Blockchain has been most commonly known as the technology on which cryptocurrencies are based. However, it offers much more than that.
Blockchain provides a secure means of guaranteeing three things that have previously required intermediaries: that an agreement has been executed, that value has been transferred, and that the resulting records are consistent. This has huge implications, not least for the supply-chain sector, establishing it as one of the most significant use cases of blockchain technology.
According to the Hackett Group, 94 percent of supply-chain leaders agree that blockchain will enable a digital transformation that upends traditional supply-chain management. Yet only 44 percent have a practical strategy for enacting such disruption. Business leaders today face the challenge of making blockchain practicable, while also convincing other suppliers and industry players of its real value.
Five industries, in particular, are ripe with anticipation:
Pharmaceutical: In order to sell prescriptions in the U.S., pharmaceutical companies will need to serialize each unit. The shipping of regulated products will be prohibited without a National Drug Code (NDC), serial number, lot number, and expiration date. The requirement is a result of the 2013 Drug Supply Chain Security Act (DSCSA), enacted to protect supply chains from counterfeit medicines.
Food: Both buyers and brands want to be sure that ingredients have been responsibly sourced. Manufacturers are keen to pinpoint issues in the food chain to reduce the spread of food-borne illnesses, while avoiding the massive losses for retailers and suppliers associated with a recall.
Apparel: With the rise of ethical fashion, customers today want to know more about where their clothes came from and who made them. As a result, retailers want to prove that they’ve sourced their materials in a trustworthy way. Brands also want to show that they are sustainably sourcing materials, for example by increasing the number of organic materials.
Luxury: In luxury markets, authenticity is king. Luxury brands need to be able to prove a product’s legitimacy. Some are going as far as destroying whole lines of their own product when they are too closely counterfeited. Blockchain technology provides a superior alternative which allows brands and consumers to track and trace the provenance of their goods.
Aviation: Companies in this sector need to be able to track all of their parts, and know that they’ve passed all security and safety checks. They also need to be able to track each plane route and its associated financials throughout the year.
With blockchain technology, these industries now have the ability to provide full transparency to their customers, from where their materials came from to their authenticity and safety.
The disconnect between business-leader support and a lack of workable solutions calls for some specific approaches that can be most effective in enrolling your supply chain on a blockchain.
Demand it from your supply chain. Depending on your relationship with your suppliers, you might be able to simply ask them to adopt blockchain technology. If this is the case, the next step is telling your supplier which blockchain platform they should use, and agreeing on a date for when they will provide all the data required for that blockchain. For example, by this time next year, Walmart and Sam’s Club will ask suppliers of leafy greens, such as romaine lettuce and spinach, to implement food traceability via IBM’s blockchain technology focused on the global food supply chain.
Persuade your suppliers. Perhaps the most effective route to adoption involves two things: clearly showing your suppliers how they will benefit from using blockchain, and providing them with easy and inexpensive means of participating.
Greater efficiency, transparency, compliance, cost savings, liquidity, speed: most of what matters in supply chains are improved by blockchain technology that has been correctly implemented. The key is to unpack each benefit clearly for your supplier audience.
Making it easier to onboard your supply chain might also come down to simplifying data entry. Walmart and IBM found that a range of approaches, from paper to Excel spreadsheets to sophisticated enterprise resource planning (ERP) systems, would be needed for uploading data to the blockchain.
Many suppliers lack sophisticated technology solutions, especially those on a lower tier of the chain. Enabling your suppliers to upload their data to your designated blockchain application removes a lot of friction, and makes it that much easier for suppliers to greenlight the blockchain.
Give your supply chain a tangible benefit for adopting blockchain technology. The reality is that a blockchain project might be something outside the normal investment range of your suppliers, especially those with ERP systems in place. For some, it doesn’t appear to provide a short enough payback period to be compelling in the boardroom. The complexity of the typical ERP project might present more of a barrier to adoption than an incentive. That being the case, suppliers can be incentivized with discounting, shorter payment schedules and related financial benefits that encourage them to adopt the onboarding process.
Today’s supply-chain players don’t need to imagine what might be possible. Solutions are emerging that reconcile items on the industry’s wish list with technological reality.
When it comes to trade finance, you have lots of options. For example, in return for blockchain adoption, you can offer your suppliers better liquidity at rates lower than traditional trade financing, or perhaps faster payment of their invoices without having to pay them earlier yourself.
Or you can proactively solve one of your supplier’s biggest headaches by suggesting a solution that can be fully automated, while allowing them to remain owners of their accounts receivable.
Another proverbial carrot might be a solution that doesn’t just benefit your supplier, but can be extended to the suppliers of your supplier.
Nobody wants to get paid less than they’re due or wait longer than necessary, especially when the cost of capital is anything but cheap. With this in mind, what about offering your suppliers more reliable, faster payment rails that help them save on FX fees while reducing risk for them and their suppliers?
Through a B2B loyalty scheme, you can reward regular buyers and sellers so that the interests of all involved parties are aligned.
When the first customer contacted the first vendor on the world’s first modern supply chain, it probably began, as most trades do, with enquiry. That’s no less true for the new generation of supply-chain leaders – albeit in a different form, one that researches far and wide to see what’s possible. Ultimately, progress will come from such enquiries, and the seeking out of unexplored options.
Scott Nelson is CEO and chairman of Sweetbridge, an open-source project for financial and economic activity.
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