Why do we need blockchain in the supply chain industry?

In This Article, We going to see the actual foundation and use of the blockchain supply chain and how blockchain can use to make advancements in the world different industries.

Blockchain can transform different enterprises by surveying a broad array of various applications and software tools.

It is a technology behind the digital currency bitcoin, is now being brought to bear on a range of enterprise applications beyond currency in almost every industry from supply chain to banking, energy, healthcare, and many more.

It is a New Way to Interact

At a high level, blockchain provides a new way for organizations to interact that doesn’t require as much trust.

This, in turn, promises improved efficiency, security, transparency, and even the opportunity for new business models.

Let’s dive into a specific application area, supply chains, to get some tangible insights into what blockchain is, how it can benefit an enterprise and some of its challenges.

Blockchain Potential in Supply chain

A few top companies like IBM and a group of retailers including Walmart have recently launched a pilot using blockchain to help increase food safety.

A current outbreak of covid-19 in the world highly impacted the world supply chain industry and the lack of information and cure for a disease is widely blocking the supply flow because of lockdowns.

Similarly, the outbreak of Salmonella in papayas gives us insight into the motivations these companies have to improve the status quo.

While the source of an outbreak is being tracked down, lives are at risk, as well as substantial money.

The government initially recommended that an entire type of papaya from Mexico not be eaten. Later, after more tracing, the ban was restricted to specific brands and, finally, serialized lots of papayas.

Given the cost and health risk, why did it take so long? To trace specific papaya back to its source, the government likely had to contact retailers, distributors, multiple brands, importers, and farms all individually.

One can imagine the situation gets even more complicated as products are mixed with other ingredients and long shelf-life products, as was evident in another recent outbreak of Ecoli in SoyNut butter.

Blockchain Shared Database

Instead, what if there were a single database that kept track of every single papaya’s journey? The government and companies would be able to immediately see the source of contamination and pull only the risky papayas.

This sounds great, but even the most basic questions about how this might work reveal myriad complications.

1. Who would hold that data?

One retailer wouldn’t want another to hold it. And, given all the recent security breaches at government databases, it’s unlikely anyone would want the government to operate the database.

2. Who would be able to see the data?

Retailer A wouldn’t want retailer B to know how many fruits like papayas it was buying, what price it was paying, and from what distributors.

3. who decides what the right data is?

Consider what happens when a retailer orders 10 crates of papayas and the supplier delivers 9 crates. Now the retailer system shows 9 whereas the supplier system may show 10.

The retailer’s accounting office will likely need to call the suppliers to request a credit on the invoice. Here we see that each organization up and down the supply chain maintains its own records, with good reason.

One organization’s records certainly may not reflect the truth according to another. Reconciling inevitable differences represents a major cost in almost any industry.

Blockchain represents a new way to share data that address these questions. Blockchain can be thought of as a shared database, one in which control is truly shared between different organizations and is especially helpful when those organizations don’t necessarily trust each other.

Distributed Ledger Technology (DLT)

In our fruit example, imagine if each papaya had a serial number and current owner. As the papayas move through the food supply chain, the owner is updated, providing immediate visibility of every papaya’s path.

This also looks like an accounting ledger, which is where another common name for blockchain comes from, distributed ledger technology, or DLT.

How the DTL Works?

What does it mean to share a database? For starters, changes to the database must be approved by everyone.

In that case where the retailer and supplier disagreed about how many papayas were delivered, one or the other wouldn’t be able to independently update that record.

Rules:

Rules are established that must be obeyed in order to accept changes, For instance, either both the supplier and retailer need to sign off on the number before entering the change or, perhaps, a third-party auditor needs to sign off on the number delivered.

In this way, we effectively avoid any reconciliation, valid data was required on the way into the database.

In addition to regulating the entry of new data, a blockchain database has protections against tampering.

Cryptographic Hash:

Every new change to the database is accompanied by a kind of data fingerprint called a cryptographic hash.

Hashes provide a short representation for a larger amount of data, A hash of the entire Bible can be only 32 bits, but changing even a single letter in the Bible would generate a completely different hash.

See how different the hashes are from these two similar sentences. In addition to this marker that tells us whether a single bit changes, blockchain goes further to link these markers together.

Every time new data is added, a hash is calculated on that new data along with the previous hash. Because each hash builds on the previous one, the data forms a chain where any change in the historical data will immediately be obvious.

For efficiency reasons, new records are usually added in groups called blocks, which is where we get the name blockchain.

digital Signature:

In addition, new data must be accompanied by a digital signature, another cryptographic tool that makes sure only authorized people can change data and that there’s also a record of who did what in case of any wrongdoing.

Finally, each peer maintains their own copy of this common ledger where they independently check the rules, hashes, and signatures as new data arrive.

All these components contribute to a database where every participant has truly shared control and strong assurance that data won’t be tampered with.

The end result is more trustworthy data even though it’s not on your own database. And with this new later of trust in data, we unlock all sorts of efficiencies and possibilities.

With a single shared ledger, it would be trivial to track down the path of papaya in seconds. Trusting data also unlocks automation possibilities across what I’ll call trust boundaries.

A new order for food could be placed automatically when stock runs low at a retailer. Or shipping insurance could automatically be paid when a shipment is late or a temperature sensor indicates frozen goods have melted in route.

All these types of automation are possible without blockchain, they require a certain amount of trust in the inputs and, therefore, procedures to cross-check and verify the information.

Blockchain reduces and, in some cases, eliminates the checks and controls required with that trust, thereby unlocking automation.

Now despite this promise, there is the reason for skepticism. Couldn’t a group of companies get together and form a consortium group that runs a database in which everyone is given controlled access?

Why is blockchain in the Supply Chain Needed?

There is a spirited debate going on about this. Is blockchain really different than a distributed database? And if so, where does it add value? Even determining exactly what a blockchain is and isn’t is an evolving question.

Hundreds of enterprises from almost every industry are currently running pilots to hone in on exactly what blockchain should look like and where it can deliver value like the supply chain industry.

While many pilots have recently begun to show promise, there are many details to be decided in any implementation, and adaptations must be made from the blockchain behind bitcoin to one that works well for enterprises.

Bitcoin Blochchain vs. Enterprise Blockchain

With the help of an example, we will understand why bitcoin and enterprise both are opposite like In bitcoin, all data is viewable by everyone, whereas in enterprise data must be kept private, and not only from the outside but also selectively within the network.

In fruit examples like papaya, different retailers wouldn’t want each other to see how much fruit was ordered, but it would be valuable to give governments or auditors access to this data.

Performance is another area where the original blockchain falls far short of enterprise needs. Bitcoin can only handle a few transactions per second while modern databases handle millions.

The blockchain behind bitcoin is also very expensive, by design in fact. Various fees and costs are needed to prevent abuse while keeping the system completely open.

Almost all enterprise blockchain platforms in the development hope to exchange openness for better privacy and performance while still retaining the benefits of decentralization and that helps a lot in the supply chain as well.

Conclusion

Blockchain started as the technology behind bitcoin and Ethereum but is now being tested and deployed at hundreds of major corporations in industries ranging from supply chain to banking to healthcare.

Here you have got a little understanding of how blockchain can help businesses increase efficiency, reduce cost, especially compliance cost, and even capture new markets.

You need to explore the challenges blockchain faces including why these gains will likely require widespread industry collaboration.

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