What Is Blockchain In the Supply Chain & Its Importance?

Nicole Georgiev
Table of Contents
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    Within the food supply chain, data isn’t always available, visible, or trustworthy. Blockchain technology helps participants in the supply chain share trustworthy information through permissioned blockchain solutions. 

    The common business owner and consumer want brands, including private label brands, to guarantee the authenticity of their products. On the other hand, participants in the supply chain demand responsible sourcing and better visibility so that they can minimize disputes on all fronts. This includes production, packaging control, logistics–such as 3PL–and food distribution

    Blockchain technology and solutions have the power to improve the supply chain. Blockchains seek to disrupt traditional food supply chain management which relies on an outdated system that has proven to be unreliable in today’s modernized world. 

    Before we dive into the basics of blockchain and supply chain solutions, it’s crucial to familiarize yourself with, “What is the food supply chain?” This will provide you with a better understanding of what problems exist and how this concept helps. 

    Download the link to the food supply chain eBook

    What Is Blockchain?

    A blockchain is a decentralized database that’s shared among multiple nodes in a computer network. Blockchain technology became well known based on its use for Bitcoin, the world’s first and most popular cryptocurrency. In terms of supply chain management, a blockchain enables fast and cost-efficient product delivery, improves partner coordination, enhances product traceability, and provides access to financing. 

    With blockchain technology, participants in the supply chain can keep records of price, including wholesale vs retail price, location, date, certification, and quality. This information is necessary in order to effectively manage a supply chain. 

    By having such information readily available thanks to blockchain, product traceability increases. There are also fewer losses due to counterfeit products, visibility improves, and outsourced contract manufacturing is controlled. 

    Blockchain keeps track of digital data and makes them tamper-resistant. Once transaction requests are made through the system, it is broadcast to a network of nodes. Each node solves equations, checks, and validates transaction consistency. After the transaction is validated, it is grouped with the others to create blocks of data for the ledger. 

    Businesses use blockchain technology to track transactions and share personal information, documents, and cryptocurrency. It’s a type of technology that is difficult to corrupt since a single change requires a logged change on every node at the same time. 

    Google Documents resemble blockchain technology in that many people can view and edit a shared document at the same time whereas a Word document is locked. Each node on a network is accessible, can be changed simultaneously, and there is a record of each change. 

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    How Does Blockchain Improve the Supply Chain?

    Blockchain technology improves the supply chain by enabling cost-efficient and faster product deliveries, improving product traceability, providing access to financing, and enhancing coordination between partners. It also ensures security throughout the network.

    A supply chain includes complex networks of manufacturers, suppliers, distributors, retailers, consumers, and auditors. Examples of these include those in charge of the manufacturing inventory process, wholesale produce suppliers, subscription box suppliers, and dropshipping vendors

    When you think about, “What is blockchain?”, it’s important to understand that it uses a shared IT infrastructure. This blockchain technology infrastructure streamlines the workflow for all the parties involved regardless of the size of the business network. This kind of shared infrastructure provides auditors with visibility into each participant’s activities throughout the value chain. 

    Blockchain technology strengthens  the following five needs throughout the supply chain:

    • Traceability
    • Security
    • Transparency 
    • Tradeability
    • Sustainability

    1. Traceability

    It’s crucial to have traceability within the supply chain because it improves operational efficiency through visualizing and mapping out the enterprise. An increasing number of consumers are demanding sourcing information regarding the products they purchase.

    With blockchain technology, organizations can understand their supply chain and use it to engage with consumers as they reference verifiable and immutable information. Improving traceability adds value to the supply chain by mitigating high-quality problem costs and streamlining SKU rationalization. These include reputational damage, recalls, or revenue loss from grey market products. By simplifying this complex supply base, it offers value opportunities. 

    2. Security

    Fraud within the supply chain continues to reach record highs. In the US, total fraud losses are more than $2.5 trillion per year per the UN Global Compact. These are only the reported fraud cases. An example of supply chain fraud includes the misrepresentation of goods or services. 

    Using blockchain technology in the supply chain ensures that goods are transferrable and secure. It also offers features such as encryption and the hash function. The hash function makes it impossible to tamper with the information. Hashes act as digital fingerprints and every hash is unique. 

    Important regulations are prevented from being bypassed with blockchain technology. Aside from data tampering, this also includes preventing the creation of false employees. 

    3. Transparency

    Building trust is crucial for the supply chain and that’s where transparency plays a huge role. Transparency captures key information points including claims and certifications to provide public access to this information.

    The authenticity of the information is verified by third-party attestors once it’s registered on the Ethereum blockchain. It’s possible to update and validate the information in real-time. 

    All parties are responsible for uploading their product information. With digital data collection, the accountability and trust between the parties are improved. Blockchain technology shows product updates within minutes and everyone that’s involved can get information about where a product stands at all times. 

    Product sustainability and security can be examined from start to finish using blockchain technology. This includes raw materials inventory to finished goods

    4. Tradeability

    Part of understanding the answer to, “What is Blockchain?”, is learning about how tradeablity is possible. With tradeability, the conventional marketplace concept is redefined. Blockchain users can substitute assets by splitting objects into shares that represent ownership in a digital space. 

    This is similar to the way the stock exchange allows company share trading to take place. Tokens represent a shareholder’s stake value of a certain object through fractional ownership. The tokens are tradeable and transfers of ownership can happen without the need for physical assets to pass through numerous hands. 

    It’s possible to verify past ownerships and licensing with blockchain technology. This kind of technology utilizes licensed products, services, and software using automated smart contract payments. Similar payment methods and payment processing software include ACH payment, eCheck, and B2B payments.

    5. Sustainability

    Blockchain resists unethical and illegal practices to help governments and industries become more sustainable. This kind of technology allows for unparalleled traceability and in turn, reduces environmental transgressions. Such issues include environmentally questionable palm oil trade and illegally exported timber. 

    It’s easier to verify where the product materials and goods come from using blockchain’s traceability and tamper-resistant functions. These features also determine where they go as they move through the supply chain and who has accessed them. 

    Download the link to the food supply chain eBook

    Frequently Asked Questions Regarding What Is Blockchain

    Why Is Blockchain Needed in the Supply Chain?

    Blockchain is needed in the supply chain because it improves efficiency. It allows companies to complete transactions without the need for third parties. Part of the question, “What is Blockchain?”, involves paying attention to how useful it is when facilitating the increased integration of logistics and financial services. Due to this, blockchain enables more data collaboration between stakeholders. 

    What Are the Benefits of Blockchain?

    The benefits of blockchain include an increased amount of trust, traceability, security, and transparency of the data that is shared across a business network. This results in cost savings and increased efficiency. 

    How Does Blockchain Technology Work?

    Blockchain technology provides all parties involved in the supply chain with access to the same information in a way that reduces communication and data transfer errors. With blockchain technology, less time is spent validating data. Instead, that time is allocated towards delivering goods and services or improving product quality and reducing costs. 

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