In its simplest form, a blockchain in supply chain is a digital ledger (or list of transactions) that isn’t controlled by any one person and can’t be altered. In technical terms, a blockchain is decentralized, meaning there isn’t a single copy that someone manages. Instead, everyone who uses a particular blockchain has a copy of it on their computer that’s regularly updated. Users see the complete history of transactions, meaning there should be no disputes. This blog will answer some basic questions about blockchain.
What’s to stop people from tampering with records?
The blockchain name refers to the way that data is stored in chronological blocks that are ‘chained’ together in order. Each block of data is used to create a string of code known as a hash, which is part of the record and helps chain the blocks together. Even the slightest change to the data changes the associated hash and breaks the chain, immediately raising an alarm.
Is blockchain the same as Bitcoin?
No. Bitcoin is one of numerous cryptocurrencies, which are virtual/digital currencies that use blockchain to track transactions. Cryptocurrency is one of many possible uses of blockchain. Others include contracts, public document records, financial asset trading, and supply chain management.
How can blockchain help supply chain management?
Supporters of blockchain say that it could solve two problems with tracking and recording supply chain information:
- Supply chains can be obscurely complicated.
- Supply chain data can be manipulated.
The idea is that tracking a component, asset, or process in a supply chain lets all users see the same record of what happened, when, and where, which removes the potential for dispute that comes when companies rely on internal records. It also means less need to jump between the records of different companies along the supply chain.
This helps suppliers and manufacturers spot inefficiencies in the supply chain, and make more informed decisions about where to source components and how much value each step adds to the finished product. It also boosts transparency (for example, with companies who operate in markets where customers have ethical or environmental concerns).
What is a good blockchain in supply chain?
In 2018, Walmart revealed it is working on using blockchain to track shipments of food products so that it can easily track and locate contaminated items in the event of a product recall.
Another example is a project in the Democratic Republic of Congo that aims to track individual bags of cobalt from mining to being turned into cell phone batteries. This guarantees that a particular handset doesn’t contain cobalt mined by exploited laborers. Similar projects aim to track ethically sourced diamonds.
What are the limitations of blockchain?
One issue is that the security measures of blockchain mainly apply to the protection of records once they’ve been created. This doesn’t guarantee that the original record was accurate. For example, critics of the cobalt blockchain argue that the original declaration of the mining as ethically sound could be bogus or open to corruption among staff.
Another limitation is that the process of adding individual transactions to the blockchain requires computing power. The decentralized set-up means a lot of this work is effectively duplicated and arguably redundant. Critics portray this as environmentally unfriendly. It could also make it difficult to quickly scale up the amount of activity the blockchain can track.
It’s also important to remember that a blockchain only records a specific set of data for each transaction. This won’t necessarily match the information that a single company in a wider supply chain would prefer to have available. It could be troublesome to cross-reference the blockchain records with other data. For example, a blockchain might track which packets of contaminated meat traveled in which truck, but not what the temperature was in the truck, which might reveal how it became contaminated.