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Industry Sector Research: Blockchain and Supply Chain

Blockchain and Supply Chain

Have you ever thought about what all your product went through before you brought that product from the supermarket? Just think about it, where did the raw materials for the product come from? Who transported those raw materials to the production plant where the raw materials get converted into a product. And in the end, how did it end up in the supermarket where you are buying the product?

This tells us that a product goes through a lot of processes and middlemen. This system where organizations, employees, activities, data, and resources are all involved in moving product and service starting from the supplier to customer is known as supply chain. The supply chain is a start to finish framework that creates products and services and delivers them to the client. A fascinating thing to note here is that the supply chain need not be unidirectional, it can move back as well. 

Blockchain and Supply Chain

So how does Blockchain help the supply chain industry? By introducing accountability and traceability. Blockchain by its very nature is an immutable digital ledger of transactions, this enables enterprises to track their products at each stage of their Supply Chain network. 

Realizing the untapped potential of Blockchain in Supply Chain industry several startups have raised millions in funds through tokenized fundraising models like ICOs, IEOs and STOs.

Blockchain and Supply Chain

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Components of Supply Chain

The various components of the supply chain are as follows:

· Natural Resources: There is a need for a significant amount of natural resources like water for the production of certain products. For such products, someone needs to take care of all these natural resources.

· Ingredients for the product: After taking care of the natural resources and raw materials then you need ingredients for your product. For example, if you want to manufacture a television then your ingredients and components are going to be glass, battery, screen, wires, etc.

· Finished Goods: To have finished goods then you are required to have brought together all the components together. Like in the television example, you are going to gather all the components required to create television.

· Retail and E-commerce: Once the product has been manufactured then these products should be sent to or shipped to various shops and e-commerce websites warehouses.

· Customer: Then at the end, the customer purchases these products either at the store or online websites.

· Returns, Refund, Reuse, and Recycle: A good supply chain doesn’t just stop after selling the product to the customer. They should give an option where, if the customer is not satisfied with the product then they return the product and receive a refund for their product. When they receive the product back, they can either reuse the product or recycle it.

· Transportation and Warehousing: It helps in the process of getting the resources, ingredients, components, and finished goods to the exact place at the exact time to keep the supply chain operations efficient.

So, these are some of the common components of a supply chain. Whereas, in an actual supply chain there are a lot more interactions and is much more complicated. The place where supply chain management comes into the picture is when things need to carefully plan and all the steps should be overseen.

What is Supply Chain Management?

Supply chain management is a combined planning and execution of different processes in the supply chain. The various supply chain processes are as follows:

· Material flow

· Information flow

· Financial Capital flow

The management of these processes with storage and movement of raw materials and finished goods from one point to another is known as supply chain management. If there is a proper implementation of supply chain management then:

· The sales will increase

· The frauds and overheads costs will decrease

· The quality of improvisation will be improved

· Leads to faster production and distribution

· Reduces the expenses and complexity of the production process.

Presently, this is great, nonetheless, as the manufacturing procedure turns out to be increasingly complex, the supply chain invariably turns out to be very tangled and inefficient. Indeed, things being what they are, the supply chain management system, as we know, is broken.

Problems in Supply Chain management

1. Hard to Track

Looking at the Television example, almost all of the ingredients and components come from Asian markets like China. As a buyer, you don’t generally know the genuine estimation of the items that you are utilizing.

In addition, the absence of transparency in present-day supply chains is another serious issue. In the event that you have a defective part in your television, at that point it is impossible to identify where that defective piece came from and who was the individual in charge of it.

2. Corruption

The issue with running a complex supply chain is that you should trust in every one of the members to carry out their responsibilities. You have to trust them to deliver quality while following standard security norms. But, human beings are not trustworthy and are vulnerable to corruption.

There are several cases of corruption that can lead to your traditional supply chains.

· Somewhere in your supply chain, somebody insists on getting an item from a particular supplier, without taking a look at other offers. Whenever asked, they say that only that supplier can meet certain specifications, which could be true or may not be true.

· Assume you need a new part/material for a new product. In any case, that material is a rare resource, and just a single provider can supply it to you. Knowing his monopoly, the supplier can cheat you.

· Certain suppliers in your supply chain may get particular treatment by some of your procurement officials as a result of a personal relationship. Procurement is the way toward getting the goods and/or services your organization needs to satisfy its plan of action or the. business model.

· Assume an organization needs to extend its product offering. The parts that will be required can be obtained from a particular supplier, be that as it may, the supplier himself is a shady character.

· One of your suppliers is secretly assigning work to sub-suppliers who are not bound by the code of morals that you have put forth for your main providers.

· Suppliers and procurement officers can “cook the books” to charge you more than what the exchange was really worth.

· One of your procurement officials has an exceptional deal going on with your suppliers. In return for a payoff, the suppliers can compensate for the quality of their items.

· A supplier has delivered the item on schedule and in great condition yet is claiming additional costs and extra expenses, driving a renegotiation of the arrangement in the process.

· You just have an excessive number of components in your supply chain to monitor them all. All things considered, suppliers can essentially get away with anything. This is a major issue that traditional supply chain management systems have. They are not adaptable.

3. Costs

There are four principal factors that rise up the cost in traditional supply chains:

· Procurement Costs

· Quality Costs

· Inventory Costs

· Transportation Costs

Procurement Costs

The first and the most obvious cost that you need to look into in your supply chain is the procurement cost like paying for your products all through your supply chain. The most important thing you need to keep in mind is that if you have a large company then you cannot go to each supplier personally and buy all the components from them. This is the reason why you need to hire a procurement officer to carry out these transactions for you. So, procurement costs include the price of the products, the salaries, and bonuses of the procurement officers and also the expenses that come up while training these procurement officers.

Quality Costs

You expect any item that you purchase to meet a specific level of quality. All things considered, getting defective items will lead to issues later on down the chain. Be that as it may, so as to do these quality checks, you should hire properly trained experts. Furthermore, additionally remember, that a major chunk of your products will be discarded at once.

Inventory Costs

Inventories are places where you are putting away your products. Clearly, that is going to cost a great amount of money too. Presently, the area things get turned into somewhat messy is that most organizations wind up borrowing cash from banks to pay for the inventories. Along these lines, in addition to the fact that they have to deal with the loans, they need to deal with the interest rates as well.

Besides, having an unguarded inventory which is full of your stuff is unrealistic. In addition to the fact that you need to hire people who can deal with and catalog your products but you will also need to get some security workforce too. Regardless of all your best attempts, you will still have to account for shrinkage, that is, your items could be lost, harmed, stolen, expired or become obsolete.

Transportation Costs

When you look into transportation costs then you are required to make a compromise between speed and costs. If you use high-speed transportation then that is going to cost you more. Be that as it may, going for a financially cheap alternative can compromise significantly on time, which is nearly as important if not more.

4. Globalization

Globalization is nothing but a process in which a company starts to operate on an international level or becomes big enough to have international influence. Globalization opens up to various challenges to supply chain management. Numerous organizations need to run their supply chain through various countries to procure different parts of their products. Be that as it may, this acquires many overcomplications. Remember that your suppliers are in e vastly different geographic areas which makes it extremely hard to coordinate and work together. Nothing but, it is extremely difficult to tell whether they are really carrying out their responsibilities or not.


Along these lines, there are two things that we have learned up until this point:

· Supply chains are totally critical for the overall well-being of your business.

· The present system of supply chains is obsolete and requires a critical reboot.

This is where the blockchain comes in. Blockchain in simple words is nothing but a time-stamped unchangeable ledger of data that is managed by a set of computers that are not owned by any individual entity. Each and every block of data are chained to each other and secured using cryptographic properties.

The three main properties of blockchain that is going to help change the supply chain management system are:

· Decentralization

The main core concept of blockchain is decentralization. What it means is that the data that is stored in the blockchain is completely shared by each and everyone who is a part of the blockchain. In a blockchain system, there is no centralized entity.

The issue with the present supply chain industry is that every one of the suppliers and procurement officers inadvertently become their very own silos of data. There is nothing that is going to let us know with 100% assurance that the data that these individuals are sending is 100% authentic or not.

The blockchain separates this very idea of silos. When all these different entities which are everywhere throughout the world are connected by this chain. Every one of the information that would have stored in them isn’t being shared by everybody on the blockchain.

· Immutability

Immutability is nothing but unchangeable. Any data that. Is put into the blockchain is unchangeable and cannot be hacked. This immutability property in blockchain comes from cryptographic hash functions. Cryptographic hash functions are nothing but by taking an input string of any length and getting an output of fixed length.

This property is going to be very useful for the supply chain management. It is impossible for anybody to alter the financial records and to legitimize extra payments once they have entered the information inside the blockchain.

· Transparency

One of the most fascinating and misjudged ideas in blockchain innovation is “transparency.” Some individuals state that blockchain gives you privacy while some state that it is transparent. Well, an individual’s identity is covered up through complex cryptography and represented only by their public address.

In the context of supply chain management, each and every activity that will ever occur in your supply chain will be recorded in the blockchain for the general public’s viewing pleasure. Everybody will be compelled to be accountable for their activities.

How Blockchain Technology Will Change the Supply Chain?

The blockchain innovation has properties of decentralization, transparency, and immutability. All things considered, it is the ideal tool to use for the disruption of the supply chain management industry. Each time an item changes hands, the exchange could be reported in the blockchain, making a lasting history of an item, from manufacture to sale. What this does, is that it diminishes:

· Time Delays

· Human Error

· Extra Costs

The properties that blockchain can improve are as follows:

· Recording the amount of the items and their exchange through various parties.

· Tracking all the buy orders, change orders, receipts, exchange related details.

· It can interface different physical items to serial numbers, barcodes, and tags like RFID and so forth.

· It helps in the sharing of all the data about the manufacturing procedure, assembly, delivery, and upkeep of items with the different parties in the supply chain.

So, let’s look into all the benefits that the blockchain can bring into the supply chain management system:

· Blockchain’s transparency helps in the cautious documentation of an item’s journey from its place of starting point to every one of its suppliers. This expands the trust among the different parties in the supply chain since every one of the information is visible for anyone to view.

· The blockchain system can take in all members of the supply chain network. In addition, regardless of their geographical area, everyone will be able to interface with the blockchain.

· Blockchain’s unchanging nature will ensure that every one of the records in the chain is honest and free from corruption. In addition, the solid security from its inborn cryptography will take out unnecessary audits, sparing copious amounts of time and cash.

· The use of blockchain additionally opens up the doors to future development.

Thus, the blockchain and supply chain are built for each other. All the flaws in the supply chain management can be reduced using blockchain technology. It is believed that blockchain can drastically disrupt the supply chain industry for better.


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