How can blockchain technology improve supply chains?

The main economic theme of our generation is globalism: trade opened up beyond countries' borders. Components and product inputs get sourced and manufactured and shipped all over the place. At the heart of this economic process is supply chain management, the school of business that deals with economy and efficiency of the global sourcing processes to maintain a competitive bottom line. Kaizen processing and just-in-time sourcing are two processes born in the age of globalism; each one streamlined supply chain management in its own way, making process more efficient or less wasteful. I was asked: could blockchain tech be applied to SCM? Could it even revolutionize it?

(Stock image)

To my knowledge, there hasn't been much work done yet on applying blockchains to improve supply chain management. I believe it'll take a little more ubiquity of simple, distributed use cases-- like transactions-- before the concept gets proven in the public eye so much so that blockchain engineers can conceptualize higher functions.

But blockchains can and will disrupt SCM just as any other check-and-balance process. The key advantage of blockchains over standard ledgers used in SCM functions is immutable trustlessness of the record.

In a manufacturing example, you'd have many OEMs (Original Equipment Manufacturers) and *their* suppliers, throughout verticals, registering each quality-approved sub-component as part of a multisig transaction or a smart contract. Once a specific number of components has been quality-approved, it could be broadcast to all buyers of that sub-component monitoring that blockchain that the order is ready, or to whomever placed the order for that lot originally. One of five companies producing a generic flange used in six different vehicle makes could streamline blocks of its production runs, and run their lines only when a new multisig transaction is broadcast in request of a new order of flanges. The biggest hurdle here would be to engineer a cryptographically sound method of quality assurance on the first inspection of each part, but once that is accomplished, there's greatly reduced need for inventory checking, storage, and other management costs associated with Just-In-Time processes. The openly visible blockchain ledger would streamline the memory-hard problem of how much of anything is needed, and when.

(from Microsoft.com: What is supply chain management?)

Let's examine a slightly less complicated example: logistic fulfilment, or delivery. There's a very easy implementation of GeoCoin ($GEO), a cryptocurrency which has implemented fine-grained geolocation into its blockchain. A geocoin can be dropped anywhere on a map (see GeoCashing), for anyone else-- or someone in particular-- to collect by visiting that location. Truck-shipping processes could be initiated by dropping a geocoin at the destination, containing the entire shipping contract, and even payment, as metadata. Once the truck arrives at the destination, the completed fulfilment status is instantly visible on the blockchain.

Granted these two examples would need a lot of fleshing out in practice. The takeaway is that, just as bitcoin transactions of virtualized value undercut centralized and counterparty-risk systems, blockchain and smart contract interplay can be engineered to undercut similarly structured supply chains.

Disclosure: I maintain a long-term long position in Geocoin. Find out more about $GEO from their HTML-wallet web portal where you can visit a geographical location and collect any Geocoins there; from their original announcement on Bitcointalk; and from the Geocoin developer Tobler's Twitter feed, @_geomoney. 

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I originally wrote this for Quora in November 2015; you can find the post here. But since they bury content written pseudonymously, and because I'm interested in furthering this topic, I'm reposting it here at steemit.