Ineffective supply chains are costing companies around the world big money. In the United States, for example, the average business loses an average of 171,340 USD per year due to outdated supply chains.
This, to be frank, isn’t a surprise.
Supply chains today still run on terribly outdated technologies. Suppliers and manufacturers, for example, still use paper invoices which are processed manually. This, in turn, results in errors and delays in shipments, which in turn results in a loss for the companies involved.
Is there a solution to this? The answer is yes.
Two important technologies today that can help to mitigate the enormous loss that companies face due to their ineffective supply chains are:
Blockchain is a technology which gave rise to Bitcoin, the digital currency which took the world by storm in the past few years.
Blockchain acts as a distributed ledger on which information can be stored. Anyone who has access to the ledger can see the information in it. Plus, since a blockchain does not have a single point of failure, the data stored within it is extremely safe – and cannot be tampered with without the consent of all the stakeholders involved. And finally, the data stored in a blockchain is immutable (meaning it can’t be deleted), which further increases its reliability.
2. Internet of Things (IoT)
Internet of Things (IoT, for short) are devices equipped with a variety of sensors. These sensors gather information about a real-world object and analyze its performance. IoT devices then upload this valuable data on the internet. This allows people to view information about the object in real-time, no matter where it is in the world.
10 ways blockchain and IoT can improve the supply chain process
Combined, these two technologies i.e. blockchain and IoT have the potential to dramatically improve the supply chain – and solve its most pressing challenges.
Here are ten ways how:
1. Full transparency within the supply chain
What bothers companies most about their supply chains is a lack of transparency. Most of the time, supply chain managers don’t know the current status of the products and items they have ordered.
Has the manufacturing been finalized? Did the supplier ship the order on time? Will there be a delay – and if so, whose fault is it?
For a company, getting an accurate answer to these kinds of questions is not easy.
But with blockchain technology, everyone in the supply chain can have access to a shared database on which location data, timestamps , and delivery status can be uploaded in real time.
And in this way, companies can see exactly when an item has been manufactured, when the supplier received it and at what moment it was dispatched, for final delivery.
2. Information on where each item is coming from
Since IoT devices have tracking capabilities, companies can see exactly where their products are coming from.
The IoT devices attached to products can share real-time location on where the product is currently located – and update this information on the blockchain network. In this way, companies can track the precise origin of the products they ordered, thus determining if they came from a valid supplier or not.
And thus, they can be sure they will receive genuine products – not counterfeit, cheap knockoffs of original items.
3. The ability to provide real-time updates on delivery status
The retail market is unpredictable. Demand for products constantly varies. That’s why it is crucial for companies to be sure that their suppliers will dispatch their orders on time.
Because the more reliable the supplier is in making deliveries, the more accurate a company can get at fulfilling customer demand.
But right now, companies have to take the word of suppliers that their orders are being shipped and will reach them before the deadline. But unfortunately, despite the promises of suppliers, orders get delayed and companies don’t find out until it’s too late.
With location tracking using IoT devices, companies can see exactly where their products are, in the supply chain – and can use this information to make their suppliers accountable, and thus ensure that deliveries reach on time, every time.
4. All stakeholders can see updated data instantly
In the supply chain, there is a lot of miscommunication. Companies are always worried if their orders have been dispatched on time while suppliers and manufacturers are always inquiring if their payment has been made on time.
All this inquiring and following up can be time-consuming- and the mistrust developed due to lack of communication can slow down the supply chain – or even cause disputes among parties.
But since IoT devices uploading real-time data to the blockchain network, these disputes can be avoided since all the stakeholders get notified on time regarding how the deliveries and payments are being handled.
5. Payments are processed instantly without an intermediary
Blockchain networks aren’t just useful for storing and sharing information. They are an excellent medium for making transactions as well, as proven by bitcoin.
The biggest advantage of using blockchain for payments is that transactions are made nearly instantly. This removes the need for a financial institution like banks, which are notorious for delaying payments.
And since there is no payment processor involved, everyone gets paid on time, which results in fewer inquiries, and therefore, results in the supply chain moving faster.
6. The middlemen are reduced
The biggest feature of using IoT devices is that it provides full transparency of how your products are moving through the supply chain. And thanks to this high level of transparency, companies can see exactly how many suppliers handle their products.
Using this information, they can then remove unnecessary 3rd parties ‘or middleman’ within the supply chain by only doing business with the original supplier, or even the manufacturer themselves.
In addition, the use of blockchain to handle payments will allow everyone within the blockchain to make transactions without using banks, which will further save costs.
And in this way, blockchain and IoT help reduce the number of middlemen within a company’s supply chain.
7. Companies can track the performance of their products
With IoT devices analyzing a product in real time, companies can easily create its ‘digital twin’.
According to Forbes.com: “A digital twin is a dynamic, digital representation of a physical asset that enables companies to track its past, current and future performance throughout the asset’s lifecycle.”
This means companies using IoT devices, will be able to track their products’ performance in real-time even after they reach into the hands of their customers.
With this raw performance data that is uploaded in the blockchain, companies will be able to figure out the ways in which they can improve their products for future releases, creating a win-win situation both for themselves and their customers, plus reducing their R&D costs simultaneously.
8. Dramatically reduce the level of manual work involved
Traditionally, most of the supply chain is supported by manual labor. For example, invoices are sent manually, payments are made manually, and even recurring orders and payments have to be approved manually.
With blockchain technology and IoT, most of this manual work can be avoided.
This is because, in a blockchain network, you can create ‘smart contracts’. These are small programs that allow one party to create certain ‘conditions’ or ‘objectives’ which when fulfilled by the other party, releases ‘payment’ or any other promise guaranteed.
For example, a company can create a smart contract which states that when X number of products are delivered, Y USD will be released. So when X number of products actually get delivered by a supplier and its information is uploaded into the blockchain network by the IoT device, the smart contract will automatically release Y USD payment.
And in this way, the need for manual work is dramatically reduced in the supply chain, which means inventory moves at a faster rate.
9. Customers will be able to trace the source of their commodities
In the market, customers pay a higher price for high-quality products. But what guarantees that they are actually getting the high-quality item that they are paying for?
For example, if a customer spends 20 USD extra on ‘specialty coffee’ from Brazil, how will they know if that’s what they are getting?
Blockchain and IoT devices combined can solve this problem.
IoT devices can track the location of the coffee, analyze each bean for its quality, and then upload the data to the blockchain network which customers can access. And in this way, traceability of the coffee is assured, everyone from the farmer to the company gets their fair price and the customer is happy with their product, which in turn, will increase demand for the company.
And this concept isn’t limited to just coffee and edible items. Using blockchain and IoT, raw materials like diamonds, steel, wool, etc., can also be traced.
10. The supply chain faces fewer errors and moves faster
When blockchain and IoT devices work together in a supply chain, two things happen:
- Accurate, real-time data reaches all the stakeholders instantly, which creates more harmony and fewer delays in the supply chain.
- The supply chain becomes more transparent and automated, which means fewer errors occur and the supply chain moves faster.
The result of these two things?
Businesses and corporations save a lot of money.
How much exactly?
Well, McKinsey did an extensive study and found out that blockchain and IoT, when combined, can save businesses across seven key financial sectors around 80 – 110 billion USD.
All that remains to be seen is whether the organizations involved in the supply chain process will voluntarily adopt these technologies or not. But the results they bring are already promising, and so is the future of blockchain and IoT as well.