Blockchain And Supply Chain: A Dynamic Duo
Reading Time: 15 mins
The life cycle of a product is an intriguing one. The next time you’re buying something in the supermarket, think of what all it went through to get in your hands. Think about where all the raw materials came from, who all transported the raw material to production plant where it was created, and how it eventually got packaged and ended up in the very shop where you are buying it right now.
Blockchain and supply chain
As you may have guessed, your product goes through a lot of processes and middlemen. This system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer is called “supply chain”.
If you’re interested in diving deeper into supply chain and other blockchain business use cases check out our
Components of a Hypothetical Supply Chain
To better understand the components of the supply chain, let’s look at a hypothetical example. The supply chain, in its essence, is an end-to-end system that creates products and services and delivers them to the customer. An interesting thing to note here, the supply chain need not be unidirectional, it can move back as well. Eg. if a customer wants to return a product and issue a refund, they can do so. So, our hypothetical supply chain looks like this:
The components of this supply chain are:
- Natural Resources: Will you require a significant amount of natural resources like water for the creation of your product? If that’s the case, then you will need to make sure that someone is taking care of all these natural resources for you.
- Materials: The production or procurement of materials such as steel or an alloy.
- Ingredients and components: So, you have your raw materials and natural resources, now someone needs to create the bare necessities of your product. So, if you are building a smartphone, the ingredients and components of your phone will be the battery or the glass cover.
- Finished Goods: Now you are going to bring all these components together to create your finished products. So, going by our smartphone example, you are going to bring together all the components like battery, case, screen etc. to create your own smartphone.
- Retail and E-commerce: The product has been made, now it needs to be shipped to shops and listed on e-commerce websites.
- Customer: Finally, the customer gets their hand on your product either in the shop or online.
- Returns, Reuse, and Recycling: Now, a good quality supply chain shouldn’t just go one way. You should have the option where, if a customer is not happy with the product, they can give it back and get a refund. When you get the back the product, you can either reuse it or break it down for recycling.
There are two more parts of our supply chain above which we have not mentioned yet:
- Distribution and Fulfillment
- Transportation and Warehousing
The reason why we haven’t included these above is that both of them occur at multiple levels throughout the supply chain.
Distribution and Fulfillment
Before we understand this part, you need to understand the difference between an end customer/user and a customer in the context of the supply chain. The end user is the person for who you have built that product or service. In our example, this is the potential user of your smartphone.
However, if you really think about it, throughout our supply chain we have several supplier-customer interactions. For example, the guys in our smartphone supply chain who will be selling their raw materials (suppliers) to the battery makers (customers). This kind of interactions will happen in multiple levels throughout the supply chain.
Transportation and Warehousing
Transportation and warehousing will help in the process of getting resources, materials, ingredients, parts, components and finished goods to the right place at the right time to keep the supply chain operating efficiently.
So, that’s what our dummy supply chain looks like. An actual supply chain can be a lot more complicated than this with multiple levels of interactions. Something is needed to carefully plan out and oversee all the steps. This is where supply chain management comes in.
What is Supply Chain Management?
Supply chain management includes integrated planning as well as the execution of different processes within the supply chain. These processes include:
- Material flow
- Information flow
- Financial capital flow
The management of the flow of goods, services, and information involving the storage and movement of raw materials, building products as well as full-fledged finished goods from one point to another are known as “supply chain management”.
So, why do we need supply chain management?
If you properly implement supply chain management, then you will:
- Increase sales
- Decrease frauds and overhead costs
- Improve the quality of improvisation
- Lead to accelerating production and distribution
- Reduce the cost and complexity of the manufacturing process, especially when the process itself is extremely complex.
Now, all this is well and good, however, as the manufacturing process becomes more complex, the supply chain invariably becomes extremely convoluted and inefficient. In fact, if you really think about it, the supply chain management system, as we know it, is broken.
Problem #1: Hard to Track Down
Remember the smartphone supply chain example we did earlier? Most of the ingredients and components come from Asian markets like China. As a consumer, you don’t really know the true value of the products that you are using.
Plus, the lack of transparency in modern supply chains is another major issue. If you have a defective component in your phone, then it is near impossible to pinpoint exactly where that defective piece came from and who was the person(s) responsible for it.
In fact, let’s give you an example of how truly dangerous this lack of transparency can be.
On October 6, 2006, multiple states in the US suffered a major E-Coli outbreak. The culprit? Spinach — Around 199 people were affected of whom 22 were children under 5 years old. 31 of the 199 developed a type of kidney failure called hemolytic-uremic syndrome and 3 people died.
As a result of this, the entire food industry went into pandemonium. People were desperately trying to trace the source of the infected spinach. Everyone stopped selling spinach immediately from the market. It took the Food and Drug Administration (FDA) a total of 2 weeks to find the source of the contaminated spinach.