Blockchain and Supplychain

In the past, Production, Distribution and Consumption of goods and services were done in close proximity- locally. Goods were mainly produced and assembled close to where raw materials were sourced, then transported to their final consumer. Means of transportation was basic and a significant determinant of cost, hence there was little or no complexities in trade.Trade that involved costly transportation were high value goods such as spices and luxury goods. Close proximity of producers and consumers also allowed direct communications between the two, including the ability of the consumer to specify requirements. It was not until the 18th century, during the industrial revolution that production networks took a whole different shape and we saw a shift from the basic transportation and communication technology to a more complex and reliable means of communication and transportation.

As a result of technological shifts and major breakthroughs in transportation and communication technology, mass manufacturing significantly increased . It became harder to produce goods based on consumer’s requirement and standardized goods were created. A global supply network emerged, which created the need for a supply management system in order to efficiently produce and distribute goods and services. The first product to be put together with a global supply network was Rum.

Supply chain Management facilitates the flow of goods and services. It involves the movement and storage of raw materials, work-in progress and finished goods from a point of origin to a point of consumption. It can also be seen as a connected network of resources, individuals, organisations and technologies involved in the manufacture and production of goods and services. Our current supply chain is broken and heavy with complexities. You have people making counterfeit products and passing it off as original products to end users, who may or may not be able to tell the difference. Globalisation and international trade have made it very difficult for customers to truly know the true value of a good because of lack of transparency in the supply chain network.

How do you know the Hermes bag you bought last week is original and not a counterfeit? Or the Diamond necklace you traded your arm and leg for has actual diamonds?

This is where blockchain technology comes in. While cryptocurrency is a more popular use for the blockchain technology, it has other applications which can help combat buying counterfeit products. Blockchain technology as explained in this article (link) can be used to trace a product from the point the raw materials were sourced, where the product was created, how it was packaged and to the point it got to the store. Take the mobile phone as an example, your mobile phone would have gone through series of processes and middlemen before ending up in your palms. The components of a mobile phone are being sourced from different countries and in some cases assembled in different parts of the world. How are you guaranteed the genuine quality of your mobile phone? There are too much back and forth with supply chain. Simple transactions have become cumbersome with length multi-step procedures. The blockchain technology offers a transparent and secured system that ensures that, every time a product is passed from one person to another, the transaction is documented, and a permanent record of the product is created. The product status of goods can be recorded at each stage of production. This makes it very easy to trace each product to its origin.

Blockchain can be applied to many problems encountered in supply chain management. Record keeping and provenance tracking can be done through the help of the embedded sensors and Radio-frequency identification (RFID) tags. This type of provenance tracking makes it easier to detect fraud in the supply chain system and also minimize courier cost or loss. It can greatly reduce paperwork and bureaucracy. Instead of looking for lengthy paper trails to help confirm orders with goods received from supplier, blockchain provides ‘an automated process storing information in a tamper-evident digital form’, enabling a more direct relationship between suppliers and customers.

There have been a number of supply chain projects launched around the world. AFEX Commodities exchange, Binkabi and Sterling bank are in partnership to provide solutions to challenges faced by smallholder farmers. They plan to establish the world’s first digital blockchain based commodity trading and financing platform to boost agriculture in Africa.
Another notable project is by Accenture,in partnership with Mastercard. They launched a new application to educate consumers about the origin of the products they buy, as well as to help producers to track where the goods are delivered to. It tracks the movement of products until it’s received by the consumer. Interswitch and Microsoft also plan to launch an innovative blockchain based supply chain financing, De beers uses blockchain to track stones from the point they are extracted to the point they are sold to customers. Everledger- which created a diamond provenance protocol, Vechain- a Singapore based blockchain firm and many more.

‘The transparency of blockchain is crucial to allow consumers to know they are supporting companies who they share the same values of environmental stewardship and sustainable manufacturing

– Bernard Marr

Companies are exploring new ways to fix their broken supply chain systems by adopting the blockchain technology to help minimize cost and bring about efficiency. Dumping the centralized databases and paperwork in order to reap bigger benefits. Supply chain management is one of the most useful applications of the blockchain technology. Therefore we expect this industry to grow exponentially in the near term.

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1 Comment

  • Tom Birgen
    Posted April 20, 2019 5:12 am 0Likes

    Good stuff Omobolanle!!

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