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4 ways to use blockchain in the supply chain
As blockchain technology enters its 11th year, its use in the supply chain is burgeoning. Here are some of the areas that are garnering the most interest.
The supply chain has become a powerful differentiator in the age of demanding customers and global complexity. To address this challenge, many companies are turning to next-generation technologies, including blockchain.
Blockchain -- often used in conjunction with IoT sensors -- has the potential to create greater visibility and ensure trust. Here's a look at four of the top use cases for blockchain in the supply chain.
1. Fight supply chain fraud
Proving you're giving customers what they paid for is one of blockchain's biggest draws.
"While there are many appropriate use cases for blockchain in the supply chain, the most common is product provenance, which is tracking the authenticity and integrity of a product," said Andy Stinnes, venture partner at Cloud Apps Capital Partners, based in San Francisco.
The returns process is a prime example of where counterfeited goods can be laundered and, thus, overlooked by traditional authentication processes, said Deborah Barta, senior vice president of innovation and startup engagement at Mastercard, based in Purchase, N.Y.
For example, if a luxury consumer brand sells an expensive item through a third-party department store, the risk of theft and fraud exists throughout the global supply chain, Barta said. A convincing fake might not be detected at the point of sale. As a result, information regarding the item's return might not be shared between the brand and the store, and the item might be unwittingly resold to another customer.
The creation of an identity of things is gaining popularity as a way to combat these illegal activities. Using unique IoT identifiers in conjunction with blockchain, supply chain stakeholders can track legally manufactured goods from creation to sale and beyond, and counterfeiters are blocked from slipping their fake wares into legitimate channels.
"Consumers could use a mobile app to view the authenticity of a luxury item, with traceability details provided by brands that include up-to-date information on the item's last-known whereabouts and maintenance history," Barta said.
A number of companies are testing blockchain for traceability in this way, from food industries to the diamond industry.
As for Mastercard Labs, the company has created of its own provenance blockchain to ensure product quality and authentication for its customers.
"We're using our blockchain ... to power multiple use cases," Barta said.
2. Ensure an ethical and sustainable supply chain
Today's customers are savvy and demanding, and brand trust factors into decision-making. Customers tend to reward triple-bottom-line companies, and the supply chain bears the brunt of many social responsibility needs.
"Blockchain provides the ability to trace the source of goods and adds the transparency needed to ensure an ethical and sustainable supply chain," said David Deputy, director of strategic development and emerging markets at Vertex, based in King of Prussia, Pa., and president of the Accounting Blockchain Coalition.
This blockchain use case is driven by customers' increasing distrust of businesses, Deputy said.
Organizations such as UNICEF are testing blockchain to help ensure social responsibility and other sustainability issues.
3. Eliminate the middleman
David DeputyDirector of strategic development and emerging markets, Vertex
When it comes to promising use cases for blockchain in the supply chain, some point to smart contracts -- or cryptocontracts. These contracts run on blockchain and enforce agreements.
Blockchain should help increase the speed and efficiency of the supply chain, and digitizing the supply chain removes frictions and middlemen in financing, Deputy said. With no letters of credit or invoices in play, he said he believes costs drop, which is one reason companies turn to blockchain.
As invoicing becomes digitalized, it is automated and synced with validated deliveries and quality checks. Likewise, suppliers should be rewarded with faster payments.
Suppliers are able to extend credit to buyers and receive near-instant payment on their approved invoices, said Michael Yuan, a technologist and chief scientist at CyberMiles, a public blockchain protocol based in Hong Kong. Buyers are then able to receive extended invoice due dates, which can be double the original length of time.
Smart contracts are a boon for supply chain management, as they are meant to increase transparency, ensure proper authentication, limit fraud and eliminate unnecessary middlemen from the process, Yuan said. The result is savings for buyers, suppliers and end users.
Blockchain tested to combat pirated goods
In 2016, pirated and counterfeited goods accounted for 3.3% of all global trade, or $509 billion, according to a 2019 report from The Organisation for Economic Co-operation and Development (OECD). Counterfeited goods have high costs, from stolen profits to loss of lives.
In 2013, Congress enacted the U.S. Drug Supply Chain Security Act. Current pilot programs are testing an electronic, interoperable system to support drug supply chain, and blockchain testing is among those.
In 2016, the counterfeit trade in the European Union was 6.8% of imports from non-EU countries -- up from 5% in 2013, according to the OECD report. The OECD, a global policy forum with over 100 member countries, said these figures don't include domestically produced and consumed fake goods, or pirated products sold on the internet.
4. Go paperless
Many steps along the supply chain are paper-based, and blockchain is one technology that can help digitize transactions.
A number of documents are required in global trade. Products shipped via ocean freight are assigned a bill of lading, and many international trades are backed by a letter of credit to lower risk and inject liquidity. Blockchain technology helps eliminate the need for paper documents and replaces them with a trusted electronic equivalent. This option is meant to increase efficiency by removing the waiting times that occur when documents have to catch up with physical goods.
The following use cases are examples of lesser-known, modern-day deployments, according to Jitendra Thethi, AVP of technology and innovation at Altran -- formerly Aricent -- a global design and engineering consultancy.
- First article inspection. Blockchains can validate the supply of goods as per specifications at the point of inspection.
- Tolerance management. Quality checks are reported and qualified via blockchain, allowing manufacturers to make informed decisions and be confident that the correct components have been fitted.
- Waste disposal. Blockchain provides traceability of scrap parts and waste disposal across the supply chain. This is especially useful when meeting environmental regulations and boosting green credentials.
- Software. The quality matrices and DevOps practices followed within the software development lifecycle are tracked.
- Digital twins. Assets are tracked, monitored and controlled as they change ownership, configuration and usage across the supply chain.