Five Challenges To Prepare For When Using Blockchain For Supply Chain Operations

I am the founder and CEO of Apriorit, a software development company that provides engineering services globally to tech companies.

Some people see the blockchain as a perfect supply chain management platform. Many market leaders, including Walmart and Danish Crown, have already incorporated blockchain technology into their supply chain operations. MarketsandMarkets estimated in 2018 that the global blockchain supply chain market would exceed $3.3 billion by 2023.

How does the blockchain fit the needs of the supply chain industry? Supply chains are complex and often lack transparency, integrity and resilience. A blockchain can cover all these gaps and make supply chain operations and management much easier for all parties involved. 

A blockchain network can be used as a platform to enable new functionalities such as cross-industry integration and enhanced user authorization. Blockchains do their best work in operations related to processing payments, tracking goods and storing data

In my company, we have experience enhancing industry-specific solutions, including supply chain management products, with the unique capabilities blockchain technology provides. But while it offers a wide selection of benefits — including traceability and reliability — this technology brings several challenges you need to be ready to deal with. In this article, I want to share some insights on these challenges.

I’ll focus on the five most important challenges you should prepare for when you’re building a blockchain-powered supply chain management solution.

1. Determining The Extent To Which You’ll Use Blockchain Technology

One of the first things to decide is whether your solution should be fully dependent on the blockchain or whether you’ll use it only for powering specific features. Blockchains typically shine the most when they’re fully integrated into your system. The more off-chain components you have, the more compatibility concerns you might need to address.

However, moving an entire supply chain platform to a blockchain requires a lot of resources. Therefore, you can start with a single blockchain-powered feature — say, for delivery tracking. This could improve the transparency of logistics processes without causing system overload. After you evaluate the real-world efficiency of this feature, you can continue integrating blockchain features into your supply chain one at a time.

2. Ensuring Data Quality

Data immutability is what distinguishes the blockchain from other data processing technologies. Yet supply chains are filled with data entered by people, and people tend to make mistakes. In fact, a 2018 survey from North Carolina State University shows that only 15% of respondents (including those in senior supply chain and procurement management roles) believe their current systems are able to produce clean, trustworthy data. And with a blockchain, it can be harder to fix incorrectly entered data than it is with a non-blockchain application.

On a blockchain, every action with data is treated as a transaction. Data on a blockchain can’t be fixed in a traditional way — it can only be updated. The more updates you make, the more transactions you need to process and the more resources you need to spend processing them. 

3. Granting Data Access To The Right People

One way to address the previous challenge is by granting data access rights granularly. To avoid data leaks and financial losses, it’s important to share your critical data with the right people and under the right circumstances.

Determine different levels of data confidentiality so that any unauthorized users, including your third parties, won’t get ahold of information they aren’t supposed to. You can also determine a set of roles with associated access rights and assign roles to everyone who will be working with your supply chain management system. 

4. Choosing The Right Development Approach

There are three common approaches to building a blockchain-based solution for supply chain management:

• Use an existing global platform. Large, popular blockchain platforms are typically reliable because many users have already tested them. However, a ready-to-use platform may provide limited opportunities for adjustment and require significant changes to your existing system.

• Use a public blockchain with smart contracts. It’s fairly easy to create a solution based on smart contracts and adjust it to your needs. However, popular public blockchains with support for smart contracts can be too slow or too expensive for supply chain tasks.

• Build a custom network. A custom blockchain network can perfectly fit your company’s existing system, perform smoothly and have reasonable costs for transaction processing. But building such a solution requires extensive expertise, thorough planning and some extra effort.

In my company, we have experience working with different blockchain development approaches but prefer to build custom blockchain networks based on public blockchains. In this way, you can make sure the final solution possesses all the benefits of the chosen platform while gaining the necessary functionality with minimal or zero required system adjustments.

5. Ensuring Smooth Integration Of A Blockchain-Powered Solution

Supply chains connect multiple parties, including manufacturers, suppliers, retailers and end customers. Therefore, they rely on different tools: ERP systems, management applications, tracking solutions and so on. Integrating a blockchain platform with all these tools can be a real challenge.

First, not every third-party system and application supports blockchain technology. You’ll need to wisely plan the architecture of your solution, including all the APIs, containers and microservices you use. Also, pay special attention to the security of data, both in transit and at rest.

Second, it’s likely that not all your vendors, subcontractors and customers will agree to join your platform if it incorporates blockchain technology. They may have different concerns regarding the use of a shared environment, from system integration overhead to data security issues. 

As you can see, while they have a lot of benefits, blockchain-based supply chains aren’t that easy to implement. Taking the abovementioned challenges into account and planning your actions thoroughly will help you experience all the benefits of blockchain-powered supply chain management.


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