Expert Advice for Medium and Midsize Businesses

How Can Blockchain Help You Manage Your Supply Chain?

Guest Author

The combination of blockchain with IoT (Internet of Things) is disrupting how companies, from enterprise to small-to-medium business (SMB), handle supply chain management (SCM). Blockchain makes the transactional records tamperproof, and IoT creates a connection between the physical world and the digital world through devices and sensors.

Companies that are interested in blockchain generally need to provide data in an unaltered state to their customers, particularly when the customer is, for example, the U.S. government or regulated industries, such as oil. An oil rig must report how long it runs, the depth at which it is drilling, and all that telemetry, as well as other information, must be logged. Much of what is done has to be tamper proof. Businesses are interested in automating that kind of functionality while providing accounting responsibility.

Enter IoT devices that can collect and aggregate a variety of documented data, such as work reports. The addition of blockchain adds an extra level of security. IoT devices generally are divided into two groups: "things" and "sensors." The technologies benefit the customer, who can receive exact data of the time worked via an IoT sensor, for instance, and the vendor, who is compensated fairly for the labor exerted.

Reducing Friction

When you have high value contracts, particularly those with the government, you need tight security. Some companies use emails or Dropbox solutions for exchanging documents, which are not tamperproof and are plagued by version control issues. Blockchain technology can secure these huge, high value contracts because the network of nodes will only validate transactions if certain conditions are met. The challenge of maintaining veracity among ledgers is the same whether the vendor is enterprise-size or a SMB.

With a blockchain, copies of documents are stored across multiple ledgers. Changes must be made across all ledgers and all parties must agree to any changes, which can only be executed by those contracted parties. Third parties cannot make changes. That is the foundation of blockchain and the foremost reason why it can be trusted to make sensitive or private documents tamperproof.

Blockchain also helps vendors integrate payments with banks. For example: a vendor is under consideration to be awarded a $25 million contract from a large manufacturer. However, the vendor needs to invest in some equipment upgrades before it can fulfill the contract. The customer is willing to contract with the vendor under the contingency that the upgrades will be performed. To start the work, the bank could approve financing secured by a blockchain. The vendor gets what it needs to provide services to the customer, and the customer can get to work quickly and meet deadlines.

Smart Contracts

Confirming that work has been done according to contract stipulations and approving payments based on milestones is time-consuming and complex. The concept is the same whether you are talking about money, temperature control, or location traceability.

Adding IoT builds more transparency into the relationship. For example: a vendor is required to deliver a temperature-sensitive product by a specific date. RFID tags can store information such as location, date, and time. Meanwhile, IoT devices such as sensors or beacons can measure environmental conditions, including speed, acceleration, temperature, humidity, etc., can be attached to the cargo container. The network sends that information to the cloud—where Blockchain-as-a-service is running—for further analysis. A smart contract can act on this data to ensure the contractual specifications are not ignored.

IoT and Supply Chain Transparency

The combination of IoT and blockchain provide continuity of information. Securely sharing information among various stakeholders ensures traceability. It also notifies suppliers farther up the supply chain to build new products because the existing item was just delivered. Customers can leverage the enormous amount of data produced to create a more efficient supply chain.

Supply chain management (SCM) can be managed and secured through a blockchain, while other industries, including healthcare and banking, can market it to their customers as a means of providing trusted data. Because the data can be audited, and changes are no longer hidden from view, both vendors and customers should see this technology as a win-win.

Contact AST today to learn how blockchain can help your organization achieve supply chain excellence in today's digital era.

By Raman Madhira, Practice Director - ERP, SCM & GRC ST, AST

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