Last updated on November 4th, 2024 at 04:30 am
Rapid technological advancements have raised expectations for a more efficient supply chain structure. The application of blockchain technology in the supply chain is thought to meet these expectations.
By applying blockchain technology to the supply chain, this study will demonstrate what benefits can be obtained and how it impacts costs. In this context, the effect of blockchain technology on costs within the supply chain has been studied through a literature review. The study has found that blockchain technology will provide a cost-effective and efficient structure to the supply chain.
Introduction
Effective logistics is among the key goals in supply chain management, focusing on acquiring products in the right condition, on time, and at the lowest possible cost. Reliable information about the product is also crucial for the end user. However, achieving these goals efficiently is increasingly challenging for supply chain members. Globalization, growing international competition, and increasing use of outsourcing are expanding the number of members in the supply chain daily (Kshetri, 2018:81).
Initially finding application in the finance sector, blockchain technology is expected to provide significant solutions in various fields. Transactions with this technology do not require a third party.
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As each transaction occurs, it is encrypted by the supply chain member performing the transaction. Each block is linked to the blocks before and after it and cannot be altered or deleted by any single chain member. Blockchain technology allows transactions to be tied to conditions and performed automatically (Wang et al., 2019:222).
With the application of blockchain technology in the supply chain, every stage of a product, from manufacturing to sales, can be documented and verified, creating a permanent product history. This grants an autonomous structure to the supply chain and minimizes human errors. Thus, it is believed that blockchain technology can provide a reliable, sustainable, and cost-effective structure to the supply chain.
The goal of this study is to elucidate what gains will be obtained from the implementation of blockchain technology in the supply chain in the future, and how it will affect costs.
Initially, information about blockchain technology is provided. Then, the application of blockchain technology in the supply chain has been examined through academic sources and reliable internet sources. The content reviews examples of the application of blockchain technology in the supply chain and its impact on costs, along with a literature review.
This study’s comprehensive literature review is unique in this field. Additionally, because the topic is new, the study has not been limited to academic sources but also includes current developments from reliable internet sources. Thus, this work is expected to contribute to both the academic literature and relevant institutions and organizations.
Application of Blockchain Technology in the Supply Chain
Traditional supply chains currently have structural issues. Supply chain members primarily focus on their internal flows. Moreover, complex integration and information processes occur at each stage of the chain. All these factors, along with the inherently difficult-to-control nature of traditional supply chains, create challenges for supply chain members in terms of time, company efficiency, and costs (Usta & Doğantekin, 2017:74).
The implementation of blockchain technology in the supply chain is expected to solve these issues and achieve effective supply chain transparency, trust, security, recyclability, cost, demand flexibility, speed, and quality goals.
Blockchain technology records and documents every process from the manufacturing to the sale of a product in the supply chain. This transparency offers clarity to supply chain members.
For each transaction from manufacturing to distribution and sale, a block can be created. This level of transparency and visibility enhances the traceability of products, ensuring their authenticity and legitimacy (Wang et al., 2019:223). Real-time monitoring can be integrated with systems using global positioning systems (GPS) and radio-frequency identification (RFID) tags (Abeyratne & Monfared, 2016:9).
All data recorded in a blockchain is distributed among all network members, unlike traditional methods that use third parties, making transaction and activity records accessible to all members. Every participant can monitor the progress and location of products and share the same information within the system (Kim & Laskowski, 2016:19).
The enhanced visibility provided by blockchain technology (BZT) allows for auditable tracking of every stage a product goes through. This is particularly crucial for industries where proving product details is essential. This feature can also increase consumers’ trust in sellers (Loop, 2017).
The transparency achieved by blockchains is also vital in building trust in the supply chain. In the current system, supply chain members (like vendors and buyers) often rely on intermediaries such as banks and various certified documents to establish trust. BZT eliminates the need for such intermediaries (Wang et al., 2019:223).
Additionally, BZT plays a significant role in recovering stolen goods and avoiding fraudulent transactions (Apte & Petrovsky, 2016:77). The enhanced security system provided by BZT against fraud and cybercrime is another reason why this technology is being adopted in supply chains (Burnson, 2017:11).
Once information is stored in BZT, it cannot be altered once added to the linear chain. This feature arises from the technology’s distributed ledger characteristic, where only one verified version of the data is stored across all network members (Kim & Laskowski, 2016:19).
The tracking of all products with blockchain facilitates the transition from a linear to a circular economy. In the linear economy, the stages include taking raw materials from nature, processing them into products, and ultimately disposing of them.
However, with blockchain technology, it is thought that transitioning to a circular economy, which includes using, making, and recycling stages, will be easier. These stages are interconnected and continuous. A product is used, recycled, remade, and reused, and this cycle perpetually continues. BZT greatly simplifies tracking in the circular economy because all products can be monitored at every stage with blockchain technology. The more the recycling system is utilized, the greater the cost benefits can be (Vara et al., 2018:396).
Traditional supply chains face significant challenges due to the complexity involved in managing inventory through various storage and production cycles until delivery to the final consumption point. Typically, multiple companies interact and trade within a supply chain on a global scale, making inventory management costly in terms of operations and failure detection due to this complexity (Wüst & Gervais, 2018:47).
Several companies (such as Skuchain, Provenance, Walmart, and Everledger) are implementing and promoting blockchain-based solutions to enhance the efficiency of supply chain management. Some of these companies also claim that BZT has helped improve demand-side developments. Businesses are expected to benefit from greater flexibility in interacting with different markets and balancing price risks.
Companies decide which products to release at which times and can directly meet customer demand. Due to these features, the supply chain with implemented BZT is also referred to as a demand chain (Wüst & Gervais, 2018:48). In the demand chain, the customer’s interest is at the center.
The demand chain’s characteristics include low costs, fulfilling customer services, and faster market entry. It enables all stakeholders and consumers to see in real-time what they want and what they buy, allowing this high flexibility. Therefore, all parties in the demand chain must be tightly connected within a network. Unlike supply chains that optimize flow based on incomplete and incorrect market assessments, the demand chain provides companies with complete and accurate information, enabling them to proactively choose optimal production decisions.
Therefore, the information flow in the demand chain is based on the pull rather than the push. Stakeholders do not need to wait for a notification. Thus, stakeholders can actively query the chain management status (Wüst & Gervais, 2018:48).
The Impact of Blockchain Technology Application in the Supply Chain on Costs
The traditional supply chain’s structural problems negatively affect the efficiency and costs of chain members. Despite advancements in information technology, the supply chain has been unable to overcome these issues, leading to high costs for companies. BZT considered a new information technology emerging recently and continuously evolving, is expected to overcome many of the structural problems of the supply chain and provide significant cost advantages to companies.
One of the main gains provided by BZT to the supply chain is accelerating the data flow between parties (Bedell, 2016; MH&L, 2016). Therefore, BZT can reduce the time products spend in the shipping process and improve inventory management. This increases efficiency, prevents waste, and reduces costs (Wang et al., 2019:223).
Another cost advantage provided by BZT is savings in audits. Transactions in the supply chain are audited automatically by recognized network participants within the blockchain network. Thus, less need for supply chain members’ auditing reduces labor costs (Gupta, 2017:6).
In the supply chain with BZT, intermediaries are also eliminated. Supply chain members can mutually access the same records, allowing them to verify transactions, identities, or ownership without the need for third-party intermediaries. Transactions are timestamped and can be verified almost in real-time (Gupta, 2017:11). This also prevents significant transaction and commission costs and saves time. Time savings in the supply chain is also a significant cost-reducing factor.
The high-speed and comprehensive information obtained through smart contracts is expected to provide significant cost advantages for supply chain members. The digitization of document transfers and the acceleration of data flow, especially in the context of cross-border operations, also yield efficiency and cost advantages (Barnard, 2017).
For example, Maersk, in 2014, identified that shipments of refrigerated goods from East Africa to Europe could involve interactions with approximately 30 people and organizations. For this operation, the company had to interact and communicate with over 200 entities. Such a high number of interactions can lead to a process that is prone to errors, causes delays, necessitates the duplication of information and documents, and is lengthy (IBM, 2017).
To solve this issue, Maersk and IBM developed a cross-border blockchain-based solution aimed at improving the workflow and real-time visibility of each shipment. The system facilitates a highly secure exchange of information among trading partners (Barnard, 2017). The planned solution for shippers helps reduce commercial document and transaction costs and eliminates delays associated with physical document circulation errors.
The system also provides visibility and traceability for advancing shipping containers in the supply chain. It aims to provide real-time visibility for customs authorities. BZT’s accelerated tracking system can reduce the tracking time of a shipment from days to minutes (Bedell, 2016; Kharif, 2016).
A report by Greenwich Associates in 2016 titled “Blockchain Adoption in Capital Markets” quantified the benefits of BZT. According to the report, operational costs with BZT are reduced by 73%, risks by 57%, revenue opportunities increase by 51%, and capital costs decrease by 46% (Niranjanamurthy et al., 2018:12).
Integration of Blockchain Technology in Food and Beverage Groups – Case Studies and Examples
In the European Union, setting up tracking systems for food supply chains has become mandatory with the General Food Laws, even if a tracking system is not in place, transparency is required (Wognum et al., 2011:65). The Internet of Things and blockchain technologies facilitate automatic transactions in activities, providing instant access to data in a secure environment, offering significant advantages to businesses and consumers.
While interactions between businesses and customers in traditional supply chains were conducted through direct discussions, the digitalization of supply chains and the use of technologies like blockchain allow these interactions to occur instantly over a common network. Thus, other businesses and consumers interested in learning about products or businesses can access a wealth of information at any time. The information sought is not only the current data of the product or business.
For example, a business can access all information shared by a related business from the production stage to the current status of the product it has purchased or intends to purchase. This situation varies according to the transparency preferences of the businesses. The transparency levels chosen by businesses significantly affect their relationships with other businesses and consumers, depending on the technologies they use.
Good management of supply chains is crucial in sectors like the food and beverage industry. Factors such as globalization, increasing competition, expanding cities, and growing populations make food and beverage production and supply vitally important for human life. This importance is also crucial for the survival of producing businesses.
For a producer to manufacture a product, having a good supply chain to source the necessary raw materials and deliver the produced goods to other stakeholders and consumers is essential. One of the most important factors for achieving this is keeping up with technological innovations and ensuring transparency in supply chain management.
In this context, the use of blockchain and the Internet of Things in the supply chains of food and beverage producers, and the impact of these technology uses on performance indicators through the transparency provided to the supply chain, are the subjects of this study. The literature review of the study variables was conducted for this purpose.
In the application part, several companies (such as Skuchain, Provenance, Walmart, and Everledger) are implementing and promoting blockchain-based solutions to enhance the efficiency of supply chain management. Some of these companies report that BZT has also fostered developments on the demand side.
It is thought that businesses will benefit from greater flexibility in interacting with different markets and balancing price risks. The literature, though sparse, includes some studies related to the application of blockchain technology to supply chains. It is possible to review the general gains provided to the supply chain as discussed in these studies and the implemented examples as follows:
Tian (2018) established a blockchain-based agricultural-food supply chain traceability system in his study. This system covers the entire data collection and information management process. BZT in the agricultural food supply chain allows for the traceability of agricultural foods from the field to the table, ensuring their quality and safety. The study highlights that as products move along the supply chain, they can be monitored and trusted, effectively enhancing the quality and safety of agricultural food products.
Meng et al. (2018) researched whether blockchain systems would be beneficial for intrusion detection systems in the supply chain. The study stated that BZT found application in the supply chain and had moved intrusion detection systems to a better position than before, although not to the desired level yet, in protecting against cyber attacks.
Tieman & Darun (2017) tested blockchain for the halal supply chain. The study discusses five issues faced by the halal supply chain. The results show that blockchain has largely solved the problems of the halal supply chain, and it is recommended that firms using the halal supply chain adopt blockchain technology.
Ahram et al. (2017) in their study “Blockchain Technology Innovations,” described blockchain technology as a catalyst for use cases emerging in industrial manufacturing, supply chains, healthcare, and other non-financial sectors. The research found that blockchain could play a significant role in digitalizing industries and applications by providing secure frameworks, creating value chain production, and enabling tighter integration with technology.
Nakasumi (2017) in “Information Sharing For Supply Chain Management Based On Block Chain Technology,” emphasized security issues in the current supply chain. The study suggested that the system would be more efficient if regulations and laws were compatible with blockchain technology.
Sadouskaya (2017), in her thesis research on the adoption of blockchain technology in supply chain and logistics, outlined several advantages of BZT to the supply chain; providing reliable information to the end customer about the origin and history of the product; the decentralized nature allowing participation of all parties in the supply chain; providing cryptography-based and immutable security; offering access to information about supply chain activities; enabling customers to evaluate product, service, supplier, carrier conditions before making a decision; reducing the risk associated with fraud or counterfeit products; providing customers with the information they desire about product origins and shipping routes; facilitating the exchange of goods and payment systems; and enabling tracking of shipments.
A study conducted by the BTCEN Blockchain Technology company addressed the application of blockchain in the energy drink supply chain. According to the study, the energy drink, which has an annual consumption worth $85 billion globally in 2024, makes the supply chain processes a significant concern for society. With the rapid growth of the Internet, digital technologies are applied in the traditional supply chain systems of food and beverages. However, the centralization of all these systems leads to high costs and security issues such as fraud and data theft.
In this study, it is believed that blockchain technology, which is not managed by a central authority and is distributed, could solve the problems arising in the beverage supply chain system. Therefore, the study discusses the management processes of the supply chain where a tokenization system named BTCEN was created.
The results showed how a decentralized system based on BZT could ensure product safety in supply chain management and the advantages offered to consumers. A blockchain code system, which records all events occurring in the energy drink supply chain, was built. This blockchain technology ecosystem, through the accuracy of product information, aims to enhance public safety. An increase in efficiency along with a reduction in costs is expected.
Maersk Line /IBM (Popper and Lohr,2017). Maersk is a leading company in the international shipping and container transportation sector. The main problem for the company was the excessive paperwork required for each product (Carson et al., 2018). The transfer of a document associated with a product in international trade from one place to another, needing approval in certain regions during the transfer process, and the errors in filling out the documents and losing them, posed significant risks.
All these risks led to high costs and time loss. IBM Europe and Maersk developed a blockchain application in collaboration, which provided solutions to these problems. The Maersk company immediately uploads a copy of a document signed by the relevant person in customs to the digital system, and the relevant parties can detect the transaction stages and their completion. Since the transactions are secure and transparent, the wrongful transmission or alteration of information is impossible.
Mete Ali BASKAYA
Mete Ali Başkaya is a seasoned Blockchain and Crypto Lecturer and Professional based in Istanbul, Turkey, passionate about demystifying the complex world of DeFi and blockchain. With extensive experience in the crypto ecosystem, Mete has dedicated himself to educating others about the potential and intricacies of blockchain technology. In addition to his lecturing, He serves as a consultant to various crypto exchanges and blockchain projects, providing expert insights and strategic guidance to drive success in this rapidly evolving field. Mete's consultancy work reflects his deep understanding of the industry and commitment to fostering innovation and growth within the crypto space.