Why blockchain hasn’t dominated the supply chain yet

Blockchain technology has been a hot topic of discussion ever since its inception, and the interest doesn’t seem to be going away anytime soon. This technology has the power to revolutionize existing systems, and in 2017, experts predicted that blockchain’s transformative power would be ideal for supply chain management.

However, looking at the supply chain situation over the past few years, the results have been much different than expected, and the question remains as to why blockchain has not yet taken over the supply chain.

Let’s see why this is so.

Related: Disrupting the supply chain with blockchain

The promise of blockchain in the supply chain

Imagine a supply chain where every step is recorded in a ledger, immutable and accessible to all authorized parties. With this type of transparency, companies can expect to significantly reduce fraud, increase efficiency, and streamline operations.

With 2.8% of the world’s population already using blockchain, this technology has great potential to revolutionize supply chains. Blockchain is popular among experts due to some of its core properties. These include:

decentralization

The main reason for blockchain’s popularity is its decentralized nature, which is a breath of fresh air from traditional hierarchical structures. Since the advent of Bitcoin, the world has been moving towards decentralization, which could have huge implications for the supply chain space.

Consider a network in which all participants, from suppliers to manufacturers, distributors, and retailers, share equal authority and no single organization holds disproportionate power. This balance of power helps foster trust between stakeholders, as each party can track all transactions.

Related: Decentralization is your friend

transparency

The transparency provided by blockchain technology has the potential to revolutionize supply chain networks. This ensures that all authorized parties have access to the same real-time data, eliminating data asymmetry.

This can be especially important in industries where accountability is important, such as the pharmaceutical industry, where medicines can be life-saving or life-threatening. Knowing a drug’s authenticity and tracking its expiration date can help you hold the right people accountable if something goes wrong. Not to mention, it also increases customer confidence in your product.

Immutability

According to the KPMG Global Fraud Survey, more than half of frauds committed utilize proprietary technology, and 24% of frauds use these technologies to create false or misleading information in accounting records. I was using it.

One of the biggest benefits that blockchain brings to the supply chain is that the data recorded on the network cannot be changed or erased. This means that records of transactions, shipments and certifications are permanently etched into a digital ledger, bringing a new level of integrity to the supply chain.

safety

U.S. supply chain cyberattacks affected 1,743 companies in 2022 alone, and security breaches and data leaks have been common in supply chains for years and are only increasing. Blockchain security mechanisms offer a potential solution to this very vexing problem.

Within a blockchain, transactions are secured using cryptography and, once verified, linked to previous transactions, creating an unbroken chain. This makes changing old records a very difficult task. Apart from that, business data is distributed across the network instead of being stored in one place, making a centralized data breach redundant.

Related: How to reduce cybersecurity risks associated with supply chain partners and vendors

Challenges facing blockchain in the supply chain

Blockchain technology in the supply chain shows incredible promise, but the path to seamless integration is perilous and fraught with difficult challenges. Let’s take a look at some challenges you may encounter.

1. You are not used to chains. Understanding and successfully implementing blockchain is not difficult for anyone, especially supply chain professionals who are used to traditional systems. Blockchain consists of several complex technologies, such as consensus mechanisms, smart contracts, and cryptographic hashes, that require time and patience to master. The learning curve can also be steep and often requires specialized training and expertise.

2. Scalability issues. Lack of scalability is one of the biggest obstacles facing blockchain today. This is primarily due to blockchain’s consensus mechanism, which requires all participants in the network to agree on which transactions are valid. Therefore, the larger the supply chain, the more difficult it is to extend it using blockchain, as increased transactions can degrade network performance and cause delays and congestion. Masu.

3. Regulatory and legal hurdles. The regulations and legalities that come with blockchain integration can be daunting for many. There are many complex issues, especially when it comes to data privacy and cross-border transactions. Due to a lack of knowledge about these things, many business owners hesitate out of fear that something will go wrong and they will run into legal pitfalls instead.

4. Costs and resources. I think the most obvious reason why blockchain is not as widespread in supply chains as people believed is the large amount of investment required to integrate it. Implementing and maintaining a blockchain requires building chain infrastructure, hiring blockchain experts, and incurs operational costs. This alone is enough to deter small businesses considering investing in blockchain integration into their supply chains.

Related: Mass adoption of blockchain technology by entrepreneurs? Comes with big challenges.

The future of blockchain in the supply chain

These challenges are disturbing enough to scare many aspiring entrepreneurs, but some solutions are emerging to address them. These hybrid solutions include integration with IoT devices, AI algorithms, and cloud platforms, reducing scalability and complexity concerns, making blockchain integration less complex and more desirable. .