Ensuring supply chains run smoothly and without hiccups is essential for businesses to prosper. The use of blockchain technology could greatly help with this, as smart contracts grow in popularity by reducing levels of disruption and increasing the efficiency of supply chains.
David Coleman is the Chief Product Officer at iov42. Coleman jumped straight into the fire of a startup by interning as a programmer after his first year of a Computer Engineering degree. His newfound passion for creative problem solving inspired him to join the company full-time and finish his degree in his spare time. After the startup was sold, Coleman moved into investment banking, designing and engineering high performance, high throughput systems. He continued to build this expertise in the financial sector, going on to initiate and run an API First initiative at a large global bank.
During his first foray into blockchain, Coleman won Thomson Reuters’ 2016 and 2017 Hackathons, and with his interest in blockchain piqued, he joined iov42 in 2018. He now heads up the product team, where he loves the challenge of combining his love of technological innovation with solving hard business problems.
Day to day, most of us give little thought to the supply chains underpinning the delivery of our food, clothes and other basic amenities. But over the past few months, post-pandemic supply chain disruption has dominated headlines. From panic-fuelled empty petrol pumps to the threat of a toy shortage at Christmas, public trust in supply chain efficiency is dwindling. What’s more, the overall cost of supply chain disruption for US and European companies in 2020 was estimated to stand at around $4trillion. So, how could blockchain, the technology powering the world’s rapidly growing cryptocurrencies, help?
The answer lies not in currency, but rather in the use of an altogether different application of blockchain: smart contracts. Blockchain technology, which is most often associated with cryptocurrencies like Bitcoin, is not only offering an innovative new means of trading, but it is also providing an infrastructure through which businesses can future-proof their supply chains and reinstill vital trust.
Smart contracts are programmed onto a blockchain in order to trigger an action – such as an agreement, the next step within a workflow, or the onboarding of a new vendor – when certain predetermined criteria are met. Smart contracts work by following “if/when…then…” statements that are written as code on the blockchain. For example, a smart contract could automate a payment once proof of product delivery had been received. This action can be initiated immediately, without the need for manual intervention.
Smart contracts are one of the most common protocols used in blockchain solutions to make the processing of transactions more efficient and, in doing so, make the benefits of blockchain technology more accessible to businesses and even governments.
Providing this digital administrative function, smart contracts and other transaction protocols enable the processes within a supply chain to be safely, reliably and efficiently executed. This, in turn, helps to streamline the supply chain, eliminate delays and make it more resilient in the face of unexpected events.
Streamlining product flow to speed up supply
Obstacles within a supply chain slow down the traffic of goods and cause disruption further down the line. Delays brought about by manual form-filling, human error and missing paperwork have a knock-on effect that leaves consumers at the other end of the supply chain empty-handed. Smaller companies also risk being forced into administration as a consequence.
By removing these barriers, smart contracts can clear the road and get the supply chain moving more efficiently. When smart contracts are created, the conditions that will trigger a particular process are pre-determined and pre-agreed by all relevant stakeholders. This means that the lengthy process of manual sign-off and paperwork is eliminated, and instead, the fully automated smart contract is able to initiate the next steps immediately, once all necessary criteria are met.
Without the need for manual checks, verification or regulation, the risk of human error – and the delays this inevitably causes – are also removed. Gone is the potential for a supply chain to be ground to a halt by a singular mistake.
Introducing new vendors to the supply chain is also much easier. Credentials required for verification can be transferred automatically via the blockchain and all necessary onboarding procedures initiated by the smart contract as soon as this information has been received.
Safeguarding the supply chain
One of the biggest issues with traditional supply chains is their lack of transparency. Parts of the chain are disjointed and information is held by individual systems, which are inaccessible to other stakeholders. This can erode the trust of participants and enable potential corruption to occur unchecked. Within the timber industry, for example, around an estimated 30% of timber is taken illegally across the market, demonstrating widespread corruption throughout the supply chain.
Using smart contracts can resolve this risk and build trust back into a more transparent supply chain by storing information using distributed ledger technology – decentralising data and making it visible to all stakeholders. Smart contracts, along with the information submitted to the blockchain, cannot be altered afterwards, by anyone. To update them, a new version of the smart contract must be created. This removes the chance of any single stakeholder manipulating the data or falsifying information, making the supply chain safer and more secure.
Smart contracts can also enable businesses – such as commodity suppliers, financial services or medical equipment distributors – to cut out the middleman, along with the associated costs. By fully automating processes which would normally require manual input, those involved in certification, delivery or verification, for example, are saved time which can then be spent on more value-adding activities.
Some blockchain solutions, like iov42’s identity-based technology, are developing this model even further. Attaching the smart behaviours used in smart contracts to specific assets and identities that are represented and stored on the blockchain helps to further safeguard supply chains by reducing susceptibility to programming bugs and defining stricter behavioural parameters.
Raising the resilience of our supply chains
No matter how efficient, trustworthy and strong a supply chain may be, there will always be unexpected events that occur to threaten their success. As has become clear throughout recent high-profile supply chain crises, such as the shortage of fuel, numerous food items and even fake tan, we need to expect the unexpected and plan ahead when it comes to managing our supply chains in the future.
Smart contracts, and other smart transaction protocols used by blockchains, can offer supply chains the tools required to combat challenges presented by unexpected events or disruption. Coupling automation with the transparency provided by blockchain, it becomes clear exactly where activity is being affected, helping to pinpoint the source of disruption.
As a result, stakeholders can spot potential issues much sooner and respond more immediately. This reduces the likelihood of long-lasting disruption by enabling participants within the supply chain to solve the problem before the onset of any further ramifications.
In order to reduce levels of disruption and increase the efficiency of our supply chains, a stronger, more secure infrastructure must be adopted. Blockchain and other distributed ledger technologies can offer the benefit of more efficiency, transparency and security at each stage of the supply chain. This ultimately translates to an end-to-end solution to supply chain problems. Not only does this drive productivity, reduce unnecessary costs and prevent corruption, it safeguards against the threat of any future crises derailing life as we know it.