supply chain path is extremely helpful in solving this problem. Blockchain makes verifying the authenticity of digitized data in the supply chain easier. Data such as where the product originated, how it was produced, the materials used, the name, number, etc., are digitized and stored in a new block. This block is coded with all the information and is automatically added to the previous block. That saves the information linked together and cannot be changed, and it keeps track of every step in the product's journey.
Trustless solutions
Blockchain technology can benefit supply chain management by making it more transparent and auditable. One of the advantages of this technology is the use of smart contracts. These smart contracts are computer-generated contracts or protocols that are automatically filled out when certain conditions are met. They make every transaction immutable and transparent, which helps organizations or companies automate their processes. Therefore, blockchain can contribute to SCM by providing trust and transparency throughout the process. In the supply chain process, individuals must trust each other. Applying blockchain-based trustless solutions can solve these issues between organizations. Because data on the blockchain is decentralized and immutable, supply chain members can trust the data recorded on the blockchain.
Security of data records
Blockchain technology can create an immutable data record and validate transactions shared on a network. It will be visible and detectable if someone modifies the data record or contract. It is crucial because records that are changed can cause accounting or auditing problems. Blockchain can also be used to confirm and verify identities. Thus, an organization can build security by validating employees.
Blockchain validation uses computerized characters that depend on open key cryptography and programmed private key verification. It means that anyone with access to the private key is entitled to ownership. Blockchain integration can eliminate or minimize information leakage in real-time and identify suspicious hacker activity, malware, and other security threats.
Disadvantages of blockchain technology when applied to supply chain management
Having discussed the pros of using blockchain technology in SCM, it is worth looking at the cons of this solution. Despite the potential benefits, it is not a panacea for all SCM problems. We will discuss the disadvantages of blockchain technology in supply chain management.
Scalability
Blockchain’s main problem is its scalability, i.e., the possibilities of the range of the number of transactions per second (TPS). At this stage of technological development, it has yet to be suitable for processing vast amounts of data quickly. Work is still underway to solve this problem. Currently, blockchain solutions are much slower to process transactions than traditional databases.
Adoption and cost
Another issue is expenses (blockchains charge a fee proportional to the load imposed on the blockchain). In Ethereum, for example, the complexity of the computational load is expressed and measured on a gas basis. Transactions differ in the dimension of complexity and, thus, in the amount of gas consumed. Adopting blockchain technology can come at a high cost because it is necessary to hire blockchain developers and pay planning, licensing, and maintenance expenses.
Complexity
The next drawback of using blockchain in supply chain management is its complexity. This decentralized and distributed ledger system requires significant computing power and resources to operate effectively. For smaller organizations needing more resources, it can be a considerable barrier to implementing blockchain technology because it requires specialized knowledge and experience.
Lack of standardization
The lack of standardization is the next issue. Different blockchain networks operate on diverse protocols and standards, which can lead to compatibility issues. It is an unsolved challenge for supply chain actors who must interact and share data across different blockchain networks.
Summary
This article discussed the challenges and benefits of using blockchain technology in supply chain management strategies. This technology, although developing rapidly, is still relatively new. Already, many industries are taking advantage of its functionality. Still, total use and widespread adoption will likely have to wait until the challenges are mastered, and the technology is tailored to the specific needs of the supply chain industry.
