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4 Ways Blockchain Can Be Used Throughout the Supply Chain

Article - 4 Min. Read

Discover four ways blockchain technology can be used to improve complex supply chain and logistics processes.

Blockchain verifies transactions by recording activity on a continuously updated digital ledger, with no central point of control. The technology has become increasingly popular throughout the supply chain and logistics worlds, but there’s still confusion around how exactly it can help managers in their day-to-day jobs.

Below, explore the four most common applications of blockchain in the supply chain—smart contracts, tracking, fraud and theft prevention, and transaction processing.

Smart Contracts

Smart contracts, which live on a blockchain, are digital, self-executing contracts that allow for speedy, streamlined transactions.[1]

Here’s how they work: Once supply chain partners decide on the terms of a delivery, payment, return or other operation, they’re stored in the blockchain as a unique code.[2] This allows payments to be triggered automatically when specified conditions have been met. For example, after setting up a contract with a carrier, a party can put a payment into escrow. Once the receiver confirms receipt of delivery, the payment can be released automatically.

This helps ensure all steps in a supply chain are carried out efficiently and creates trust among all parties entering into a contract. By cutting down on the risk of errors, delays and nefarious activity, costs can also be reduced—whether related to mitigating mistakes or employing intermediaries to carry out payments.[3]

Tracking

Because all parties given access to a blockchain are able to view the same data as it’s updated in near-real time, it’s easy to track product journeys from initial sourcing to final distribution.[4] Having this kind of visibility into every activity and transaction can provide consumers with the full story behind a company’s products, allowing for heightened brand reputation.

64% of supply chain professionals say that a lack of information on the tracking of product origins has caused inaction or indecision.[5]

Because blockchain is a continuously synced ledger—updating in near-real time as transactions and activities are uploaded and recorded—supply chain managers no longer have to hunt down the history of a good’s movement step by step, party by party. This transparency cuts down on delays and associated expenses and can eliminate the need for costly intermediaries hired for oversight.

Inventory management can also be improved, as companies are better able to forecast future demand, reducing the risk of excess inventory.

Fraud and Theft Prevention

In complex, global supply chains with many moving parts, it can be nearly impossible to stay abreast of every interaction. Unfortunately, this can be an open invitation for fraud and theft. Blockchain provides great traceability and transparency, so companies can feel confident that all parties in their network have carried out operations as specified and are complying with regulations.

In a recent proprietary interview, one blockchain thought leader emphasized the usefulness of the technology when working in industries with a black market or a lot of fraud, which can pose risks to consumers and negatively impact brand value.[6]

If the security of the database owner is compromised in a traditional centralized database, then the security of the ledger may be compromised as well. With blockchain, no single party has ownership; all partners view and verify uploaded data, and the entire network establishes a set of rules by which batches of data are automatically validated or rejected.[7]

Because each block, or batch of data, is linked to the one preceding it, tampering is almost impossible.[8] This brings about a high degree of security, making it very difficult for hacking or tampering to go unnoticed. With the risk of fraud and theft reduced, the time and money spent mitigating such issues are greatly reduced as well.

Transaction Processing

Traditional, paper-based transaction processing throughout the supply chain is often slow, inefficient and error-prone.[9] With these setups, each party records their transactions for uploading onto a centralized database, owned and controlled by a single entity. When multiple parties are involved in multiple locations, it can be difficult to process all of these transactions quickly and accurately.

Blockchain, on the other hand, allows all parties to view and validate the same information at the same time, creating consensus and reducing the risk of disputes. This speeds up transaction processing, while the unalterable nature of the database enhances security.[10]

In another interview, one blockchain thought leader stated the benefits simply, noting how the technology can replace time-consuming, traditional paper-based processes in the world of shipping and logistics.[11]

With blockchain, intermediaries are no longer needed to process and cross‑reference complex supply chain transactions, and waiting for payments to be processed becomes a thing of the past.

Learn More About Blockchain

As blockchain becomes more common throughout nearly all facets of the industry, supply chain managers are taking steps to learn about the basics of the technology and what it can do for their business. Smart contracts, tracking, fraud and theft prevention, and transaction processing are just a few of the ways supply chain and logistics professionals can begin applying blockchain.

To learn more about the technology and how it can be used throughout the supply chain, explore the USPS® in-depth blockchain experience.

Footnotes

  1. [1]2019 Survey, SIS International, 2019.
  2. [2]Ibid.
  3. [3]Ibid.
  4. [4]Ibid.
  5. [5]Ibid. Note: This survey was conducted with 50 logistics experts.
  6. [6]2019 Interviews of 10 Key Opinion Leaders, SIS International, 2019.
  7. [7]2019 Survey, SIS International, 2019.
  8. [8]Ibid.
  9. [9]Ibid.
  10. [10]Ibid.
  11. [11]2019 Interviews of 10 Key Opinion Leaders, SIS International, 2019.

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