Blockchain. By now, you’ve likely heard the word. Frequently used by Bitcoin, Ethereum, or other cryptocurrency enthusiasts, blockchain has been misunderstood and underappreciated by most. Unfortunately, opinions on blockchain have, to some extent, been caught up in the volatility and controversy surrounding cryptocurrencies. While cryptocurrencies do operate on blockchain technology, they are not blockchain. Rather, blockchain is the emerging technology that enables cryptocurrency transactions to be ultrafast, highly secure, and more cost-effective. As blockchain technology has gained acceptance and momentum, its usage has expanded from cryptocurrency applications to supply chain and logistics, smart contracts, data protection, and many other use cases impacting manufacturing and distribution. Like other emerging technologies, we should ask: “How will this change the way we do business?” and “What steps can I take now to be better prepared?”
Inventory Management Use Cases
Supply chains and logistics are often complicated inefficient ecosystems particularly when cross-border transactions occur. A myriad of manufacturers, cargo owners, trucks, ships, railways, planes, ports, terminals, warehouses, customs, and freight managers all work to move inventory together but often with disparate, non-integrated systems. The ecosystem is ripe for transformation and blockchain is emerging as a solution.
As supply chains continue to transform using blockchain technology, the complete digitization of the process from end to end likely will occur. And this digitization within the “chain” will be secure once locked down in sequential “blocks.” Yet the transparency of the blockchain by the system’s users will provide accuracy, credibility, speed, and efficiency to enhance inventory management.
In addition to managing inventory movement, blockchain is expected to improve invoicing. Studies show that per invoice processing costs can be astonishingly high. Blockchain can eliminate the undue burden of invoicing, document matching, and payment processing by enabling a single source of integrated, accurate, and digitized records of transactions and facts. Thus, blockchain results in virtual access to all cost and movement-related information at any point along the supply chain, by all participants.
Controlled temperatures are often critical to inventory management. Blockchain is transformational with regard to controlled temperatures as well, especially when integrated with connected devices (GPS, thermometers, etc.). Similar to the invoicing to settlement issues noted above, supply chain participants may have disconnected, opaque systems to ensure temperature control throughout the supply chain. System breakdowns do occur. When they occur in the food industry, they are often headline-grabbing and create public relations nightmares. Think E. coli. Then think Walmart.
Walmart is certainly one of the best in class when it comes to supply chain and inventory movement. In 2019, Walmart mandated all of its suppliers of fresh, leafy greens to trace their products back to the farm using blockchain technology. This change means that the information gathered by these suppliers is open and accessible through technology that offers real-time, end-to-end traceability from farm to table. According to the CDC’s Robert Tauxe, “enhanced ability to trace contaminated food back to its source will help government agencies and companies to identify the source of a foodborne disease outbreak, coordinate more effective recalls of foods thought to be contaminated, and learn where past problems began. We think these steps will strengthen future prevention efforts and better protect the public’s health from the threat of foodborne illness.” You should expect that following Walmart’s lead, others will adopt, and additional products like beef, coffee, pork, and organic foods will follow.
Smart Contract Use Cases
Smart contracts are automated digital contracts that run a process based on events or transactions triggered. Smart contracts eliminate the need for human touches, reduce risk, increase accuracy, and increase speed. Think of it as a digital domino. Once a triggering event occurs, or a domino tips, the process initiates. The automated efficiency of the process greatly reduces the typical time, effort, and cost involved. Instead of process bottlenecks, errors, and even fraud, the fully integrated digital process is seamless. And quick.
Smart contracts can be used to define almost anything about the relationship that exists between supply chain parties. As an example, an operational smart contract between a retailer and a manufacturer could state:
- The cost of manufacturing items as part of a specific order
- The timing of manufacturing the items between receiving the retailer’s order and shipping
- Penalty and bonus clauses that kick in based on certain triggers
- Payment terms for settling invoices
Most details that can be written into a standard operational contract can also be recorded into a smart contract, making smart contracts ideal virtual documents to operationally manage supply chain relationships and settle transactions.
Although the hype for blockchain has ebbed and flowed, use cases for blockchain continue to evolve. Those that are deep in the technology are confident that blockchain will be a highly disruptive force in the foreseeable future. Some equate the future disruption to that of the internet. If you were around in the early days of the internet and compare it to the internet of today, you may have a sense of just how disruptive blockchain may be. Our position at Elliott Davis is that we encourage you to, as with any emerging technology, keep a keen eye on blockchain and, again, ask: “How will this change the way we do business?” and “What steps can I take now to be better prepared?”
We Can Help
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.