How to Use Blockchain for Transparency Across Your Supply Chain

Typically, managing contractual obligations for every supplier and sub-supplier is risky and uncertain because it relies on trusting the supplier as an intermediary.

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Alex RosenAlex Rosen

Typically, managing contractual obligations for every supplier and sub-supplier is risky and uncertain because it relies on trusting the supplier as an intermediary. While selective audits can reduce the risks, they can’t ensure compliance across the board.

To eliminate those risks, companies are looking at blockchain technology. For example, Mercedes-Benz recently announced the launch of a prototype blockchain-powered supply chain to manage its complex global network of partners. The ultimate goal is to provide transparency beyond the company’s direct suppliers.

In Mercedes-Benz’ blockchain model, sub-supplier sign-offs are recorded and visible to authorized users, providing a significant boost to the company’s goal of sustainable and ethical conduct in its supply chain. The company no longer has to rely on trust in its intermediaries: It can see, in real time, the integrity of the supply chain.

Blockchain’s Capabilities

Companies testing blockchain prototypes, and those that have gone further, have found that transactions along their supply chains become more transparent and efficient. Beyond sign-off on flow-down clauses, blockchain can be a valuable component in ensuring compliance on every individual transaction. For instance, some distributors or resellers may have agreed to specific limitations on where or to whom some products may be sold, or what terms are available to specific customers.

When shared into a blockchain, the system’s smart contract logic can evaluate individual transactions against that information to identify exceptions. Crucially, enterprise blockchain technology can perform compliance checks while maintaining the privacy of those involved in transactions.

Increasing transparency is easier because blockchain provides irrefutable, instantly accessible records of compliance and transactions. Ensuring compliance on a blockchain is far more effective—and less costly—than auditing upstream suppliers or channel partners.

In addition to tracking commitments to contractual obligations, blockchain systems can automatically record proof of delivery of goods or services. In that way, blockchain can provide greater visibility into overall inventory levels for faster and more accurate inventory management.

Translating Transparency to Success

With immediate proof of delivery, the system can also transform invoicing and payment processes. Once proof of delivery is recorded, it could automatically generate an invoice, or the proof of delivery itself can become the obligation for payment. As use of blockchain technology advances, payments may also be automatically made and recorded upon delivery.

Even before instant payments become a norm, streamlined delivery and highly visible inventory help create a more trustworthy system for inventory forecasting and planning. Accurately predicting when products will be delivered can increase customer satisfaction. Reducing the need for excess stocking, another benefit of transparency in the supply chain, will also alleviate painful bullwhip effect.

First Steps in the Blockchain

Whatever the extent of your supply chain and the elements within it, these are ways to start implementing your blockchain journey:

1. Share Details

Many suppliers already use electronic data interchange. However, buyers may need additional details like serial numbers and configurations of specific products in shipments. Sometimes, EDI or vendor limitations make it difficult or impossible to share these details. Therefore, they still have to be emailed as spreadsheets or sent through other inefficient methods.

In blockchain, these details can be shared more efficiently, along with information about quality checks and compliance certifications for each product in the shipment. While this sharing may just be between suppliers and their own buyers for now, this first step into blockchain will pave the way to include all downstream participants in the supply chain and gain significantly more benefits.

2. Access Logistics

In the spirit of making secured information-sharing the norm in your supply chain, you can also use blockchain to take advantage of logistics information that your partners have access to but that you don’t. For instance, a buyer may not have an integration to a supplier’s carrier or 3PL vendor, but the carrier has information about the shipment and its condition.

With products such as produce and pharmaceutical goods, that information is especially important. Using blockchain, the supplier can share this information with the party that receives the shipment. It can also be made accessible to all supply-chain participants further downstream who value knowing how their products are being handled.

3. Motivate Partners

To realize its full potential, every link in the supply chain should engage in the blockchain network. To get partners on board, promote the technology’s proven success by highlighting endeavors such as the Mercedes-Benz prototype blockchain. In this case, emphasize the value the company gained by making corporate social responsibility completely transparent across its supply chain.

The larger value for your company may be improving connectivity with sub-suppliers and other partners. As they recognize the value of controlled data-sharing through blockchain, many new opportunities will arise for improving communication, collaboration, and transparency across all supply chain operations.

While transparency and expediency are among the most notable benefits of implementing blockchain into your supply chain, the technology is capable of more. Focusing your early use of blockchain on transparency will free you to focus more on other opportunities. As a result of the increased trust that this new technology provides, you can move forward with uses that are more transformative to your supply chain.

Alex Rosen is the vice president of business development at Chainyard.

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