Introduction
The supply chain is among the areas of business that are reaping massive improvements due to comprehensive technology. Blockchain technology has enormous potential to enhance supply chain transparency and traceability while enabling firms to reduce administrative costs. According to Rejeb, Keogh, & Treiblmaier (2019), blockchain technology allows various parties in a given supply chain to have equal access to shared information, which enables parties to minimize transfer or data errors and, therefore, validating data is much more efficient within the blockchain technology. Similarly, blockchain enables more market-oriented value chain relations by allowing immutable and transparent transactions and enhanced record validation. Innovations have various challenges that affect the potential adoption by multiple organizations. The technology enhances the ability of the firms to strengthen the traceability of the products. The traceability and the visibility criteria offered by blockchain technology enable firms to strengthen data shared. While the technology is relatively beneficial to the organizations and stakeholders in the supply chain system, while there are other limitations to blockchain technology in the supply chain, the introduction of the technology has been critical in enabling coordination and improving access to finances aspects. Consequently, this paper analyses the current uses of blockchain technology in supply chain business by detailing the roles and rationales that support the implications of the technology in the supply chain business. The paper also analyses the shortcomings and limitations of adopting blockchain technology in the supply chain by discussing the operational and financial ramifications of adopting blockchain technology in the supply chain business.
Uses of Blockchain Technology in Supply Chain Business
Efficient management of today’s supply chain is marred with extraordinary complex scenarios; nonetheless, with the adoption of blockchain technology, businesses can enhance supply chain financing. For instance, blockchain technology enables efficient invoicing and invoice processing, enhancing more robust, transparent, and secure transactions. Initially, payments and invoice processing would take up to 30 or more days. However, by implementing blockchain in supply chains, smart contracts have higher availability, enhancing immediate payments whenever the logistics have been delivered to the destinations. With the technology, there is room for secure, fast, and low-cost global and international payment services. For instance, encrypted ledgers enable accurate time verification of the payment process without necessarily liaising with other intermediary institutions such as financial institutions. Bext360 is employing blockchain technology in tracking every aspect of the global coffee trade through chains from the farmer to the consumer, which is essential for business efficiency. The implication of the cryptocurrencies in blockchain enables safe and direct payments after the products are sold.
Blockchain technology is critical in streamlining administrative processes and reducing the cost of supply chain business. According to Nabipour & Ülkü (2021), blockchain technology is used to effectively audit the supply chain data, increasing the supply chain’s productivity. For instance, blockchain technology has enhanced checks for compliance which was a significant challenge in the manual process.
Essentially, supply chains that use a manual system take several weeks to validate and audit supply chain data. However, blockchain technology allows for increased traceability of materials to ensure that various standards are met. For instance, it leverages intelligent traceability of assets and enables multiple parties in the supply chain to identify various logistics components. According to Zhang et al. (2019), blockchain allows parties to easily track and trace product origin and supply chain elements. Therefore, it is easier to identify counterfeit products as well as fraud and transactions potentially.
Similarly, with enhanced traceability, there are low rates of potential losses from counterfeit and fraud in the gray market. Enhanced traceability, improved visibility, and higher compliance rates enable outsourcing and contractual terms. The technology ensures more transparency within the supply chain by allowing accurate end- to end traceability. Firms can decentralize various operations whereby tracking assets and logistics from production to the consumers is easier. For instance, blockchain and smart contracts can effectively record food, pharmaceuticals, and cold chains to monitor the temperature and various elements of products in transit. For example, Walmart uses one of the innovative technologies in tracing and tracking the provenance of the condition of pork and different products from China. Usually, it is challenging to follow food safety due to cross-contamination and other potential factors. Insufficient data and less visibility in the supply chain results in slow action in the supply chain’s productivity. Nonetheless, various consortiums implementing blockchain in their operations can effectively track and promote value chain transparency. For example, Unilever and Nestle are employing blockchain technology to point out flaws within their respective supply chains quickly.
Companies and various parties in the supply chain use blockchain to trace the history of a given product from a given point of production, which makes it easy for stakeholders to identify potential challenges such as counterfeits and gray market aspects. For instance, according to Wang et al. (2018), blockchain technologies improve traceability by ensuring that every transaction is recorded and documented whenever there are changes of hands. This is critical for parties in a given platform to reduce time delays and the added cost of compliance checks. Implications of blockchain are essential in eliminating various intermediaries associated with manual systems susceptible to fraud—the comprehensive records and data in the blockchain supply chain. Firms can synchronize multiple logistics data in a shared platform, track shipments, and ensure automated payment. With easy traceability, parties can always point to the source of fraud if fraudulent activities are done within the value chains. Finally, with the adoption of technology, firms can trail the flow of information involving finance and inventory within the supply chain, improving the integrity of the supply chain. PepsiCo uses various fronts of pragmatic ads through smart contracting to ensure easy reconciliation of data and information on products within the value chain through to consumers from the producers. Walmart, among other firms, uses an integrated system in IBM’s based Food Trust mechanism to trail and trace the food products in every step of the value chain. Therefore, blockchain technology is paramount in enhancing business productivity.
Arguments that support the use of blockchain Technology in Businesses
Blockchain technology has been the game changer in supply chain management. Various logistic firms have been facing multiple inefficiencies due to a lack of a flexible and responsive system that can enhance an effective supply chain system. The impact of globalization has made it more complex for various firms to cope. Therefore, organizations need to adopt blockchain technology to enhance multiple aspects of business modules to match the current dispensation in the global market. Blockchain technology is critical in reducing the bulk of processes that hinders business efficiencies. Implementing the technology means that business firms can replace manual data processing and compliance processing, reducing business efficiency. Major firms point out blockchain technology has made the supply chain more transparent and ensured visibility. Initially, manual processing and compliance requirements could take up to 30 days, affecting business productivity. However, employing blockchain technology in various firms is critical in ensuring that multiple transactions can be done in real-time.
Similarly, the system has successfully eliminated intermediary institutions’ processes such as delayed payment. The Blockchain system provides an avenue for automatic invoice validation and faster payment methods through Bitcoin and cryptocurrencies, and thus, it facilitates productive supply chains. The system offers an acceleration platform for the supply chain, one of the significant benefits of undertaking the system for various firms. With global dynamics, an accelerated supply chain process enables firms to acquire a competitive advantage as they can seamlessly move products along the value chain with high integrity and reduce potential errors. . Innovations have various challenges that affect the potential adoption by multiple organizations. Eliminating various intermediaries such as banks and associated manual processing ensures that the supply chain can benefit the stakeholders more rapidly and efficiently.
Another essential benefit of blockchain technology is that it enhances traceability in the supply chain. With various requirements in provenance information within the supply chain sector, there is a need to promote transparency and visibility in various operations. While many organizations boast of multiple elements of blockchain technology, one fundamental element is the tack and trace style application which enables firms and partners within the supply chain can track the products to the producer. Consequently, there must be high accountability within the system. For instance, with enhanced documentation of every transaction at every change of hand, it is easy for companies to trace fraud that might happen. According to Wang et al. (2019), firms can efficiently utilize blockchain technology in drafting transactions whereby the documents and ledger are fully distributed in a given platform, making tracking difficult. This makes it easier for the parties to acknowledge fraud and underhand dealings involving the gray market. The traceability aspect is central to the blockchain system because it ensures ease of paperwork processing, unlike the manual compliance checks system. A shared ledger with complete data on the product is critical in ensuring data visibility across the platforms. Therefore, it is easy to question product status and location at any given time. The end–to–end tracking of products and logistics ensures that organizations can decentralize their available records of transactions, which is essential in allowing stakeholders to track the assets in various stages along the value chain. That is, it is easy to monitor the progress of support from the production state to the end user consumer.
More fundamentally, with efficiency assured with blockchain technology, firms can improve supply chain productivity by reducing the transactional costs within the value chain. At the base levels, business modules with blockchain technology enable firms to cut costs by eliminating the charges of cross-border fees. For instance, using cryptocurrencies and other intelligent contracts is essential in ensuring that the firms minimize costs with a reduced paperwork system. For example, the Ethereum platform enables firms to automatically trigger the smart contract to ensure lower transactional costs by limiting the intervention of the intermediaries such as financial institutions. Similarly, blockchain enables more market-oriented value chain relations by allowing immutable and transparent transactions and enhanced record validation. According to Litke, Anagnostopoulos, & Varvarigou (2019), well-designed intelligent contracts reduce transactional costs by limiting the contract monitoring cost and preventing various forms of renegotiations within the contractual terms. Consequently, through these features, blockchain provides a reliable, trustworthy, and tamperproof system essential for supply chain management. Both local and global markets can strengthen their competitive advantages through cost reductions in transactional costs.
Shortcomings and limitations of blockchain technology
While various organizations have a high potential for performance using blockchain technology, a few shortcomings of the technology might undermine a given firm’s ability to adopt the platform. The impact of globalization has made it more complex for various firms to cope. For instance, in permissioned blockchain, security concerns about given blocks exist. According to Latke, Anagnostopoulos, & Varvarigou (2019), a Permissioned blockchain system is less secure because it contains fewer nodes, making collaboration easier in modifying blocks. Essentially, it is considered that blockchain databases may be slower to process than the specific data. Multiple servers and computers must carry out various validation processes at an end-to-end transaction. There are numerous transactions and many users in the network, which slows down the rate of validation process across the value chain. While the success of a given blockchain depends on the node’s functionality, there is a need to incentivize nodes for practical network functionality because it is not necessarily a distributed computing system. Consequently, the benefit of the distributed network relies on the incentivization of the nodes.
Secondly, enhancing scalability with blockchain in supply chain management is complex. For instance, scalability may only be achieved while carrying out transactions off-block chains and consequently using a blockchain platform for storing and accessing the information. While scalability is probable with a permissioned system, there are security concerns. Furthermore, According to Zhang et al. (2019), some blockchain solutions consume too much energy. For instance, when the ledger is updated in a new transaction, the node spends a lot of energy. However, permissioned systems are efficient in energy consumption, unlike the public nodes, which consume relatively higher energy. Therefore, there is a limitation on scalability and power consumption which is more advanced in permissioned networks.
Other organizations are reluctant to implement blockchain technology because data in blockchain technology is immutable. Over the years, data immutability has been the greatest challenge of blockchain technology. For instance, if data is written, it cannot be easily changed within the blockchain history. While data immutability is one of the primary benefits of blockchain technology as ledgers, once encrypted, it is not easy to alter. Data immutability ensures that every transaction is complicated to undo. This property makes it challenging to remove trace and privacy rights. Another essential aspect undermining the technology’s adoption is the limited storage. While blockchain technology ensures high visibility, the lack of regulations within the platforms makes the platforms more vulnerable to security threats. According to Wang et al. (2018), blockchain technology has security concerns as intruders can easily compromise the system by restricting others from creating a block within the platform. Essentially, supply chains that use manual methods take several weeks to validate and audit supply chain data. Therefore, firms contemplating adopting blockchain technology may consider deploying the protocol layer security to ensure that the system in permissioned setup is safe from manipulation through data immutability.
As innovation improves, organizations may not necessarily have good skill sets to operate various blockchain platforms. Currently, the technology is relatively new, and it is undergoing evolution. Consequently, relatively few people have the requisite skills to support the technology for various firms. With the impending demand, very few skilled personnel are available, which makes it very costly for firms to acquire such services. Innovations have different challenges that affect the potential adoption by multiple organizations. While the technology is relatively beneficial to the organizations and stakeholders in the supply chain systems, there is a lack of knowledgebase as it has not effectively attracted more significant segments of the organizations. Therefore, a potential lack of effective marketing regarding the niche must make the system relatively unpopular. Few blockchain technologies are currently popular, especially Bitcoin, which is only famous for cryptocurrencies. Therefore, other organizations may not necessarily consider blockchain technology due to its lack of popularity. Blockchain systems may be slow, affecting organizations in various value chains. It is believed that blockchain transaction is often complex as it takes a relatively long time to carry out the encryption of the ledger.
Financial Ramification of Blockchain Technology
Even though some organizations may be interested in adopting blockchain technologies, the financial ramification of the upfront cost is overwhelming for organizations. The upfront cost of implementing the blockchain solution requires a substantial financial burden. Fast forward, limited expertise in solution developers and technicians may lead to higher financial obligations. Planning costs, licensing costs, personnel, and maintenance cost of implementing blockchain systems contributes to significantly hefty price tags. Hiring the appropriate agencies and developers specialized in the program will be costly but presents a lower risk. According to Szewczyk (2019), blockchain fees rely on factors such as transaction size and network congestion, among other factors. However, consolidating other elements and project requirements will determine the cost of developing blockchain technology in supply chain management.
Conclusion
Blockchain technology is gaining momentum in supply chain management. Various organizations are using technology to achieve efficiency and transparency, significantly improving the supply chain’s productivity. Both local and international organizations are using blockchain technology to record data, prices, quality control, certification, and other data about products in a given supply chain. With easy traceability, parties can always point to the source of fraud if fraudulent activities are done within the value chains. Allowing transparent and accurate end-to-end supply movement is critical in ensuring transparency and minimizing fraud and therefore increases the confidence of the market end users of the products through visibility within the supply chain. Finally, with enhanced systems, organizations may effectively take more control of given intelligent outsourced contracts.
Consequently, the technology is critical in ensuring streamlining the administrative processes and effectively cost by allowing an efficient audit of a given supply chain data and information. However, despite the benefits, organizations face real challenges in adopting the technology. Planning costs, licensing costs, personnel, and maintenance costs of implementing blockchain contribute to significantly hefty price tags. It seems inevitable that firms should be able to increase their services to adopt the technology which is beneficial in the long run.
References
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