It's become easier to source products, production, assembly and financing from all over the globe. And that has made tracing transactions—an important part of supply chain strategy—more problematic.
Think about it: If you're buying digital cameras from Japan, do you know for sure that the entire camera was made there, or do parts come from Thailand or China?
As supply chain strategy evolves to cope with the increasing complexity of global trade, businesses need better ways of tracking where and how goods are produced, moved and acquired.
And that's exactly what blockchain can do.
What Is Blockchain?
Basically, blockchain is a secure database or ledger that's distributed to users who have an interest in a given transaction. Producers, distributors and purchasers of a product all share access to a database that records every step of the transaction. Users may look up data or may add to it, but they may not delete it.
While blockchain was initially developed for recording financial transactions like Bitcoin, its applications are much wider, which may have huge implications for supply chain strategy.
It can be hard to wrap your head around the ways in which blockchain works, so let's look at an example.
In early 2018, the World Wildlife Foundation, along with several partners, introduced an initiative in which blockchain will be used to track tuna caught in Pacific Islands' waters to be tracked from the shipping vessel all the way to your grocery store.
Being able to trace a product from farm to table or from factory to delivery truck can help make your supply chain strategy more powerful.
This use of blockchain makes the Pacific tuna business transparent, reducing the likelihood of mislabeled seafood ending up on your plate.
How Is Blockchain Affecting Supply Chain Strategy?
Blockchain effects are just beginning to become apparent, but they're going to be far-reaching.
1. Establishing provenance.
Rare, vintage wine from Bordeaux. Tuna from the Pacific Islands. Conflict-free diamonds.
All of these items (along with thousands more) rely on their provenance for their value. If you can't prove that an old bottle of Bordeaux has been properly stored and is in fact authentic wine from a given winery, then its value is practically nothing.
Blockchain preserves the record of a product's journey to its end user, and your global supply chain strategy should account for provenance.
2. Assuring quality.
Let's go back to the digital camera example.
Say you're purchasing cameras for resale. You want high-quality cameras, but you know that a brand name itself isn't a guarantee of the quality you expect. If you could trace the entire production of the cameras you buy—from raw materials to finished goods—with each step indelibly recorded, you'd have full confidence that you're getting what you've paid for.
You may choose to buy inexpensive goods as part of your business plan, but if you're marketing luxury goods, you'd better be darn sure you and your customers are getting what you've paid for.
Blockchain's integrity may be able to help you get your money's worth.
3. Providing data security.
No real discussion of supply chain strategy is complete without addressing the topic of data security. Since blockchain ledgers are encrypted using sophisticated technology, they're closer to tamper-proof than most other ways of recording and sharing data. When your transactions span the globe—and when projects are complex—ensuring security of data (particularly of financial information) is paramount.
Any given blockchain can be kept private (shared only among users who need to access information) or can be made public. Blockchains aren't managed by some centralized authority, which means there's no big “blockchain network" that would be vulnerable to a catastrophic data breach. Its decentralization is a big part of why blockchain is responsive, flexible and harder to hack.
When Bitcoin was introduced, there were boatloads of skeptics. After all, who in their right mind would invest money in virtual currency, in a coin that only exists by mutual agreement?
Blockchain was vital to cryptocurrencies like Bitcoin and Zcash as it preserves a record of all the transactions and the current value ascribed to every Bitcoin in existence for any and all to see.
But the bigger picture for blockchain is in preserving records of real goods. Being able to trace a product from farm to table or from factory to delivery truck can help make your supply chain strategy more powerful.
When you're looking at ethical and legal questions about how and where products are produced, having the ability to prove beyond a shadow of a doubt that your goods are ethically sourced is priceless.
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