“Blockchain has the potential to revolutionize stock management, as it enables validation, traceability of information, automation, and simplification in its management. Due to the refinement of the information exchanged by the interlocutors, it is possible to relax the safety stock and improve financial results such as free cash flow and profitability. In addition, it enables a more sustainable supply chain, with a more rational management of inputs and tracking and accountability of the entire chain, enabling the opening of a new strategic brand positioning and new markets,” highlights Hedwik D Giesel.
Can you explain what exactly is Blockchain?
Blockchain is a disruptive technology that has emerged with cryptocurrencies around the year 2008 and is one of the tools that compose the Fourth Industrial Revolution, furthermore, known as, Industry 4.0. Based on a process in which each transaction is verified, validated, and distributed among all users in an encrypted form, thus allowing greater transparency and reliability. They can also be used in public or private systems.
This technology has numerous advantages such as the decentralization of systems, traceability, security, privacy, removal of intermediaries, automation, which enables cost reduction. Due to its characteristics, this tool has been widely used in the financial sector currently. Besides, there are initiatives in the health, energy, real estate, and supply chain sectors as well.
Another factor that strengthens the blockchain application is the combination with other disruptive technologies emerging from Industry 4.0: Cyber-Physical System (CPS), Internet of Things (IoT), Artificial Intelligence (AI), Analytics, Cloud Computing and Robotics, which can automate the data collection and processing of big data for use on Blockchain platform.
The Blockchain enables a functionality called Smart contract. This tool is a virtual contract that can automate and reduce or eliminate intermediaries, be it legal or financial. Composed by a series of protocols and using encryption and decentralized storage, the rules that are normally attributed to a traditional contract between one or more institutions are established, thus including rules and penalties agreed between the parties, and these are consented by those involved.
How can companies use the Smart Contract?
We can see that the most common form of Smart Contract is for the automation of payments. For this, it is necessary to include in the contract the registration of payment and validation rules for products or services and their receptive value. Thus, once the product is received or realized, the protocol will start the validation and consensus for payment and registration in the organizations’ books.
However, a way that is still not very widespread is the use of the smart contract in conjunction with other tools, for the management of stocks. It would be a step beyond what is commonly used for payment; however, the principle would be the same. This application is ideal for cases where the inputs come from different suppliers, with different lead times, and their management is categorized as complex.
The general idea is that all the company’s stock is in big data, so when the material is used for production and an asset retirement order is registered, automatically, according to the established security stock, a purchase order is issued the smart contract protocols were triggered. Together with several sources, whether virtual or physical, such as data sent by customs or RFID for location of materials, the entire flow can be automated. In this way, the blockchain is fed by real-time information, in an encrypted form, decentralized and validated by its interlocutors, avoiding possible disputes and errors in the exchange of information, making it possible for all inputs to be clear and traceable from the supplier to the edge of the production line.
What are the advantages?
This tool has the potential to revolutionize stock management, as it enables validation, traceability of information, automation, and simplification in its management. This enables cost reduction by reducing or eliminating intermediaries, reducing possible risks with litigation, fines, and emergency freight. Due to the refinement of the information exchanged by the interlocutors, it is possible to relax the safety stock and improve financial results such as free cash flow and profitability. In addition, blockchain enables a more sustainable supply chain, with a more rational management of inputs and tracking and accountability of the entire chain, enabling the opening of a new strategic brand positioning and new markets.
What are it's limitations?
As any new technology has its challenges, one of them is the complexity and for networks composed only by customer and supplier, the higher cost and response time, compared to other tools already used in the market, may not be so attractive. Also, there is a need for a robust IT infrastructure with an adequate network, hardware, and software to meet the requirements of this technology. Thus, it is recommended to use this tool, for more elaborate processes and with several interlocutors, whether they are reliable or not.
How is it going to be beneficial for the supply chain domain?
Blockchain has great potential for the supply chain perimeter due to main advantages as traceability and reliability. With this tool, you have the capacity to identify the origin of each input in the chain, its quality, and the conditions of its production. Associated with other disruptive technologies, it can add even more to the management of the supply chain, such as technologies IoT, Cloud and Big data, promoting real-time management of every input or finished product. It enables the empowerment of the supply chain team and the consumer who may have the security of what they are consuming.
What are the innovative examples of blockchain in supply chain?
The biggest case of this technology applied, thus far, is the Danish multinational Maersk case, which together with IBM developed a blockchain, primarily, for products from Africa. Currently, the network has expanded, with other shipping companies such as MSC and CMA joining this platform called TradeLens. This movement allows greater reliability, reduction of interlocutors and bureaucracy, which results in cost decrease and improvement in the performance of the entire process. Recently, the World Economic Forum (WEF) highlighted the relevance and demonstrated its support for this technology, with the initiative to standardize blockchain applications already existing in the industry, mobilizing public and private institutions.
How do you see the future of blockchain in supply chain going to be?
I believe that this movement, as the association of new companies on the TradeLens platform, will be increasingly common and vital. Like any innovation, the pioneering companies in a certain technology, have the privilege of being the first to enjoy the benefits and become a reference, this implies a lot of effort, high costs and, of course, the hypothesis of failure. Now, we are in the moment that some features of this technology are becoming clearer and more accessible, thus, it is the time when companies should look at their processes and see how this tool could add value and bring a competitive advantage.
How can companies in supply chain harness the power of blockchain?
The possibilities are countless, from automating the sending of purchase and payment orders to the supplier, tracking inputs, finished products and assets to being able to control the physical performance of transportation and stock management. The first and main step is to conduct an analysis of your processes, identify which ones are costly, with various intermediaries and bureaucrats, to outline the plan for the application of the tool. It is recommended to use a Proof of Concept (PoC), to check the feasibility of this project in the organizations