Over the past few decades, supply chain management has benefited immensely from technological advances that have made it easier and faster to transport cargo from one place to another. However despite these advances, supply chains continue to face challenges when it comes to tracking cargo, ensuring the integrity of cargo and holding members of the supply chain accountable for cargo, as it moves from one participant in the chain to the next. Blockchain has the potential to alleviate these core challenges afflicting supply chains while dramatically improving efficiencies in supply chain management.
The Blockchain Advantage
Blockchain employs distributed ledger technology to create a digital environment in which participants can engage in transactions without a central authority. Blockchain relies on a peer-to-peer network that uses cryptography to verify identities, approve transactions and create permanent and immutable records. Blockchain operates on consensus—no single participant can modify or delete a record in the blockchain without consensus from the network. The advantages of blockchain include: speed in transactions, no intermediary delays, upfront identification, the ability to create programmable contracts, visibility into records representing rights or ownership, the ability to select tiered levels of privacy, the ability to embed trust rules inside transactions, and resiliency against cyber attacks since there is no central point of failure.
Blockchain for Supply Chain Management
Supply chain management is a natural application for blockchain. Transparency, traceability, integrity and accountability, all of which are core challenges for supply chains, are part of the design of blockchain itself—trust and integrity are built into blockchain.
Blockchain allows for visibility into transactions based on a participant’s level of permission. In the case of a supply chain, blockchain can provide each member of the supply chain with the ability to see every transaction that involves the relevant cargo. Every participant in the blockchain can view the cargo’s journey in the supply chain based on the permanent and immutable records that are created during its transit. This level of transparency afforded by blockchain can be leveraged by supply chains to target fraud, errors, and tampering, and improve efficiency more broadly. Blockchain’s distributed ledger tracks information in real time which allows participants in the blockchain to obtain information on demand. Blockchain provides proof of quality, proof of identity, time-stamping and proof of location along every touchpoint in the supply chain.
In complex supply chains, cargo may be transferred 30-40 times before it reaches its final destination. Cargo may be transferred between and among manufacturers, governments, customs brokers, freight companies, air/ocean carriers, land transportation services and more. Blockchain can be readily applied to supply chain management to assist with the following tasks:
- Entering into transactions/agreements to transport cargo between manufacturers, vendors, suppliers and intermediaries;
- Documenting purchase orders, change orders, invoices, receipts and other accounting, financial and tax documentation;
- Demonstrating and verifying that approvals and certifications relating to the quality of cargo are in place at any given time;
- Record-keeping to satisfy legal compliance obligations and to minimize business risk as cargo travels through the supply chain; and
- Reporting on any touchpoint in the manufacturing and shipping process, including assembly, maintenance and delivery phases.
Legal Considerations
There are several legal issues that organizations should consider before using blockchain, or distributed ledger technology more broadly, for supply chain management. Organizations should consider the enforceability of blockchain-based transactions/agreements, privacy and data protection laws, cybersecurity risks, transportation/logistics regulatory requirements, onus of liability and responsibility, dispute resolution mechanisms to settle blockchain disputes, and the enforceability of awards against foreign entities. As laws and regulations continue to evolve to keep pace with this cutting-edge technology, it is critical that organizations stay informed of new developments.
