HOW BLOCK CHAIN WILL TRANSFORM THE SUPPLY CHAIN AND LOGISTICS INDUSTRY

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One would say, the most complicated task is to manage the supply chain. Earlier commerce was local and the supply chain was easy to handle. Now the scenario has changed, depending upon the type of goods carrying, supply chain flow is getting complex with hundreds of stages. It may take weeks and months to reach retailers, involving a lot of invoicing and cash transaction. Products and parts are often hard to trace back to suppliers, making defects challenging to eliminate. Though the technology has revolutionized the way most other industries are operating, logistics industry seems to be stranded until cryptocurrencies stepped up. Now the logistics industry is looking forward to Blockchains to bring transparency to supply chain management and make the process hassle-free.

Supply Chain, What it is? How Current supply chain flow is broken?


A supply chain is a network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. The supply chain also represents the steps it takes to get the product or service from its original state to the customer.
Transparency is something that is missing in a current supply chain system. It involves many intermediates and agents, financial organizations, supply chain software vendors and marketing research providers are also involved. What makes things again complex is these entities also use services from other providers (Third Parties). In short, instead of making a liner chain all these entities evokes the metaphor of an interrelated web.

What are Block Chains and how can it help supply chains?

In simple words, we can define a Block Chain as a growing list of records called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Many people often get confused with the term Block Chain, literally, it means a chain of blocks. In other words, we can call, blockchain as a distributed, digital ledger exists in multiple copies and spread over nodes (Computers). When a transaction occurs a block stores information about transactions,(date, time, amount), who is participating in transactions and it stores information about how it distinguishes from other blocks. With these essential details available to everyone at any point in time, blockchain makes the supply chain a transparent process from warehouse to delivery and to payment. Other benefits of using blockchain are as follows:

  • Permanently record transaction
  • Track production & shipments
  • Fast-track goods through customs
  • Verifying product source
  • Reduce fraud & counterfeit

Coming to security, blockchain addresses most of the security threats and has solutions for it. Blockchain has implemented a “Proof of Work” authentication tests (Computational Math Problems) to get participated in a blockchain network. Those systems pass in “Proof of Work” tests will be allowed to add and edit blocks. All the newly added blocks are added chronologically, that means a newly added block will be added to the end of the blockchain. Once a chain is added it is difficult to go back and edit it. It is simply because each block has its own hash along with the hash of the block before it. A hash code is created by a math function, it will convert digital information to a combination of letters and digits. Hashes provide a great amount of security for the blocks. Imagine if somebody gained access to one of the node and edited the information on a block, then that block’s hash will change. But the next block will have the old hash and thus the intruder would need to update that block in order to cover their tracks. However, doing so would change that block’s hash. And the next, and so on. That means in order to change a single block a hacker would need to change every single block on the blockchain. Recalculating all those hashes would take an enormous and improbable amount of computing power.

Cryptocurrencies as an example of Block Chain

There are many Cryptocurrencies are available in the digital world. Bitcoin is considered to the first decentralized Cryptocurrency. Bitcoin is just one way of using blockchain. It is entirely digital and with the decentralized control of each cryptocurrency works through distributed ledger technology on computers all over the globe. Through Bitcoin agencies, we can buy and exchange bitcoins. Since it is available only digitally we can use Bitcoin as a currency over the internet to make and receive payments. When we do a transaction, it is added to the ledger and recorded. The identities of the parties are kept a secret, hence bitcoin users never know each other. Bitcoin introduced a mechanism called Mining to deal with this anonymity.

Let’s compare some of the features of Blockchain with Bitcoins,

Consensus
All the entities in the chain agree that each transaction is valid. In the case of Bitcoin, that means a transfer of an amount of Bitcoin. For the supply chain, it could be payment, warehousing, transport or delivery.
Provenance
In a supply chain system, each entity knows where each asset has originated. And who kept it previously and at what time. For Bitcoins, the asset is money. For the supply chain, assets can be any product and copyrights.
Immutability
No entity can tamper with an entry in the distributed ledger. It is not possible to erase a Bitcoin transaction. Only a new Bitcoin transaction can reverse the effect of a previous one. Similarly, with blockchain, it would not be possible to edit and do fraud in a supply-chain payment transaction or the records of inventory, warehousing conditions, delivery times and dates, and so on.

Blockchain is one technology that will bring wonders to the logistics industry. Already companies like FedEx, Walmart, KIK etc started exploring the blockchain. Let’s wait and see how blockchain going to change the logistics industry further.

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