Supply Chains on the Blockchain
Continuously disrupted supply chains were once a fear for companies reliant on global inputs. Now, it is a stark, cold reality. Fortunately, blockchain technology offers a tool that can be leveraged to improve transparency with partners and ease price pressures. To ignore this would be unwise, and potentially fatal.
Let’s start by discussing context. Supply chain management has become somewhat of a buzzword over recent years. What was once a boring field ignored by most is now actively recruited for by a myriad of organizations across sectors. The forces here are relatively clear. A general increase in demand for supply chain expertise has existed for much of the decade as non-software products required an increasing number of parts produced overseas as markets veered towards specialization. A simple plot of Google searches made by companies searching for supply chain analysts since 2009 demonstrates this nicely. From start to finish we are looking at an increase of roughly 150%.
Okay, so we see some demand increase. Really though, the key inflection point was the COVID-19 crisis. Here everything changed from a supply chain perspective. Ports shut down globally. Factories shuttered around the world. All of a sudden, key inputs for producers became virtually impossible to obtain or extremely expensive. Delivery times for key goods have skyrocketed as shown by the below data summarized by the IMF.
The impact of this on business is challenging to quantify. A number of factors could be considered including revenue loss, inflationary drivers, or the number of new and established businesses that failed during this time. However, what is clear is that the ramifications have been sizeable. In 2020, data from Statista notes that over 25% of businesses stated that supply chain disruptions had anywhere from a major to a catastrophic impact on their businesses.
The quandary? Improvement even two years later has been agonizingly slow, especially as key global exporters such as China continue to lock down ports and factories. The US Department of Transportation recently published data that shows fewer container ships waiting to dock.
We should be charmed? It depends on your interpretation of the data. Yes, the number of ships awaiting berths has decreased. However, the actual amount of containers unloaded has only increased slightly. That tells us that US ports may be functioning slightly more effectively, but also that major shipping companies have decided to stop sending their ships out until they know they will be able to dock. Is that an improvement? Possible for the shipping company’s bottom line.
The long-term impact has clearly been a contribution to inflation over the long term and a dent in global-reliant companies’ bottom lines. We must now ask the question, is this struggle inevitable, and what could be aided by blockchain?
To start, these challenges can definitely be mitigated by companies, especially with a key understanding. Tracking is everything in supply chain. Who holds what products at what time? When has a container arrived at a particular port? When was the grain delivered to a certain city and who is responsible for moving it onto a train?
The challenge here is that posting all of these movements in real-time is hard and communication between parties that don’t know who their counterparty is (or even speak the same language) is extremely difficult. Especially for the majority of companies that utilize a range of third parties to source and provide inputs, it can be nearly impossible to understand where ingredients are at any point in time.
Blockchain technology solves this. By creating a globally accessible platform, companies can view the development of their products’ supply chains in real-time. Smart contracts can automatically execute billing and release of goods only when funds are made available. This reduces lock-up times while payments clear and significantly reduces counterparty risk. RFID tags linked to products can be automatically scanned and looped into the broader blockchain network to streamline the process of input incorporation. In short, the entire process can be streamlined.
Now, we don’t see full automation in the sector through blockchain-driven processes. But we do see a way for companies to meaningfully improve how they view product development and creation.
From Metcy’s perspective, validation of ownership at each stage of the process is fundamental. NFTs can be linked to particular accounts and at each point of trade can change hands via automated smart contracts. Our Validation API can confirm ownership seamlessly to help companies easily provide oversight of their own systems. Over the long term, this can have significant positive impacts on business and transparency overall.
