Running supply chains in this era is extremely complicated. Based on the commodity, the supply chain can stretch over a plethora of steps, thousands of geographical locations, multiple billings, involve plenty of members and establishments, and expand over several weeks of time. These multitudes of aspects included in today’s supply chain has plagued the transportation industry. Due to complications and lack of trust on our present supply chains, blockchain technology has gained prominence over the last decade in the respected sector. On a daily basis, we see blockchain being hailed as the disruptor of one industry or the other. So, let’s take a look at the implications of blockchain in the supply chain and logistics industry and how it is set to revolutionize it.
But, let’s start off by looking at the problems the supply chain industry is combating.
The problems blockchain tackles
From conflict management to staff inefficiency, blockchain combats every problem the transportation industry faces. Here are some problems faced by the industry:
- For every invoice, a freight company has to wait an average amount of 42 days before getting paid. Plenty of companies have thousands of dollars tied up in their accounts.
- Due to heavy dependence on paper transactions, processing and admin costs have gone up by a 20%.
- 5% of medicines sensitive to temperature don’t make it past customs due to variation in temperature.
- With a majority of transportation companies having an average of lower than 6 trucks, it becomes challenging to match the demand with the supply.
How the supply chain is broken
A century earlier, supply chain networks were relatively way simpler and efficient, due to fewer geographical locations, less tedious paperwork involved and simpler transactions. However, in this day and age, supply chains have grown enormously due to global expansion.
Since the inception of the supply chain industry, this market has been subjected to constant growth and innovation. For example, in 1980s the development of personal computers significantly changed how the market operated. So, considering the number of changes the transportation industry has gone through and the global challenges it is facing today, it is evident that companies have reached a point where managing supply chains manually has become an onerous task.
For consumers to be aware of the actual price of a commodity is quite difficult due to lack of transparency present in our contemporary system. Similarly, in our current setting it becomes quite hard to inspect any fraudulent activities in such a complex supply chain. Not only would the process be extremely time consuming but also expensive.
What is blockchain and how it can revolutionize the logistics industry?
Although blockchain was brought to the forefront by bitcoin to back its decentralized payment system, it has crossed into the world of various markets and the logistics industry doesn’t remain far behind. Since blockchain is a distributed ledger where each entry is recorded on a block and distributed over many devices, it is highly transparent, removing any chances of data theft, breach or embezzlement. In addition to being transparent, blockchain is quite safe as well, as each block is connected to the one before it and the one after it. And since there is no middleman looking over all of the operations and systems, the network is quite scalable and effective. This also lowers several prices associated with the central authority and reduces overall cost significantly. Hence, if blockchain is utilized in the logistics industry, it can significantly streamline all of the operations associated with it. Chain of command is key in quite a lot of things and in blockchain the chain of command is built in.
The core ingredients that are needed to make logistics credible and efficient are provided by blockchain. Blockchain creates a space for mutual agreement which means that the room for dispute is highly decreased because all members on the blockchain get the same information. All of the members on the blockchain can see the chain of ownership of a particular product. And since the data on the blockchain cannot be removed, records are highly transparent and credible on the network.
Benefits of blockchain for the supply chain industry
- Transportation payment and conflict management
Like we mentioned before, for every invoice, a freight company has to wait an average amount of 42 days before getting paid. Plenty of companies have thousands of dollars tied up in their accounts. To be specific, everyday on average $140 billion are tied up in accounts. To put this in even simpler terms, $140 million is approximately the GDP of Hungary.
- Processing and administrative costs
Administrative costs have increased by a 20-fold due to dependence of freight companies on paper documentation.
This statistic was brought into notice when IBM and Maersk ran an experiment on a supply chain company delivering flowers from Mombasa, Kenya to Rotterdam, Netherlands.
This study showed that even delivering a simple package of flowers involved more than 30 companies and more than 200 separate conversations.
- Transportation of temperature-controlled goods
Pharmaceutical goods are temperature sensitive, which means that a slight variation in the temperature can completely ruin them. Around 8.5% of such commodities go through temperature changes, generally. Whereas in the Middle East, this number further increases to about 15-20%.
This indicates that a number of pharmaceutical shipments never make it through customs, which means not only does the commodity goes to waste, but the transportation and administration cost also goes in vain.
Use cases of blockchain in the supply chain and logistics industry
Blockchain enables people to transfer money regardless of their geographical location. As the logistic industry is no longer local, this feature especially helps individuals operating in this respective industry to send funds anywhere without any restrictions. By making use of blockchain, the Australian car manufacturer Tomcar transfers money to his supplier.
In a food market, it is crucial to have clear records connecting the product to its source. Keeping this fact in mind, Walmart utilizes blockchain to monitor its supply of pork from China and oversee its procession, storage and selling date. Blockchain is utilized for same reasons by Nestle, Tyson and Dole.
Similarly, world’s biggest mining company that goes by the name of BHP Billiton broadcasted that it will use blockchain to monitor and record data regarding mining. It declared that not only blockchain helps in streamlining internal processes but the communication with the outside vendors also becomes easier by a tenfold.
The transparency of blockchain is undeniably its most enduring allure. It makes customers know that they are dealing with companies that care about the same number of values as they do and helps the two parties develop a better, more trustful relationship. This is exactly what the project Provenance aims to provide with its blockchain record of transparency.
With early doubts pertaining to blockchain companies finally lain to rest, this technology has emerged to revolutionize the different facets of our present industries. With every industry being disrupted by blockchain, the supply chain and logistics industry doesn’t remain far behind. So, considering the above benefits this thriving technology provides, it is our best bet to look into blockchain for the respective industry.