4 Ways Blockchain Can Be Used Throughout the Supply Chain

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.

  1. 1

    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

  2. 2

    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.

  3. 3

    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.

  4. 4

    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.

Is Blockchain Right for Your Supply Chain?

As blockchain continues to gain traction throughout many areas of business and industry, supply chain managers are taking notice.

In a recent survey commissioned by USPS® and carried out by SIS International Market Research, 66% of supply chain professionals said they were at least “moderately familiar” with the technology.1

Managers know that blockchain can offer great benefits throughout the supply chain, but they also know that being at the forefront of this technology comes with some risks—time and money spent.

To determine if blockchain is the answer for your supply chain, you have to ask the right questions. Think through the six questions below to get started.

1. Are multiple external parties involved in your logistics or supply chain?

The more external partners in your supply chain, the more complex and time-consuming processes become—and the harder it is to keep track of them.

Within complex, globalized supply chains, payments can take days, and tracing parts back to their source can be difficult. This can make it nearly impossible to confirm, for example, that ethical processes have been followed, or to pinpoint the exact source of materials.

If your supply chain is comprised of numerous parties across various locations, implementing blockchain may be very beneficial for your business, allowing you to keep track of all operations and transactions through a single, automatically updated ledger.

Blockchain can offer 100% traceability and guaranteed origins on products.2

If this is not currently an issue for your business, it’s still worthwhile to learn about the technology and stay ahead of the curve. Plus, the more your business grows, the more complex your supply chain may become. Keep reading to learn more about the benefits of blockchain.

2. Is there a need for a shared, common database between parties?

In supply chains involving multiple external parties, efficiently recording, sharing and verifying data can be challenging. With different parties using different databases, businesses often have to track down partners’ information one by one.

With blockchain, data is continuously synced across a common ledger. All partners view the same data at the same time, allowing transactions to be recorded and verified in near-real time. This makes it easy to provide all stakeholders with the assurance that best practices have been followed, compliance has been achieved, deliveries carried out as specified and so on.

82% of supply chain professionals are willing to share data with third parties and competitors at a level that would be necessary for successful blockchain development.3

If you’ve been finding it challenging to keep track of or verify such activities, blockchain may be a good fit—eliminating the need for error-prone, time-consuming paper-based systems and making it quicker and simpler to update data.

3. Do the parties have conflicting interests?

When multiple parties are involved in a supply chain, conflicting interests are often involved as well.

For example, your supply chain partners may have conflicting competitor relationships, industry standards or quality-control requirements. Differing priorities can complicate supply chain processes—while one supplier may be primarily concerned with speed and efficiency, another may be focused on keeping down costs.

Blockchain can help mitigate this friction, allowing for better end-to-end management and oversight. With a single, constantly updated database, it’s much easier to keep track of partners’ activities and transactions, gauge timing, and predict and mitigate issues.

58% of supply chain professionals said they expect blockchain to improve tracking.4

4. Do the parties mistrust each other?

A lack of trust among partners within your supply chain can make even the simplest processes complicated and stressful. If one party doesn’t trust another party to record data accurately—and not alter it for nefarious or self-serving purposes—the integrity of the entire supply chain can be compromised.

As one blockchain thought leader put it, “Blockchain is ultimately [about solving] a trust issue.”5

Blockchain offers end-to-end transparency, allowing all parties to view and confirm others’ activities. And because the ledger is immutable, meaning it cannot be changed once batches of data are uploaded and verified across the network, tampering or hacking is nearly impossible.

If you’re currently using third parties to help establish trust, blockchain could be a smart choice, eliminating the need for often-expensive intermediaries.

5. Are there differences in the rules that govern parties?

When different parties within a supply chain must adhere to different guidelines and regulations—whether self-imposed, governmental, environmental or industry-wide—conflict and confusion can ensue.

With traditional databases, it can be difficult and time-consuming to confirm various partners’ compliance and keep track of different regulations throughout the supply chain. Having to confirm compliance with individual parties can cause significant delays in moving products through a supply chain—especially when partners are spread out across the globe.

With businesses and consumers alike expecting speedy delivery of goods, the old way of recording and verifying information is becoming increasingly cumbersome. If you’re struggling to keep track of your partners’ compliance or often experience delays as a result of compliance issues, blockchain could be a good solve.

6. Do the rules governing transactions rarely change?

For blockchain to benefit a supply chain, the rules governing transactions and operations should not change often.

When using blockchain, a detailed set of rules is established by all in the network, creating a protocol by which transactions can be verified automatically—or rejected, if tampering, hacking or inaccurate data is apparent. This is what creates such high security within a blockchain; once a set of rules is established, the validity of uploaded data from every supply chain partner can be quickly and reliably validated.

If such rules cannot be established, blockchain would not be beneficial to your supply chain. But if your business is currently operating without specific transaction guidelines in place and you’re looking to achieve uniformity and higher efficiency, blockchain can be an ideal solution.

Implementing Blockchain in the Supply Chain

If you’ve determined that blockchain may be right for your supply chain, explore our in-depth digital experience, where you can dive into the key benefits of blockchain, learn more about the technical inner workings of the technology and explore a helpful use case.