When most people think of blockchain technology, cryptocurrencies like Bitcoin or Ethereum are the first thing that comes to mind. The technology gained prominence in the financial sector because it permits users to make digital transactions safely and securely without oversight from any central authority. Beyond the world of finance, however, blockchain is quietly revolutionizing how industries manage and track all sorts of data.

This technology hasn’t seen widespread adoption in supply chain management yet, though it has great potential for redefining transparency, efficiency, and trust between suppliers, brands, and consumers.

What is Blockchain Technology?

Blockchain provides what is known as a distributed digital ledger, recording transactions over a decentralized network of computers. Where traditional centralized ledger systems rely on a central authority—think banks, governments, and databases—to verify and store records, blockchain distributes this responsibility among all participants in the network. This structure creates a more transparent system that is highly resistant to tampering.

Blockchain groups transactions into “blocks,” which are then linked chronologically to form a continuous “chain.” Each block contains a record of multiple transactions, a timestamp, and a unique identifier known as a cryptographic hash. This hash links each block to the previous one, creating a chain that is virtually impossible to alter without changing every block in the sequence. Changing those blocks requires control over the majority of the chain’s distributed computing power, making such alterations highly unlikely.

Blockchain technology offers a few key features that make it ideal for improving the integrity of business transactions:

  • Immutability – Once a transaction gets added to the blockchain, it can’t be modified, ensuring the integrity of the data.
  • Decentralization – Since no single entity controls the blockchain, it eliminates the need for many intermediaries.
  • Transparency – Every participant in the network has access to the same data, which promotes transparency and reduces the risk of fraud or miscommunication.

Blockchain and Supply Chain Data Organization

Most stakeholders in the supply chain have data pouring in from dozens or hundreds of vendors, suppliers, and partners. The biggest challenge with this data has always been verifying and organizing it in a way that makes it useful and actionable.

With blockchain’s shared ledger, every participant can access real-time data, ensuring all parties have the same information. Some of the major benefits of blockchain solutions for the supply chain include:

  • Enhanced traceability – Every transaction or movement of goods gets recorded on the blockchain, from the source of raw materials to the final delivery. For example, in the case of a defective batch of lithium-ion batteries, the blockchain traces the exact source of the faulty components to determine which batches of batteries were affected. This capability lets manufacturers target recalls effectively and avoids the costly process of recalling entire product lines.
  • Improved efficiency – Smart contracts powered by blockchain technology can automate the execution of certain agreements, such as payments or approvals, when predefined conditions are met. This automation removes the need for intermediaries and can speed up various supply chain processes like customs clearance, inventory management, freight payments, and more.
  • Better risk management – Since blockchain data can’t be changed once added, it minimizes the chances of errors or manipulation. This protection is particularly beneficial in industries where regulatory compliance or audits are a regular practice, as companies can more easily prove that they and their supply chain partners have followed all necessary processes and procedures.

While blockchain offers significant benefits for organizing and using supply chain data effectively, notable challenges exist that the tech sector must address before any type of global rollout of blockchain solutions for the supply chain could occur. Some of these challenges include:

  • Poor scalability – As supply chains grow in complexity and volume, the decentralized nature of blockchain may slow down transaction processing times. Blockchain networks can struggle to handle the high transaction volume typical in global supply chains, leading to delays.
  • Complex integrations – Most businesses already have established enterprise resource planning (ERP) or other supply chain management software of some sort. Integrating modern technology like blockchain with older legacy systems can be complex and costly. Assuming integration is possible, it will likely require a substantial investment in both blockchain infrastructure and in training employees to use the new system.
  • No standardization – Since blockchain technology is relatively new and still evolving, there is a lack of standardized regulations governing its use. Companies operating in multiple countries would need to navigate various legal frameworks, making implementing blockchain solutions on a global scale difficult.
  • High cost – While blockchain can ultimately cut costs by reducing fraud, errors, and inefficiencies, the initial investment required to implement the technology can be high.

While technology developers have been slow to bring blockchain solutions to market for supply chain, that doesn’t mean the technology has been a failure. As pilot programs continue to come to fruition, better standards and best practices will also make the widespread adoption of blockchain more feasible. Advances in artificial intelligence also have the potential to solve many of the challenges faced by blockchain developers. Though limited in scope now, blockchain still has great potential for the future of the supply chain.

About Phoenix Logistics

Strategic Real Estate. Applied Technology. Tailored Service. Creativity. Flexibility. These fundamentals reflect everything we do at Phoenix Logistics. We provide specialized support in locating and attaining the correct logistics solutions for every client we serve. Most logistic competitors work to win 3PL contracts, and then attempt to secure the real estate to support it. As an affiliate of giant industrial real estate firm Phoenix Investors, we can quickly secure real estate solutions across its portfolio or leverage its market and financial strength to quickly source and acquire real estate to meet our client’s need.

Frank P. Crivello is a Milwaukee-based developer and Chairman & Founder of Phoenix Investors.