Supply chain is one of the fastest evolving industries, with new technologies constantly disrupting companies, operations and processes every single day.
The first enterprise resource planning (ERP) systems were introduced back in 1974. Inventory management, shipping, trading, product creating and buying materials are some of the oldest known human activities. E-Commerce standards were released more than 35 years ago, followed by web browsers, offshoring work with high-bandwidth data connections, robotic process automation (RPA). Blockchain is set to be the next innovation to transform the supply chain industry.
Before discussing how blockchain technology will be revolutionary, the issues that the industry and global supply chains face needs to be addressed first. One of the most pressing issues is ‘the hall of mirrors’ effect, which Accenture has taken a look at here.
When a buyer sends a purchase order, a confirmation is received, delivery is scheduled, advanced shipping notifications may be prepared with all of the pallets, loads and serial numbers involved. Transport orders, bills of lading and certifications are also included.
The issue is that both parties involved will have identical copies of everything, from emails to paper copies. These ‘mirror images’ create a complex, desynchronised system, where it is difficult to establish which documents are originals, and who holds what information.
Where does blockchain come in?
If, instead of sending copies upon copies of transactions, purchase orders, inventory receipts, documents and more to every member of the supply chain, transactions were all stored in one centralised place, this complexity will be simplified massively.
A ‘master ledger’ could contain purchase orders, inventory receipts and more, but can only be accessible by permitted members. This ledger must be tamper-proof, and only parties writing valid transactions into it must be permitted to do so. This is where blockchain technology comes into play.
Blockchain has the potential to eliminate all of this complexity, replacing it with a simplified trail of transactions, verified by third parties. This information is maintained over a lifetime of relationships between two parties in a supply chain.
This technology also has the capacity to remove bad transactions through the use of smart contracts. The smart conditions contain a strict, set out list of terms and conditions that don’t just act as statements. If a condition is not met during a transaction, it will not be recorded, ensuring nothing out-of-balance occurs.
Moving to a single system of record, which blockchain is, means just one access point needs to be generated for each partner. Each partner has the entire chain replicated, but the need to a unique implementation for each partner is eliminated, therefore closing the ‘hall of mirrors’, and removing significant amounts of complexity.