Blockchain has been heralded as a cutting edge technology that will improve the modern supply chain structure by increasing trust, efficiency and transparency in the supply chain. However, as promising as blockchain technology is, blockchain is not a panacea for supply chain problems. There are numerous advantages and disadvantages of using blockchain in the supply chain:
Some Pros of Blockchain
Trust:
Because the data on the blockchain is decentralized and immutable, members of the supply chain can trust the data they see on the blockchain. In contrast, a traditional supply chain data warehouse structure generally requires that all members of the supply chain keep their own records and therefore disputes arise when these records do not match.
Efficiency:
Since all data is recorded at every step of the supply chain and every member of the supply chain can see the data, it is easy to quickly identify where in the supply chain there is a nonconformity (e.g. a product defect or a missing product quantity). It happened because the life cycle of a product is tracked at every step. Take building a refrigerator, for example. In the case of a traditional supply chain structure, if the refrigerator manufacturer determines that the compressor of a finished refrigerator contains a defective valve, the refrigerator manufacturer should contact the compressor manufacturer, who should contact the refrigerator manufacturer for further advancement in the supplier stages to the supplier of the defective valve and so on and so forth, up the supplier tiers until the supplier of the defective valve is reached. On the contrary, if all members of the refrigerator supply chain were members of the same blockchain network, the refrigerator manufacturer could consult the blockchain to find the entire Trace History almost instantly, thereby significantly reducing the investigation time. Using blockchain technology allows you to spend less time sending emails and talking on the phone to find out the cause of the non-compliance. Since documents are stored in a common ledger, physical paperwork is also largely unnecessary.
Transparency:
Blockchain creates transparency because all data on the blockchain is automatically timestamped, including certain data that would normally not be recorded in a traditional supply chain system ( such as the steps completed in a production process or the time of receipt of an order by the seller ). Blockchain technology also creates transparency by enabling end-to-end tracking (i.e. traceability from one end of the supply chain to the other) that can be used by all members of the supply chain on the blockchain. Transparency can lead to faster dispute resolutions than with traditional supply chain systems.
Some Cons of Blockchain
Permissioned Blockchains:
Since supply chain information can be sensitive, a licensed blockchain (i.e. a blockchain that is not open to the public) is generally preferred; However, an authoritative system is less secure because fewer nodes make up the blockchain and these nodes generally know each other, resulting in an easier way to modify a block.
The Human Element:
While it is of great value to all members of a supply chain to know that the data on the blockchain cannot be changed once it is set up, human error or willful misconduct when entering the initial data on the blockchain can still occur. The information is not perfect, it can be false or even fraudulent. For example, a bad actor could fill a container with stones and record on the blockchain that the container was full of auto parts. Blockchain technology could make it easier to tell where in the supply chain the container was full of stones, but it wouldn’t prevent fraudulent data from getting onto the blockchain. Basically, blockchain technology does not prevent incorrect information from being entered into the chain; it allows all blockchain users to easily confirm that the blockchain data has not changed since a certain point in time.
Since blockchain technology has traditionally been immutable, fraudulent data inserted into the chain is problematic. Accenture has developed a prototype that allows authorized blockchain authorities to process past transactions in exceptional circumstances to fix human error, although some blockchain technologists have criticized such approaches to blockchain, claiming that erasing immutability is the purpose of the Use of blockchain over a traditional database.
Scaling:
Blockchain solutions process transactions much more slowly than traditional databases because transactions have to be validated on many different computers or servers. Also, due to the high volume of transactions in the supply chain, it can be costly to have a permissionless aspect of a blockchain solution. Given that transaction fees would have to be paid to fund the work of the mining nodes to create the blocks. Given that certain supply chains execute millions of transactions every day, the method in which blockchain technology is implemented must be carefully considered with a view to scalability.
Upfront Costs:
The initial cost of implementing a blockchain solution can be high. There are costs associated with hiring blockchain developers which, due to their specialty, tend to cost more than traditional developers. Planning costs, licensing costs, and maintenance costs they also add to a high price.
While blockchain technology can bring tremendous benefits to supply chains, there are also potential drawbacks that make it clear that any blockchain solution must be well suited to the target supply chain.
