Blockchain, a Welcome Leap Towards Supply Chain Transparency
21st-century companies are becoming more open about their supply chains in a world where every consumer wants to know what it took to make the product they buy. Shoppers demand the story of where their clothes were made; gourmands demand that the source of the ingredients they choose to be disclosed.
Every product has a storied, lengthy history, from when it was an idea to how it was realised. Much of this history is obscured, whether on purpose or by circumstance. However, more and more voices are being added to the already amplified demands of supply chain transparency as consumers become more active and involved influences on the production process. One solution posited to these requests is blockchain.
What is Blockchain?
Blockchain is a definitive buzzword that emerged in the last decade. Blockchain is a distributed ledger that contains records that cannot be altered or deleted. This can build a record of transactions, which is permanent and public knowledge.
Despite having been invented for the purpose of bitcoin and virtual currency, the technology is steadily breaking into the authentication aspects of nearly every industry. Its capacity as a transparent ledger of transactions caught researchers’ eyes as they saw the technology could fulfil larger purposes than just bitcoin security.
The blockchain consists of a chain of blocks storing information including records, transactions, and players involved. Each transaction in a block is timestamped, so there’s a chronological order to the information. Since the blocks form a chain, the result is a process that is backward-traceable to the very first instituting transaction or record.
This blockchain is made visible to systems on the network with express access to it, making it both public and private. Naturally, this helps avoid discrepancies in information and makes sure everyone is up to date on real-time additions and changes.
What’s wrong with traditional supply chains?
Herein lies the power of blockchain and the value it holds for supply chains. The current methods of data recording and consolidation are miserable at best and see the following problems:
- Disparate record-keeping leads to gaps in information and unreliable reports;
- Loose track of products during the production process, geographic or otherwise;
- Inability to identify system failures and leaks;
- Reluctance to share production processes with the public lest competitors take note;
- Covering up negative incidents to preserve the existing positive brand image;
- No Plan B for unforeseen delays in production, rise or fall in demand.
How does blockchain guarantee supply chain transparency?
Blockchain promises to dramatically change this by providing a transparent and irrefutable record for inspection and audits by regulators and consumers alike. Without going too into the weeds, here’s a simple explanation– blockchains track each transaction in chronological order, and every computer on the blockchain network has access to this information.
To paint a picture– every player in the production of a necklace has a unique identity on the blockchain network, including the mining company, designers, sculptors, artisans, and jewellers. Each stakeholder verifies their participation in the making of a necklace, leaving a visible footprint of the history of the jewellery. If there were any discrepancies at any stage, this blockchain trail would bring it to light in no time.
Traceability and transparency go hand in hand, although the relationship is not linear. Traceability is the process of identifying the chronology and players of an event in a process chain. On the other hand, supply chain transparency focuses on the information that is readily available for end-users to track. Therefore, the chronology of events must be accurate to embody transparency. If the chain is broken, there’s no point in trying to trace it.
Why should companies consider blockchain for transparency?
The perks of using blockchain for transparency extend far beyond keeping a good enough record for regulators and auditors when the time comes.
Demonstration of authenticity
By using blockchain, companies can ensure that the supplies they receive are genuine. On the customer front, using blockchain ensures that the final product they receive is also authentic, thereby protecting the firm’s brand image.
Increase in trust
Allowing end-users to go through your production and supply chronology encourages them to believe in your company and practices. It’s a tell-tale sign that firms have nothing to hide and are willing to share details with consumers in hopes of a deeper relationship. Usually, it works out that way– supply chain transparency has a positive impact on brand loyalty and brand recognition through word-of-mouth that no marketing strategy could emulate.
For companies that deal with outsources manufacturing or partners in their process, blockchain makes it easier to ensure compliance across the board. It’s also much simpler to trace shortcomings or failures in any operations and hold accountable the people involved.
Similarly, having access to the same information in the same chronological order allows all parties to be equally involved in the process. Since data on the blockchain is encrypted, only those with exclusive authority can access the information– this cancels out the fear of competitors getting hold of confidential information.
Decrease losses and expenses
Using blockchain for due diligence and record-keeping brings down administrative costs by increasing visibility. It reduces the chances of losses caused by holes in the production chain, counterfeit or lower-quality material, and erratic track of expenses due to haphazard record-keeping. It also reduces the time spend on verifying information and records– time that can instead be spent on delivering services seamlessly.
Better brand positioning
Today, news spreads like wildfire, and firms need to have all posts covered to ensure they won’t have a PR disaster on their hands. By using blockchain, firms can exercise a lot more control over their processes, staying ahead of the curve, and taking the first step to avert any looming issues. In the long run, this positions the firm as a responsible leader in the industry, increasing customer loyalty.
How can firms approach blockchain for supply chain transparency?
To adopt blockchain processes and achieve supply chain transparency, firms will first need to consider what type of blockchain they want to use. There are three broad divisions:
- Public: a permission-less ‘free for all’ blockchain that is decentralised with no overarching authority.
- Consortium: A blockchain controlled by a ‘consortium’ of entities who grant permission and verify transactions.
- Private: A permissioned blockchain with the power to grant permissions and ensure authenticity resting in the hands of a central authority. EcoMatcher’s TreeChain is a good example of this. Every tree that has been planted by EcoMatcher is stored and visible on EcoMatcher’s TreeChain.
The final word
Firms will also need to ensure that all stakeholders and links in the supply chain are willing to come on board the blockchain process. Ensuring all parties are eager to contribute to the maintenance of the blockchain will guarantee a more traceable transparent supply chain!