Making supply chains run smoothly
Modern supply chains are vast, collectively making up two-thirds of the world’s GDP. They are also incredibly complex; millions of goods are transferred every day, across hundreds of stages and multiple geographies. Making this enormous global network run smoothly is no easy feat, and the current lack of a single system to manage all supply chain transactions and processes has led to significant issues in terms of data latency and accuracy. In a system where the slightest delay can directly impact a company’s profit margins, supply chain professionals have been seeking an alternative to the status quo.
Unifying this transacting process and taking the control away from centralized financial, legal and accounting institutions requires the reconciliation of each of these disparate divisions and the identities of the various vested parties. The status of the asset in each of these areas must also be cohesive with the real world state of the asset, which results in the dilemma of validation for each of the relationships involved and the minimum amount of validations required to verify the information. Existing regulation around auditing and finance, functions primarily to ensure that each of these states corresponds to tackle the prevalent fraudulent activity in the sector. Today, the consolidation of all of these processes and parties is subject to issues around bureaucracy as well as being time-consuming and costly.
Blockchain technology offers a viable solution to many of the problems that exist in global supply chains. As an immutable digital ledger, blockchain provides increased product visibility and eliminates the need for transactions to be verified by a central authority or third party. Built-in smart contract capabilities enable legal agreements to be enforced automatically and digitally. In addition, the transparency provided by blockchain technology improves accuracy and clarity at every stage of the supply chain, effectively eliminating the potential for fraud.
Each rung on the supply chain has to jump through hoops to find common ground and reach agreement, but smart contracts and blockchain protocols can facilitate instant decision-making, reducing disagreements and disputes which can delay the process and prove costly. As such, this automation removes the dependence on third parties to verify transactions, streamlining the process and avoiding the loss of trillions of dollars to the industry globally.
Unlocking the value of trapped assets
In addition to making supply chains more transparent and efficient, blockchain can also increase the liquidity of supply chains. Currently, trillions of dollars worth of assets are trapped and unable to be traded. However, blockchain enables the tokenization of material assets, unlocking the value of these assets and making it easier for businesses to access much-needed funds.
Consider a scenario where a startup needs access to funds to purchase business premises. As an early-stage business, the company’s cash reserves may be low, due to the fact that cash has been invested in inventory and other essentials required to get the business off the ground. In this case, it would struggle to get a loan from a traditional financial institution, such as a bank, as its ability to repay the loan would be judged by the amount of cash reserves held. But what if the startup could borrow against the value of its inventory? This would enable it to access the funds required to expand its operation, injecting additional value into the global economy and benefitting all participants in the supply chain.
Unprecedented levels of transparency
In short, blockchain offers potentially unprecedented levels of transparency, cost-efficiency, and speed and promises solid business benefits. The largest impact of this revolutionary technology will be fully realised when our global supply chains are able to free their capital, assets, and human resources to achieve their most efficient uses, and provide customers with products at a fair and honest price.
Scott Nelson, CEO & Chairman, Sweetbridge
Last modified on Tuesday, 25 September 2018