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Making the Blockchain-Supply Chain Connection

Sept. 19, 2022
The use of blockchain in supply chain management and procurement is increasing. Here are some ways it’s being put to work in the business world.

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A distributed database that’s shared across a computer network’s nodes, blockchain stores information electronically in digital format. Best known for the role it plays in cryptocurrency systems like Bitcoin—where it maintains a secure and decentralized record of transactions—blockchain allows digital information to be recorded and distributed, but not edited.

Blockchain’s use is growing in the business world, where supply chain and procurement managers are among the roles that could benefit from using distributed, secure databases to share information. As global supply chains expand to include a wider range of suppliers, vendors and partners, the use of blockchain in these areas is also expected to increase.

According to a new ResearchAndMarkets report, the global blockchain supply chain market was valued at $355.5 million last year and is on track to reach $4.9 billion by 2027. During that 6-year period, the sector is expected to post a whopping 54.7% compound annual growth rate (CAGR). The firm says much of this growth will be driven by the “extensive adoption” of blockchain technology in retail supply chain management (SCM).

“This can be attributed to the [growing number of] online transactions, along with the rising demand for security and transparency in supply chain transactions,” ResearchAndMarkets points out. “In line with this, the increasing utilization of advanced technologies, such as artificial intelligence (AI) and machine learning (ML), in business strategies is leading to a higher product uptake across small to midsized enterprises (SMEs).”

Blockchain’s popularity is also rooted in high demand for effective tracking of authentication process information, procurement data and certifications. And, the widespread adoption of smart devices among the masses—coupled with a considerable rise in internet subscribers—is driving “widespread usage of these devices for product procurement, therefore creating a positive outlook for the market,” the firm adds.

More Sustainable Sourcing

One recent example of blockchain’s role in supply chain and procurement involves Continental Tire, which is using the PROJECT TREE blockchain initiative to ensure that its AllSeasonContact tires are made with responsibly-sourced natural rubber. Launched in December by ITOCHU Corporation, PROJECT TREE focuses on the traceability and sustainability of natural rubber.

The system uses a smartphone app that records information such as the date and the location of transactions using blockchain technology. The information is shown on the map with protected forests that are the habitats of many wildlife species. The raw materials are then stored apart from other materials, processed  and sold to tire manufacturers as natural rubber (using traceability information secured by blockchain).

According to Ledger Insights, PROJECT TREE tires are sold at a premium, and money is funneled back to the farm smallholders by providing them with farm tools, fertilizer and training. “The Indonesian rubber company uses blockchain during the procurement process to record the location of where the rubber was sourced to track which tires use rubber from PROJECT TREE and trace it from the raw material through to the retail sale,” the publication explains.

Continental previously engaged in blockchain initiatives to share data with autonomous vehicles and a money market pilot with Commerzbank, according to Ledger Insights, which says ITOCHU has also backed another blockchain sustainability initiative by investing in coffee traceability startup Farmer Connect.

Increasing Efficiency and Reducing Costs

In assessing “The Benefits of Blockchain Technology in Procurement,” the Oxford College of Procurement and Supply says the technology could help eliminate vulnerabilities, increase trust and improve transparency at all stages of the process. Take supply chain visibility, for example.

Blockchain provides a transparent record of all transactions in one place and also ensures trust and transparency when multiple agents are involved in various stages of the supply chain process.

“It can also be used to empower the buyer,” Oxford points out, “by ensuring the traceability of all goods throughout the purchasing cycle.” Blockchain also enables the creation of tamper-proof smart contracts, which can “self-verify their own conditions,” it adds. “These new possibilities in contract management could lead to increased efficiency and improved business operations.”

While Oxford doesn’t see blockchain “negating the needs” for traditional procurement tools anytime soon, it does say that blockchain can help improve the effectiveness of those tools. “It’s clear that blockchain will have a positive impact on the world of procurement by increasing efficiency and reducing costs.”

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About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.