Supply Chain Council of European Union | Scceu.org
Technology

Blockchain Technology for Supply Chains: Who Is Using It and How?

While cryptocurrencies and NFTs tend to dominate the headlines when it comes to digital currencies and their associated technologies, some of the most impactful innovation is in the Blockchain Technology market, which is expected to enjoy a compound annual growth rate (CAGR) of 86% from 2022 to 2030, according to Grand View Research. As companies contend with supply chain challenges and margin pressures from inflation and rising labor costs, Decentralized Ledger Technologies (DLT) are reinventing operations, reducing costs and validating sourcing while improving turnaround times and customer service. In this week’s World Reimagined, we will discuss what companies are doing with this technology and what it could mean for consumers and investors. 

According to Grand View Research’s latest report on blockchain, the “infrastructure and protocol” segment dominated the market in 2021 and is expected to enjoy significant growth going forward. While much of the headlines when it comes to this space have been about Beeple bubbles and the like, the technology that powers NFTs and digital currency is completely upending how companies operate and interact. Over the past year, we have seen Blockchain Technology and the broader Decentralized Ledger Technologies enable revolutionary changes across a wide range of industries. Today, we will discuss its application in supply chain management, another topic that has been in the headlines for being a colossal headache, driven by pandemic restrictions and now Russia’s invasion of Ukraine.

First, let’s define the problem

Supply chain management is notoriously complex, often involving multiple information systems inter- and intracompany that were each built as standalone platforms and as such, cannot communicate with each other, requiring manual reconciliations, which are time-consuming and labor-intensive. These are necessary as there are often significant data disparities involving things like purchase orders, bills of lading, invoicing, etc. Don’t even get us started on the complexity of simply knowing where something is at any point in time or where an item has originated, or if there is some unexpected delay or damage to a shipment. 

Why DLT? 

Cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), and Solana rely on decentralized ledgers, which record and protect transaction information shared across multiple entities, enabling unlimited and unspecified parties to transact without an intermediary. When using DLT in supply chain management, every participant is assigned a unique digital identifier. Instead of minting cryptocurrencies, these supply chain blockchains “mint” transaction “tokens,” each with unique and easily verifiable identifiers for things like purchase orders, inventory units, etc.

So why is that a good thing?

What this does is increase visibility across the entire supply chain with a shared and incontrovertible record of all transactions that everyone can read. In addition, the use of smart contracts that are predominately featured on the Ethereum and Solana protocols (but not Bitcoin, sorry) can alert participants in real-time when pre-defined conditions are met. This can increase the resiliency of the supply chain, giving participants the ability to quickly react to unanticipated events that could otherwise trigger a domino effect. For example, a smart contract could immediately alert a company if a specific shipment does not arrive at a specified place by a specified time. The creation of an unalterable record can also accelerate the onboarding of new suppliers, which can help to reduce costs and improve resiliency.

Sounds great in theory, but who is doing it, and does it really work? 

Walmart (WMT) Canada partnered with DLT Labs to create a blockchain solution for managing invoices from and payments to its 70 third-party freight carriers. The magnitude of the data involved was “immense,” according to the Harvard Business Review article on the project, as the company delivers over 500,000 shipments annually using its own trucking fleet and third-party carriers and needs to track over 200 data points in those invoices. Prior to the blockchain solution, 70% of invoices required reconciliation efforts, which meant higher transaction costs and delays in payment to carriers. Given the shortages we’ve been reading about in carrier capacity, no one wants to irritate their shipping partners these days. Following the full rollout of the blockchain solution, invoice discrepancies dropped from 70% to less than 1%, and any problems were easily flagged and quickly resolved, which means carriers get paid on time. According to DLT, the project’s ROI was just three months, a rather remarkable feat.

That isn’t all that Walmart is doing with blockchain. With foodborne illnesses and disease control becoming an increasingly bigger concern, Walmart Technology uses the IBM (IBM) Food Trust platform, which was built using Hyperledger Fabric. This blockchain-based food traceability system has cut the time it takes to find specific data on food items from 7 days to just over 2 seconds. This allows the company to respond much more rapidly and effectively to any potential problems. 

Walmart is not the only one using this technology to improve shipping. The world’s second-largest container shipper, A.P. Moller-Maersk (AMKBF), co-developed its own TradeLens blockchain with IBM to optimize cargo logistics. There are now around 250 ports and 20 ocean carriers using the technology. In 2021 it handled around 1 billion shipments and around 30 million containers.

Cross-border transactions can also make for supply chain headaches. Here too, blockchain technology is implemented to make massive improvements. The world’s second-largest bank, China Construction Bank (CICHY), has processed over $140 billion worth of transactions on private blockchains, including its more recent product, EasyPay, which is designed to make paperwork-intensive transactions easier, reducing audits and generating fewer errors. Total settlement time for cross-border transactions has been reduced from two days to around ten minutes. 

Blockchain technology is even being deployed in ways that could reduce our impact on the environment. In April, the water purification company Botanical Water Technologies is launching a trading platform using Fujitsu’s (FJTSY) in-house distributed ledge technology that will allow cola makers, sugar mills, and distilleries to sell or reuse the water they would normally discard during production. The platform will trace the water as it is purified, sold and delivered.

Deloitte estimates that by 2030, electric vehicles (EVs) will account for around 32% of the total market share for new car sales, growing from 2.5 million in 2020 to 11.2 million in 2025 to 31.1 million by 2030. But EV batteries use cobalt, and in 2021, around 70% of the world’s cobalt supply was mined in the Democratic Republic of Congo, a war-torn nation known for human rights abuses, including child labor. Many of the world’s largest EV manufacturers, including Volvo (VOLAFand Mercedes-Benz (DMLRY), have signed up for Circulor, a blockchain-enabled platform powered by Oracle (ORCL) Blockchain Platform, to trace the provenance of such high-risk, conflict area raw materials to prevent the exploitation of people and natural resources. 

We’ve also been hearing a lot about supply chain nightmares for the auto sector. The French auto giant Renault (RNSDF) launched blockchain platform Xceed to track thousands of auto parts that are used in every vehicle manufactured in sixteen different factories across Europe.  This technology will allow the company to rapidly notify suppliers if any part they have provided is not in compliance with the specs, saving weeks of time on audits and reducing the impact on time to completion. By 2024, the company hopes to have at least 3,500 of its suppliers on board with the system to track every single one of its over 6,000 regulated car parts. It is well on its way, with Faurecia (FURCF), one of the world’s largest makers of automotive interiors, already on board. 

The bottom line is that while the future and utility of cryptocurrencies and digital currencies continue to be debated, the underlying technology that makes them possible is making enormous improvements in supply chains at a time when they are struggling more than at any other point in recent history. This technology is helping to reduce costs, improve safety, and even help preserve the environment, and that is a world worth reimagining.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Related posts

Snoonu acquires major Omani food delivery platform

scceu

Online Banking Market Is Likely to Experience a Tremendous Growth in Near Future

scceu

[Year in Review 2019] Top startup ‘Turning Point’ stories our readers enjoyed this year

scceu