This article was originally published as part of an assignment for my Operations Management class.
What is Blockchain?
Blockchain technology takes the uncertainty and distrust out of transactions. Until now, formal institutions like banks and governments have acted as middlemen to help establish trust and facilitate transactions, but with blockchain technology that could be a thing of the past.
Basically, blockchain is a decentralized ledger or database that is continuously updated and keeps track of who owns what. This ledger is stored on every computer in the network. Traditionally, there is a middleman or institution that keeps track of the database.
This technology is complex, but I will try to explain it simply. Once a transaction is started it is represented as a “block” which is sent to every computer on the network. Those in the network approve that the transaction is valid and then the block is added to the chain and the transaction is complete. Once a block is added it is indelible and cannot be changed.
Blockchain and Supply Chain Management
Blockchain technology has numerous applications in the world of supply chain management. For example, a shipment can be tracked on the ledger from start to finish with certainty that the information is truthful. Blockchain can also help ensure authenticity of things like prescription drugs, machine parts, and common products.
Let’s use diamonds as an example. As soon as a diamond is mined, it can be registered on the blockchain with is unique characteristics such as clarity, mine location, and carat weight. Then as it gets shipped and processed, each of these moves can be registered on the blockchain as well. When the diamond finally lands in the hands of the consumer, a look at the blockchain record can tell them where it was mined ensuring that they are buying an ethically mined diamond, where it has been, and what has been done to it.
Labels can be put on products and scanned during shipping and processing, keeping track of what has happened to the product. Since the blockchain is indelible, one can be sure that the record is correct.
There is one problem, “bottle problem” as Robert Learney puts it:
“If I had this amazing whisky and stuck a label on the bottle and tracked it using blockchain, I would know exactly where the label on the bottle is, but very little about the content itself.”
Blockchain can not only be used to track shipments, it can reduce the logistical complexity found at ports. As it is, ships have to wait until a Bill of Lading is transferred by a courier to the person consigning the goods before they can unload the ship. Now, a company called CargoX is using blockchain technology to electronically transfer the Bill of Lading, which saves time, eliminates the third party courier, and reduces the possibility of lost or incorrect documents.
If It’s So Amazing, Why Isn’t Everyone Using It?
This technology has a lot of potential to revolutionize supply chain management and I believe that it will turn the industry on its head soon, but right now blockchain isn’t catching on very fast. This is due to a few reasons.
Most supply chain professionals don’t even understand blockchain yet, which greatly limits its potential. Even those that understand it are hesitant to invest in it until other companies and industries have proven it. As this technology is implemented in other areas and industries, it will surely begin to catch on in the supply chain sphere. Also, because blockchain eliminates the need for a third party middleman, and those middlemen are generally powerful institutions, there has been quite a bit of backlash and push-back from them.
Personally, I believe that it is only a matter of time before blockchain becomes an integral part of not only the supply chain management industry, but of business in general. Because blockchain presents such a dramatic shift, one from centralization to decentralization, it may take a little time to become mainstream, but when it does, it will change everything.
Want to Learn More?
Here are a few sources to learn a little bit more about blockchain and supply chain management: