Blockchain Applications in Supply Chain Finance

Traditional supply chain finance processes involve a lot of paperwork, verification, and middlemen. They are time-consuming, error-prone, and costly.

Companies can improve lead times and access to working capital by treating finished goods, process capacity, and work-in-process inventory as digital currency. Blockchain technology makes that possible. It also makes financial flows more transparent.

Improved Traceability

In supply chains, blockchain applications can help firms improve traceability by recording the identity of items from their origin to the point of sale. This can eliminate the need for companies to rely on third parties for verification, and allow them to track quality problems more quickly. In addition, the blockchain's tamper-resistance can reduce theft and counterfeiting by allowing customers to verify that goods are authentic and have not been tampered with.

Firms can also leverage the blockchain to streamline and automate their financial supply chain processes, reducing administrative costs and eliminating paperwork. This can also allow them to meet regulatory requirements by providing a transparent record of their supply chain operations.

One way is to use a blockchain-based smart contract for the management of accounts payable, which allows all the parties to see payment transactions and eliminates conflicts over invoices. Another approach is to develop blockchain-based cryptocurrencies that allow all supply chain partners to pay each other without the need for banks, thereby reducing incurred fees and speeding up payments.

Companies are experimenting with various blockchain applications in supply chain finance. In particular, they are using blockchain to synchronize logistics data, track shipments and automate payments with trucking companies. These blockchain applications do not require firms to share their entire transaction history with their competitors,Bitcoin wallet private key , reducing the risk of information leaks and making them more acceptable to companies that are wary of sharing competitive data.

Smart Contracts

In addition to improving traceability, blockchain can streamline trade and supply chain finance processes. It enables organisations to reduce transaction costs by making it easier and faster for trading partners to reconcile orders, invoices, payments, and other financial data. And because a blockchain is tamperproof, it increases trust among trading partners and eliminates the need for costly physical audits.

Blockchains can create smart contracts, lines of computer code that automatically trigger actions once certain conditions are met. These can include releasing funds, executing documents, or taking other actions. For example, a smart contract could unlock funds for a cargo container once IoT sensors confirm that the shipment arrived at its destination intact and within the proper temperature and humidity conditions.

Many organisations are testing and developing blockchain applications in the area of trade and supply chain finance. For instance, Walmart Canada uses blockchain with trucking companies to synchronize logistics data and track shipments without changing the truckers' internal processes or information technology systems. The resulting system allows the firm to expedite payments and cut administrative costs, while reducing the risk of fraud or error.

However, the type of blockchain used in these cases must be private and shared only with trusted parties. For example, a blockchain that stores raw material and work-in-process inventory for manufacturing swimming pool equipment must be limited to known members of the value network in order to ensure traceability and safety.

Secure Payments

Blockchain systems can provide a secure and transparent way for companies to verify their supply chain’s provenance. This is important because customers want to know where products or materials come from and what the quality and authenticity of those goods are. Companies can use blockchain to prove this information and improve customer relationships.

Companies can also use blockchain to streamline trade and supply chain finance processes. For example, a blockchain could be used to share shipping data with partners and suppliers, which reduces the time it takes for invoices to be paid and can prevent fraud or error. This is because the blockchain is immutable, which means the information can’t be altered or deleted.

In addition, blockchain technology can be used to improve payment methods. For instance, some companies are developing blockchain-based platforms that can connect their accounts receivable with supplier financial ledgers and ERP systems. These platforms can then digitise the account receivable and automate payments, which can significantly reduce the time it takes for suppliers to receive invoices and for banks to process them.

Many of the aforementioned applications of blockchain in supply chain finance are still in development. However, it is clear that the technology has immense potential to transform trade and supply chain finance processes and improve business performance. Moreover, a number of organisations are working to support and guide supply chain managers in adopting blockchain for these purposes.

Enhanced Data Sharing

Supply chain finance requires information from and about a variety of supply chain partners. But current transaction systems often prevent these parties from seeing each other’s data. The blockchain technology used for cryptocurrencies can be a way to share such data. Blockchain networks work by "tokenizing" a variety of data, creating unique and easily verifiable identifiers for purchase orders, inventory units and bills of lading. This makes it easier to exchange this data among all the players in a supply chain.

A large pharmaceutical company in our study is using blockchain to comply with a federal requirement to trace prescription drugs from the manufacturer all the way to the patient. Drugs are tagged with electronic product codes that follow GS1 standards, and the blockchain records digital tokens representing those codes on the journey through the supply chain. This provides a level of transparency that isn’t available today.

Companies in our study are also using blockchain to reduce the cost of managing accounts payable and the time it takes for invoices to be paid. The blockchain can help to resolve data discrepancies between financial ledgers and enterprise resource planning systems. It can also make it easier to verify a supplier’s creditworthiness without having to conduct expensive physical or financial audits.

Some of these blockchain applications are just starting to be explored in detail. The successful ones will require new permissioned blockchains and new standards for representing transactions on a block, as well as a framework for governing the system.