What is supply chain management blockchain and how does it work?

Supply chain management (SCM) blockchain refers to applying blockchain technology to various supply chain operations to improve and streamline them. A supply chain is the path via which products, data, and funds go from raw material suppliers to producers, distributors, retailers, and end users. Multiple middlemen, manual procedures, and fragmented data are common in traditional supply chain systems, which can cause inefficiencies, mistakes, and delays. By providing a decentralized, transparent, and secure platform for managing and recording supply chain activities, blockchain technology provides a solution to these problems.

Before digging into how supply chain management with blockchain works, let's have a brief overview of supply chain management.

Supply chain management

Supply chain management (SCM) is the term used to describe the coordinated and integrated management of all processes involved in the creation, acquisition, transformation, and distribution of goods and services, starting with the procurement of raw materials and ending with the final consumer. It aims to maximize the movement of resources, data, and money throughout the entire supply chain network to guarantee that goods are produced and delivered effectively, affordably, and of the desired quality.

An illustration below is given to understand the concept better, showing material and information flow in supply chain management.

Understanding supply chain management with blockchain

Supply chain management involves a complex network of entities, including suppliers, manufacturers, distributors, retailers, and consumers. Traditionally, this network relies on disparate systems and manual processes, leading to challenges such as lack of transparency, data inconsistencies, and difficulty tracking and tracing products. Enter blockchain technology—a decentralized and immutable digital ledger that records transactions transparently, securely, and tamper-resistant.

How does supply chain management work with blockchain?

Let's find out how supply chain management works with blockchain.

1. Decentralization and consensus: Blockchain operates on a decentralized architecture, meaning no single entity has complete control over the network. Instead, multiple participants, often called nodes, validate and record transactions. Consensus mechanisms, such as Proof of Work (PoW) or Proof of Stake (PoS), ensure agreement among nodes before adding new transactions to the blockchain.

2. Digital ledger: In a supply chain context, each transaction or event – such as the creation of a product, its movement between locations, and its sale – is recorded as a digital “block.” These blocks are linked together chronologically, forming a chain of information. Each block contains a cryptographic hash of the previous block, creating a secure and tamper-resistant connection.

3. Transparency and traceability: One of the most significant advantages of using blockchain in SCM is its ability to provide end-to-end transparency and traceability. Every participant in the supply chain can view and verify the details of each transaction, from raw material sourcing to the final product's delivery. This transparency reduces the risk of fraud, counterfeiting, and unauthorized changes to data.

4. Smart contracts: Blockchain can execute self-executing smart contracts – programmable scripts that automatically trigger actions when specific conditions are met. For example, a smart contract could automatically release payment to a supplier once a shipment is confirmed as delivered.

5. Data integrity and security: Blockchain's immutability ensures that once a transaction is recorded, it cannot be altered or deleted without consensus from the entire network. This feature enhances data integrity and prevents unauthorized modifications, providing a trustworthy source of information for all stakeholders.

6. Efficiency and automation: By digitizing and automating processes through blockchain, SCM can become more efficient and streamlined. Manual reconciliation, paperwork, and communication delays are minimized, leading to faster decision-making and reduced operational costs.

Real-world applications

Several industries have started leveraging supply chain management with blockchain, but a few major are as follows:

• Food safety: Blockchain enables the tracking of food products from farm to table, enhancing food safety and traceability. Consumers can access information about the origin and journey of their food, reducing concerns about contamination and fraud.

• Pharmaceuticals: Blockchain helps combat counterfeit drugs by verifying the authenticity of pharmaceutical products at every step of the supply chain. This is particularly crucial in ensuring patient safety.

• Logistics and shipping: Blockchain streamlines the documentation and tracking of shipments, reducing paperwork and enhancing visibility into cargo movements, leading to faster customs clearance and reduced transit times.

Conclusion

Supply chain management with blockchain offers a revolutionary approach to improving transparency, traceability, and efficiency across various industries. By providing a secure and tamper-resistant digital ledger, blockchain technology has the potential to transform traditional supply chain practices and create a more interconnected, trustworthy, and agile global supply network.