Paul Sarrapy
President
AOLM Asociación de Operadores Logísticos de México
/
Expert Contributor

Blockchain: A Transparent Exchange Between Players

By Paul Sarrapy | Fri, 04/08/2022 - 09:00

Companies looking to survive and thrive in this disruptive era must evolve. Despite the obstacles, implementing a digital transformation can prove to be extremely beneficial for most supply chain companies.

Blockchain has proven to be one of the most promising technologies of our time. A shared, immutable, digital record-keeping system that facilitates the process of recording transactions and tracking assets in a business network developed mainly for cryptocurrency use could have a promising application in supply chain management. Blockchain could help supply chain players overcome some of their biggest obstacles by creating a complete, transparent, and secure history of not only information and inventory but financial flows in transactions.

While there are special requirements (restrict participation to known and trusted partners; adopt a new agreement protocol; and take steps to eliminate errors and forgeries) for the successful use of blockchain in supply chain management, the implementation of this technology could provide companies in different industries huge gains in the future.

Within the supply chain, the main function of blockchain is to allow a limited number of recognized players to protect their business operations against malicious activities while supporting a much-improved performance. Some aspects of blockchain can be programmed to trigger transactions automatically.

The advantages of blockchain include but are not limited to:

  • Trust
  • Decentralized structure
  • Improved security and privacy
  • Reduced costs
  • Speed
  • Visibility and traceability
  • Immutability
  • Individual control of data

One example is a simple supply chain transaction between a retailer, a supplier, and a bank. The retailer sources/procures a product from a supplier and the bank would provide the funds to the supplier to enable the order to be fulfilled. In this type of transaction there will be flows of information, inventory and financial assets involved. If the participants of this transaction were using a regular enterprise resource planning (ERP) system, they wouldn’t all be able to watch and track each transaction taking place, they wouldn’t be able to see the flows of funds, information and inventory happening to complete a transaction in which they all participated at some point. With the use of blockchain, the blind spots would be eliminated. The bank could see the flows of information and inventory between the supplier and the retailer and better assess future business or negotiations with the supplier.

The supplier would be aware of all the flows of information, funds, and assets between the two parties involved in this business transaction. The retailer would be able to see the flow of funds from the bank to the supplier, assuring that the order can be fulfilled from a financial standpoint.

The value of using blockchain is shown in its ability to provide all players with the visibility and tracing of all the activities (in chronological order) of any given business transaction. It captures details that are often not able to be recorded with the use of an ERP system. Blockchain is the realest form of transparency in business known to date and promises security and peace of mind for all its users, given each block of the chain is encrypted and distributed to approved participants for the transaction taking place. It is because of these advanced features that the use of blockchain provides a complete, trustworthy, and tamperproof audit trail of the categories involved in the supply chain throughout all activities performed.

When a system like blockchain is used, activities and assets, such as units of inventory, orders, loans and bills, are given unique identifiers, which serve as digital marks (like bitcoins). Additionally, participants in the blockchain are given digital signatures as unique identifiers, which they use to sign off on the blocks they add to the blockchain. Every step of the business transaction is then recorded on the blockchain as a transfer of the corresponding activity from one participant to another.

It is important to highlight that it is impossible for a blockchain participant to overwrite past data because doing so would entail having to rewrite all subsequent blocks on all shared copies (between known and approved participants) of the blockchain, thus changing the transaction completely.

In conclusion, there is vast room for improvement in the supply chain management arena. Blockchain can be a powerful tool for addressing the current deficiencies found in the supply chain process. Implementing blockchain will not be an easy transformation for most companies; it will take many years before this technology becomes the leader in supply chain management practices, but it can certainly be done if all players embrace the value it could bring to their company vision. Yes, this will require a large and costly commitment of resources but the investment promises to generate an attractive return for the leaders of pioneer companies who decide to implement it in their day-to-day operations.

Photo by:   Paul Sarrapy

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