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Blockchain in Supply Chains

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Distributed Ledger Technology for Supply Chains

Imagine a situation where you quickly need to know where parts in a certain product have been sourced from. Or who supplied and when a certain food item. In our current world the information lies across several systems and probably a bunch pf paper documents as well. It becomes a nightmare to get at the source of the information and respond with remedial measures especially when there is a life and death situation that warrants immediate action. And if the supply chain is global that becomes even more challenging especially when it is complex and multi-country and multi-echelon.

Now imagine you can see all the required information in an instant in a permissioned distributed ledger which is comprised of only admitted participants of a supply chain. You can see all the transactions related to a specific identified SKU and every stage in its evolution from component to sub assembly to FG and then through the distribution chain of wholesalers, distributors, retail outlet and all warehouses in between, to the final consumer. It creates a competitive advantage and risk mitigation that is an order of magnitude better than what current systems are capable of. So, what is a distributed ledger, aka blockchain, anyway? It is a data structure that is replicated and resides on many computers on a network spread across regions and countries.

When you look at current commercial enterprise planning systems, these are isolated islands within the specific organization’s business eco-system. Granted there are some Supply Chain Control towers, b-to-b visibility systems etc that provide some degree of visibility across organizations. Most of them are focused on current transactions where decision making is involved. Rarely do they maintain a long history and act as systems of record. The ability for one organization to see what’s happening inside another organization’s systems is generally very limited. Also, with Supply Chain Control towers, there is one central location for aggregated data. A blockchain reverses that with distributed databases that are decentralized and synchronized through a consensus mechanism.

This is where a distributed ledger will have a big impact on traceability and risk mitigation in global supply chains, especially in highly regulated industries such as pharmaceuticals, medical devices, food and beverage, chemicals etc. In addition, the fact that it is not only traceability but much improved real time visibility across all participants that is a major plus. DLT’s major advantages over the previous generation of information sharing is the consensus mechanism across participants in the blockchain. This also adds immutability where changes to the distributed ledger are not possible without the consensus of all participants, which is the foundation of a trust-based system.

There was a time when international trade transactions could only be done with a letter of credit and had to be presented to the bank with a Bill of Lading or Airwaybill on shipment. Now with a smart contract in a blockchain, which is essentially a program imbued with specific business logic that executes when certain conditions are met and validated by the participants, the dreary job of typing out LOC and BOL and documenting them for payment becomes an instantaneous transaction on execution. The bureaucratic friction in the process is eliminated with a trusted and transparent process to facilitate the transfer of assets across the supply chain.

There is an exciting new world of seamless validated transactions that will grease the wheels of international and domestic trade transactions. Much work remains to be done to make it simpler and less complicated in terms of computing power. Also, one can argue on how long it will take to mature. But based on the amount of activity going on in this space, it can only be a matter of years when these processes become embedded in global supply chains.