Objective:

• What are the present issues with managing the supply chain?

• Present a basic conceptual picture of how Blockchain technology functions.

• How can Blockchain technology address the issues currently facing the supply chain?

• What are the challenges to adopting Blockchain technology, especially for managing supply chains?

Blockchain Case Analysis

A “supply chain” is the sequence of processes involved in the delivery of a product or service

from the supplier to the consumer. The current supply chain has worked in the past, but certain issues

with the supply chain have caused it to be difficult to manage. Not only is it increasingly costly to

maintain the supply chain with global trade liberation and advancing technology, the supply chain has

become unreliable, not only in terms of security but also in confidence and trust between the supplier

and consumer. The three main problems which are apparent in the supply-chain industry are the

integrity of good, trust, and supply-chain tracking. All three of these problems remained unsolved until

the recent discovery of a new technology called blockchain, in which blockchain-based solutions may

apply to these issues.

One of the three main problems with managing the supply chain is the integrity of goods. Many

high-end luxury company’s clienteles entail individuals who look for brand value over the functionality

of the product. For this reason, such companies will have “physically integrated their entire supply

chain” (Pan, Wang, & Xu, 2016, p.2) as a strategy to preserve value. Integrating the supply chain allows

for aster product development, higher overall quality and value, increased cost competitiveness

(Surviving Supply Chain Integration: Strategies for Small Manufacturers, 2000). Even with physical

integration, however, the supply-chain was still facing issues such as the issue of “blood diamonds”.

Blood diamonds were “diamonds mined in war zones and used to fund unethical military operations”
(Pan, Wang, & Xu, 2016, p.2). The consumers who purchased these diamonds were completely

anonymous to the origins of the diamonds. Some companies were unable to locate or control the source

of their diamonds, which meant they were unable to prove whether it was blood diamonds in their

supply-chain or not. This puts the integrity of the goods (diamonds) at risk and could cause consumers to

choose to buy from competitors.

The second issue with managing the supply chain is the lack of trust between consumers and

brands which was compromised due to the lack of transparency of supply chains. As the use of the

internet increased, consumers began to become more aware of environmental sustainability, fair-trade,

and organic good-for-you products. Companies did not share enough information that would allow

consumers to validate marketing claims. The lack of information caused the ledge of trust between

companies and consumers.

The last issue with managing the supply chain is the problems with supply-chain tracking.

Supply-chain tracking is the movement of goods throughout the supply chain, in which certain

technologies provide real-time information on the location and status of the goods (What is New in

Supply Chain Track and Trace Technology? 2020). There were time lags and barriers that caused the

disconnection between the participant and supply-chain. Previous records, if not erased, contained

inconsistent information and if they were erased it was made highly difficult to track the goods. It was

difficult for participants to understand the movement of the goods because there was partial and

inconsistent information given.

Block-chain technology which is described as a digital ledger is essentially used to keep records of

all transactions performed between intermediaries. It allows digital information to be distributed but

not copied since the information exists simultaneously in millions of places (Dughi P., 2018). This means
there is no central location, making it harder to hack (Dughi P., 2018). Blockchain maintains a list of

information called “blocks” and each data block is linked to the previous one by a unique hash value

known as the “trapdoor” (Pan, Wang, & Xu, 2016, p.3). Each block gets connected to a specific trapdoor

(Pan, Wang, & Xu, 2016, p.3). All of this information is stored in the internet nodes, where the original

data added was permanent and couldn’t be tampered with unless there was an actual reason. Most

data were added through an algorithm that used separate sets of public and private keys to ensure

integrity (Pan, Wang, & Xu, 2016, p.4). Data was added to the blockchain in the same way if there was a

consensus. This is the same technology used for popular services such as bitcoin.

Many features in block-chain could change supply-chain management overall. Using a more

transparent network, the product can be documented from its origin to destination along with the

transactions en route. This would address the issue of the integrity of goods since consumers would be

able to know where their products are coming from and if they are ethically sourced. This also helps the

trust barrier between the supplier and consumer, because there is more transparency which gives

consumers more intel and access to data. Due to blockchain being scalable it creates an infinitely large

database that can be accessed by anyone anywhere in time virtually which is extremely convenient for

global consumers. Blockchain will eliminate cyber-crime significantly since every transaction can be

tracked the whole way, and there are high costs for changing transaction history. Using real-time

transactions blockchain would increase efficiency by reducing the processing time between

intermediaries since the information did not need to be transferred from party to party. Since there is

no central control in block-chain, smart contracts can be integrated into the supply chain where only

certain participants will have access to the information and regulators can monitor the flow of goods

through the supply chain network (Pan, Wang, & Xu, 2016, p.5). Blockchain, in general, can significantly

change the supply-chain management for the better.

 Although there are many benefits to adopting blockchain, there are still some challenges

blockchain faces. To reduce costs associated with intermediaries, many companies use vertical

integration because it gives them transparency, but this isn’t always good due to a lack of economies of

scale and expertise in the field. With blockchain, a vertically integrated company’s competitive

advantage will change because now everyone can access transaction records and other data because of

the transparency and use it how they please. Information asymmetry Is caused by participants not

having enough information about the transactions performed between intermediaries. For the

intermediaries, their exclusive access to information was one of their competitive advantages, but with

blockchain, the transparency would eliminate their advantage. With blockchain, value is created which

insinuates that large firms that sell high-end brands will mostly utilize this technology. They can increase

their value by having the complete history of their product available (origin, creation, etc.), but the

challenge would be the company’s ability to differentiate themselves through value creation. Overall,

blockchain would be a very helpful switch depending on the company and its goals and ways of

operation.

References

Read "Surviving Supply Chain Integration: Strategies for Small Manufacturers" at NAP.edu. (n.d.).

Retrieved from https://www.nap.edu/read/6369/chapter/5#28

What is New in in Supply Chain Track and Trace Technology? (2019, September 17). Retrieved from

https://www.datexcorp.com/what-is-new-in-track-and-trace-technology/
Dughi, P. (2018, March 13). A simple explanation of how blockchain works. Retrieved from

https://medium.com/the-mission/a-simple-explanation-on-how-blockchain-works-e52f75da6e9a