Benefits, use cases for blockchain in the supply chain

4 benefits of using blockchain in the supply chain

Blockchain's potential benefits for supply chain management come largely from its features as a recordkeeping technology. Here are four of those specific benefits.

1. Enhanced security

While no technology is completely protected, blockchain is resistant to tampering and fraud.

Blockchain's security enables better protection for a company's data and records, such as its supply chain information, said Morvareed Salehpour, managing attorney at Salehpour Legal, a law firm located in Los Angeles with practice areas that include blockchain.

Supply chain information is some of a company's most valuable data, so the increased security can improve a company's overall operations and prevent lost revenue because of a hacking incident.

2. Reduced costs

Blockchain's real-time tracking capabilities let users spot supply chain problems more quickly, reducing supply chain disruptions.

Blockchain's real-time tracking can save companies money because it helps users avoid potentially costly supply chain issues, Salehpour said.

Blockchain can also help companies save money because it reduces the need for manual data entry and verification, which cuts down on the number of tasks employees must complete.

3. Improved supplier collaboration

Blockchain provides a unified source of information so supply chain partners are all able to view the same data.

"This makes it easier for businesses to collaborate," Salehpour said.

Supply chain partners all being able to access the same information reduces the potential for confusion over different sources for supply chain data and improves communication between supply chain partners.

4. A more objective record

Blockchain's record-keeping capabilities can potentially help companies if questions arise between a company and its suppliers over a transaction or a similar situation. A company can prove its employees carried out a certain transaction correctly or that a supplier did not accomplish a particular task.

"Having an immutable record of activity on the blockchain makes it much easier to look back [and] prove what happened," Salehpour said.

Blockchain's trail of transactions can also help improve a company's compliance with regulations and industry standards. For example, companies can use blockchain to track their sustainability efforts.

"Organizations can use their supply chain data on a blockchain to track carbon use and credits [and] monitor labor impacts," said Steve McNew, global leader of blockchain and digital assets at FTI Consulting, a business management consultancy located in Boston.

4 use cases for blockchain in the supply chain

Blockchain's features can help companies with their operations in a few specific ways. Here are some use cases.

1. Food safety and traceability

Food safety is one of the best-known use cases for blockchain in the supply chain. Blockchain enables users to see information about a food product from the beginning to the end of its lifecycle.

For example, the U.S. Food and Drug Administration's (FDA's) Food Traceability Final Rule requires that companies that produce certain items like sliced vegetables and nut butters must keep particular records for two years, said Bob Czechowicz, senior director of innovation at GS1 US, an organization that creates standards for barcodes and is headquartered in Brussels. Companies that produce those foods must be ready to digitally share certain data with the FDA during a recall if needed.

"Blockchain [can] provide a transparent, immutable ledger of that product movement through the supply chain," Czechowicz said.

2. Pharmaceutical traceability and counterfeit reduction

As with food products, traceability is an important consideration for pharmaceutical goods. Companies must be able to confirm whether medicine is counterfeit and check whether, for example, medicines are expired or damaged in shipping.

Blockchain could help pharmaceutical companies reduce costs in the event of a problem with a product because blockchain's record-keeping capabilities can help identify which specific product is defective, potentially avoiding the need for a full recall, Salehpour said.

3. Verifying product authenticity

Blockchain's record-keeping capabilities can also help companies prove the origin of their products if any dispute arises. This feature could be valuable in certain industries in which the provenance of an item is extremely important.

For example, a company that sells gold can use blockchain to share each step of its mining process and the production following the mining, said Kevin O'Marah, co-founder of Zero100, a membership-based research organization for global operations and supply chain leaders which is located in London.

4. Supplier management

Blockchain can also help companies maintain records of their suppliers more easily.

Companies can use blockchain to bring new suppliers on board and track their lifecycle within the company, McNew said. This capability also helps companies remain compliant, as some laws, including the German Supply Chain Act, require organizations to document certain information about their supply chain partners, such as the partners' employment practices.

Challenges of using blockchain in the supply chain

Blockchain can offer companies some benefits for its supply chain operations, but the technology has some drawbacks as well.

1. Data quality

One potential issue is data quality, Czechowicz said.

"The blockchain system used will only be as good as the data it is leveraging," Czechowicz said. "Focusing on data quality, completeness and accuracy could help to ensure the reliability and effectiveness of blockchain technology."

2. Interoperability

Interoperability can also be an issue with blockchain technology, according to the 2023 report "Using blockchain to drive supply chain transparency" by Wendy Henry, Erik Chen, Rachana Kathawate and Josh Coulter of Deloitte.

"As blockchain technology continues to mature, its networks will require universal interoperability standards," according to the Deloitte report. "Those will help ensure compatibility across different types of blockchain platforms and decentralized applications as well as existing legacy technological ecosystems."

3. Data security risk

As with any technology, blockchain also comes with potential security problems that supply chain leaders must guard against.

Some of the potential security issues that accompany blockchain include companies' lack of knowledge about blockchain security updates and the practice of storing cryptographic keys -- an important component of blockchain -- on a computer, which leaves the keys open to bad actors copying them.

Supply chain leaders must learn about blockchain's security vulnerabilities before implementing the technology.

Pam Baker is the author of eight books and hundreds of technology articles published in leading online and print publications. She is also a speaker and industry analyst and a member of the National Press Club, the Society of Professional Journalists and the Internet Press Guild.