Blockchain to Improve Supply Chain

The global pandemic, political turmoil, and natural disasters have turned troubled supply chains into delivery disasters. Long delays, stockouts, and backorders are impacting virtually every supply chain — and every customer — around the world. 

Manufacturers have scrambled to respond by redesigning supply-chain networks, reshoring production, and contracting with backup providers. These stopgap measures may improve short-term performance now by reducing late deliveries, but they can also increase long-term costs via higher prices from domestic vendors and increases in “safety” inventory. 

It's time for a new paradigm in supply-chain management, with a renewed emphasis on building supply chains of the future — seamless, interconnected webs of product and data that improve performance (quality, timeliness, compliance) and make the end-to-end supply chain more efficient, cost-effective, and resilient.

It’s time for blockchain.

Performance Solutions by Milliken has a team of expert practitioners with deep experience improving manufacturing supply-chain performance. We work with executives to design customized programs to meet the specific needs and expectations of their companies. 

Using Blockchain Technology for Visibility and Transparency 

Supply chains are complex, with each transaction requiring a range of information housed in different locations and applications (or on paper!) among supply-chain partners:

• Inventory levels
• Product orders
• Production schedules
• Shipping terms
• Payment rules
• Etc.

In fact, at large companies with multiple legacy systems in place at far-flung sites, even a simple question — e.g., “Where is this part?” — can lead to a days-long, manual investigation.

That’s where blockchain — also known as distributed ledger technology, which also serves as the foundation for cryptocurrency — comes in.

What Is Blockchain Technology in a Supply Chain?

Blockchain technology increases the transparency of supply-chain operations, improves the flow of information between the different stakeholders, and offers secure communication between businesses.

Why blockchain? Because it offers tremendous opportunities for simplifying supply-chain management:

• Transaction data is added digitally at each step of the production and shipping process to a private blockchain shared by approved supply-chain partners.
• Each partner holds a copy of the blockchain, but is unable to alter previous time-stamped data.
• Each partner’s corporate information technology systems — such as ERP or accounts payable — can access information from the blockchain to automatically perform traditional roles (e.g., trigger production when the blockchain records an order, invoice customers when the blockchain records acceptance of finished goods).
• In addition to transaction-specific data, other information — e.g., product codes, quality specifications, location, compliance approvals — can be added to the blockchain, as well as data delivered via Internet of Things (IoT) smart devices. 

Flow and Efficiency Are Critical to Supply-Chain Performance

The flow of goods and information during the pandemic — or lack thereof — dramatically impacted sales and profits at many firms. In the automotive industry, for example, a semiconductor shortage contributed to a 21 percent decrease in new vehicle sales in 2Q22 vs. 2Q21. 
It doesn’t have to be this way.

Lean manufacturers often improve operations and supply chains via value-stream mapping, which identifies:

• Material and data flows across a company and its supply chain
• Methods of movement for goods and communication of data
• Times required for material, goods, and data to pass from one process step to the next.

Manufacturers use the maps — typically large and hand-drawn on walls, or created in computer applications — to highlight and address areas where production or supply-chain problems persist. 

The Benefits of Blockchain Technology

Blockchain offers value-stream mapping in real time, with instant identification of incoming and outgoing goods and their transaction statuses.

Smart contracts — rules and agreements codified in blockchain among supply-chain partners — are executed automatically when material and information requirements are met, eliminating document handoffs and/or the use of intermediaries. (Note: Smart contract transactions could be executed via cryptocurrencies, although the volatile payment medium isn’t for everyone.)

How Does Blockchain Help Supply-Chain Management?

Blockchains also can track returns of defective products, detailing where problems were identified (e.g., supplier, warehouse, in transit, at the customer), the identifying party, and actions required to resolve the issue. In coordination with IoT technologies, blockchain can turn static value-stream maps into autonomous value-stream managers, with embedded intelligence throughout the supply chain triggering production schedules, warehousing activity, and/or shipping movements. 

How Does Blockchain for Supply Chain?

• Speeds delivery processes. 
• Enhances traceability of products and raw materials.
• Secures supply-chain information.
• Improves coordination among supply-chain partners and stakeholders. 
• Reduces administrative work and provides consistency in operational management.

Quality and Value

Many supply-chain systems have limited or no ability to monitor products from suppliers’ facilities to their destination. In fact, it’s common for manufacturers to identify problems with incoming goods only after their arrival, disrupting operations and costing thousands of dollars — or more — in lost production time. This means that data about a supplier delivery is often just as valuable — or more so — than the shipment itself.
Conversely, a blockchain-mediated supply chain maintains real-time records of product specs and production data, including quality variances at suppliers. This allows manufacturers to identify issues before they arrive on their plant floors — improving performance and fostering trust and accountability among all partners. 

Communication and Security

Many supply-chain problems result from poor communication among parties, especially in supplier-customer relationships that are primarily transactional. A study by The MPI Group found that 31 percent of manufacturers describe their relationships with suppliers as “buy and sell (e.g., cost and quality focus),” with only 13 percent characterizing their relationships as “partnerships (e.g., sharing resources, intellectual property, cost savings).”  

Blockchain improves communication among supply-chain partners — even those at a transactional level — by enabling error-free information-sharing without tedious data entry and validation processes. 

Blockchain also enhances information security, since data is stored in a “chain” of data blocks via encryption. All transactions are validated on a distributed ledger shared among supply-chain partners, making it nearly impossible to tamper with or alter the data, guaranteeing that each transaction record is accurate. 

Start Improving Your Supply-Chain Performance with Blockchain Technology

Blockchain brings the supply chain of the future to manufacturers today — changing the way supply-chain partners interact, stabilizing troubled processes and handoffs, and delivering benefits to customers and suppliers alike. While challenges remain — including scalability and ensuring initial data quality — blockchain will be vital in establishing the agile, resilient supply chains necessary to be competitive.

Supply-Chain Excellence with Performance Solutions by Milliken

Performance Solutions by Milliken (PSbyM) helps clients to develop lean, agile supply chains that withstand disruptions, deliver operational excellence, and increase revenues and profits. PSbyM practitioners have unlocked capacity in supply chains across a range of industries — including consumer goods, pharmaceuticals, food and beverage, plastics and rubber. We’ve addressed capital, workforce, and technology components (including blockchain) in plants and warehouses to improve inventory management and cash-to-cash cycles. Partner with PSbyM today to explore the applicability of blockchain to your company — and to improve your supply chain.