How Blockchain Is Relevant in Supply Chain Logistics

Logistics and supply chain companies are slowly but surely adopting blockchain technology to provide greater transparency in their products and services. Many years ago, logistics companies were responsible for taking goods from point A to point B. However, successful logistics companies are now accountable for navigating regulations, fuel prices, shipping containers, delivery, and import/export processes. This added dimension of complexity has been advantageous to successful logistics companies, but it has also made operations exceedingly complex. Blockchain helps to streamline logistics and make it as efficient, simple, and streamlined as possible for all the different stakeholders.

What Is Blockchain?

A blockchain is essentially a distributed database called a distributed ledger — a set of data that many different parties host and have access to. Depending on the type, blockchains are also immutable, meaning that once a transaction or a piece of data has been recorded, it cannot be undone. 

Blockchains can also be both public and private. Public blockchains are most often observed in cryptocurrencies and NFT applications since anyone can be a part of the blockchain by owning an asset. On the other hand, private blockchains are permissioned, and only those with the proper credentials can access, maintain, and modify these ledgers. Private chains can be subdivided into consortium blockchains where several stakeholders can access the blockchain. These consortia allow different actors along the supply chain to memorialize their actions and eliminate trust-based systems.

How Does Blockchain Work?

Blockchain technology works with decentralized ledger technology (DLT), allowing different parties to access a single source of truth. Additionally, any other party with access to the blockchain can audit the information held there to verify that it is indeed correct. 

This technology, combined with sensors, inventory management, and ERP systems, can create an informationally rich downstream environment for stakeholders. Movement, shipments, delivery, and more can be automatically tracked while eliminating the human errors and forgetfulness that plague much of the logistics industry.

What Are the Advantages of Using Blockchain in Supply Chain Logistics?

These two aforementioned characteristics of immutability and decentralization make the blockchain an ideal system for logistics. Furthermore, blockchain eliminates much of the human error since every block (every dataset) must be verified by all of the computers running the blockchain.

Transparency

On a consortium blockchain, all parties can view the data stored on the different blocks. This transparency is essential, for example, with shipping and payment terms. A container full of coffee sold free on board must be paid for as soon as the container lands on the freighter, notwithstanding other net payment terms. A blockchain equipped with sensors would automatically detect when the container reaches the ship. Funds stored on the blockchain could be automatically released once that sensor is triggered, negating any human error or capriciousness. After that, anyone involved in the transaction could verify the freight was loaded onto the ship and funds were deposited.

Hardened Data Security

While the blockchain ledger is visible to anyone, it can generally only be modified with the consensus of all the nodes running the blockchain. In the preceding example, one could imagine that one node, perhaps the buyer’s node, could fraudulently report the deposit of funds. However, if the other nodes — the seller, the shipper, the bank, etc. — fail to verify that transaction, then it would be null and void. Fraud is virtually eliminated, even on blockchains with greater trust like consortium blockchains.

Flexibility

Blockchain technology can be applied to a nearly limitless number of business activities. At its most essential element, blockchain technology is just a ledger that records data and stores it for future access. Therefore, any business activity requiring data management and verification could conceivably benefit from the implementation of blockchain technology. Industries like banking, insurance, and even government could all use blockchain technology, and their use in consort would amplify the technology’s effects. Logistics could easily integrate with all three for a more seamless experience in money transfer, loss claims, and regulatory compliance.

Successful Implementation of Supply Chain Blockchain

Recently Maersk and IBM partnered on a blockchain project called TradeLens. This program behaves as a single source of truth for many different stakeholders spread across the supply chain. Various parties can carry out credit checks, verify bills of lading, ratify contracts, and more. When a given event takes place — for example, the arrival of a ship at port — the appropriate parties along the supply chain are notified on the TradeLens platform. Smart contracts are also part and parcel of the platform and automatically execute when specific criteria are met. This automatic execution virtually eliminates the possibility of human error insofar as data management is concerned.

Effects of Blockchain Technology

As blockchain technology becomes more widely adopted, its positive effects will resonate more widely and deeply.

Cost Reduction

Immense amounts of paperwork have been a perpetual thorn in the side of the logistics industry. This necessary evil has made administrative costs high and human error an inevitable part of doing business. Excess administration costs add unnecessary bloat and raise costs for the final consumer of the logistics services. Blockchain reduces the paperwork by automatically executing contracts and decentralizing data storage. This lowers administrative costs and ultimately makes the service cheaper for the consumer.

Precise Tracking

Imprecise tracking has been an emergent problem from the excess paperwork. Human errors cause items to be missed in the tracking process or deadlines to be missed with payment and transportation. Blockchain will automatically upload data to the decentralized ledger so that stakeholders can view pertinent information.

Operational Efficiency

Finally, blockchain promotes efficiency along the entire supply chain. Goods can be tracked from the time that they’re harvested or extracted until the time of delivery. Payment, regulatory compliance, and other parts of the supply chain can also be automatically memorialized in the blockchain for immediate verification.

Conclusion

The implementation of blockchain technology is an evolution rather than a revolution. However, as more industries begin to use blockchain technology, the more evident the changes and improvements will become. The Wharton School created a blockchain certification course to help business leaders create the next generation of blockchain technology. The blockchain certification course features more than 80 videos, 7 industry-leading case studies, 3 crypto valuation models, and more. For more information on the course or to enroll, visit our information page to learn more.

This article is for marketing purposes only and does not intend to represent the opinions of the program.

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