How Blockchain Innovations Can Help Improve Supply Chain Issues
A supply chain describes the flow of resources and funds through different entities to provide a finished product or service. Some supply chains are very simple: a farmer grows food and sells it at a farm stand or farmer’s market. A consultant conducts research and provides advice for a business. But for most companies selling a product or service, it’s a lot more complicated than that.
On average, supply chains have never been more complex. Now that our world is so heavily globalized, the links in a supply chain could easily stretch around the globe several times, depending on the product. We rely on a huge number of different companies and individuals to get the products we rely on safely into our hands.
Unfortunately, the pandemic has further complicated this already delicate ecosystem. Supply chain issues are affecting nearly every industry and causing volatility in the products that are available and their prices. While there are some supply chain issues that simply don’t have easy solutions, others can be improved with the help of technology, specifically blockchain innovations.
Types of Supply Chain Issues
Volatility in supply and demand is the driving force behind the majority of pandemic-related supply chain issues. During the first 6 months of 2021, supply chain issues were up 638% from the year before.
At the beginning of the pandemic, people stocked up on essentials, causing shortages. Once the market relaxed and people started using up their stockpiles, demand fell. Additionally, stay-at-home orders slashed production and made it difficult for businesses to keep products in stock.
Manufacturers can’t endlessly produce products—there simply isn’t time, money, or storage to do so. Perishable products will go bad if too much is produced. Therefore, predicting the demand for a product is a constant need in supply chain management. Data processing has become an important tool for minimizing waste and keeping products in stock.
Shipping delays are another major issue in the global supply chain. Weather, which is becoming more extreme due to climate change, port disruptions, lack of shipping staff, and even canal blockages, are all common reasons shipments get delayed. These delays can compound if multiple links in the network are affected. Data is also used to help reduce delays and better predict shipping times.
Other supply chain issues, such as contamination, aren’t so easily solved by technology alone. The U.S. baby formula shortage, for example, was caused by a combination of factors involving a recall for bacterial contamination, pandemic volatility, and FDA regulations making it difficult to import formula when it was needed the most.
While technology can’t control bacterial contamination, it can help by smoothing out other issues within the supply chain and minimizing preventable disruptions that lead to shortages. Data could also make it easier for companies to plan in the future when a crisis like the COVID-19 pandemic affects the market.
Blockchain Technology In Supply Chains
A blockchain is often described as a digital ledger. It records all transactions in the ledger, which is decentralized. Instead of all the information remaining in one central location where it is vulnerable to theft and fraud, the transactions are recorded across all copies of the ledger. This makes it much harder for anyone to tamper with the information.
Blockchains were originally developed for anonymous transactions to transfer cryptocurrency. In those networks, everyone can see each transaction, even if the participants are anonymous. In supply chain blockchain networks, however, the relationships are more limited. Only certain parties can make transactions with one another.
How Blockchain Networks Can Help
While some companies choose to shorten their supply chains and remove links as much as possible, this isn’t always the best choice or even realistic. Instead, many are choosing to use technology solutions like blockchain innovations to reduce friction within their complex supply chains.
Some of the most compelling reasons for companies to use blockchains for their supply chain management is that they can be more efficient and transparent. Because a blockchain is more secure than traditional management systems, there is built-in accountability. This means that making supply chains more ethical and sustainable is a lot easier.
Companies can also save money using a blockchain system. Because these systems are more efficient and involve less waste (in time, paperwork management, and stock loss), corporations can reduce their costs and losses which benefits everyone in terms of price and availability.
Many large corporations in the United States are already using blockchain technology for their supply chains or at least testing out how the technology might benefit them. FedEx and Walmart are two of the biggest players testing out these innovations.
Supply chain blockchains are being spearheaded by some of the largest tech companies, including IBM. With all of the benefits they have to offer, more corporations are likely to switch over their supply chain management in the coming years. This would benefit everyone, including the consumer.
Potential Issues with Blockchain Technology for Supply Chains
Although there are many benefits to using blockchain innovations for more robust supply chains, there are some potential issues to consider as well. Trusted partners are important, as they are in any supply chain relationship. It’s also important to ensure that there is shared value for the participants—what does each link get out of the new process? Without these elements, a blockchain supply management plan is unlikely to be successful.
Though a blockchain can save money for companies, there are some costs involved with running the system. Companies need to calculate the costs and benefits to decide if a blockchain is the best option for the supply chain management.
Making Supply Chains More Reliable with Technology
We’ve seen just how dangerous it can be when supply chains are disrupted. 2022 has already seen a dire shortage of infant formula in the United States, and shortages of other true essentials are always a threat. When your favorite tea is out of stock, it’s a disappointment. But when you can’t feed your child, it’s a crisis.
The pandemic and other supply chain crises have shown us just how fragile the system can be as it gets bigger. Everyone has experienced some disruption in the products they usually buy over the last year or two.
Any disruption in the network can lead to mass shortages that are hard to overcome. Blockchain technology can help us reduce the number of failure points in a supply chain and make it easier to ensure that essential items will remain in stock. Hopefully, we will learn from this experience and leverage technology to prevent supply chain crises in the future.