Supply Chain with Blockchain: How It Will Change the 3PL Industry

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Supply Chain with Blockchain: How It Will Change the 3PL Industry

By Ann Neal - 03/19/2019

With the rise of globalization, retail supply chains have become increasingly complex. The supply chain industry has to look for unique alternatives to replace the inefficient processes that are still being used today. It's time to welcome new technologies with open arms.

The Blockchain is one such technology which has the potential to revolutionize the supply chain industry. Hailed as the most important invention after the internet, Blockchain has already made significant strides in the field of digital asset and payment systems.

Here we review what Blockchain is and how will it re-shape the logistics industry.

What is Blockchain?

The Blockchain is a tamper-proof digital ledger, which can be used to record anything of value including financial transactions, sensitive digital information, and even digital contracts. It is essentially a distributed or shared database.

The information in a blockchain isn’t stored in a single location. Anyone in the blockchain can see, verify, inspect, and add more information to the original data, which remains unchanged. The chain continues to grow as more information is added to it. As there is no centralized database, it isn't possible for hackers to corrupt a blockchain database.

Impact of Blockchain on Different Sectors

It was originally designed for Bitcoin, the cryptocurrency that shot to fame recently. But, blockchain is gradually finding applications in other industries as well.

  1. Shared Economy

Shared economy is already a big success. Tons of applications and platforms allow you to share rides, apartments, and even home appliances. However, still many users have to rely on a centralized system or a mediator for sharing their assets or services.

For example, you have to use Airbnb to share your apartment with someone or Uber to share your ride. As a result, you also have to pay a transaction fee.

Blockchain, however, is changing that slowly and steadily. Because of its decentralized nature, OpenBazaar uses the blockchain to run an online marketplace such as eBay or Amazon.

Instead of relying on a trusted intermediary, users can directly transact with each other. In short, you don't have to pay transaction fees. Similarly, Arcade City is creating a decentralized carpooling platform, which is essentially an Uber-like application based on the Blockchain.

  1. Digital Currency

Founded in 2013, BitPesa has become one of the largest blockchain payment platforms in Sub-Saharan Africa. The digital foreign exchange and payment platform uses blockchain technology to transfer payments globally. It boasts a staggering 614 million transactions every month.

Users can deposit funds via local banks to purchase Bitcoin, which can then be sent to the receiver directly. It eliminates the need for expensive and slow traditional banking process of transferring money across the world from the African continent.

  1. Retail Industry

Walmart is also jumping on the blockchain wagon soon. The retail giant has teamed up with IBM to design the blockchain solution to improve their food safety. They have requested all the suppliers of leafy green vegetables for Sam’s and Walmart to upload their data to the blockchain by September, 2019. Their goal is to arrest possible food contamination, reduce waste due to spoilage, and improve overall transparency of the supply chain.

How BlockChain Will Change the 3PL Industry

Today, the primary challenges facing the 3PL industry include increasing costs, the lack of transparency, streamlining record-keeping, and the inability to scale up or down as required. Owing to its secure and agile nature, the blockchain technology will help third-party logistics companies overcome these four hurdles. 

  1. Reduced Costs

In today's global supply chain network, freight brokers play a pivotal role as they help in completing transactions of loads via shippers to carriers with an additional markup fee. This leads to a substantial increase in 3PL company service costs. Owing to the increased complexity, the profit margins reduce further, making it even more challenging to resolve this issue.

Blockchain technology, however, can prove to be a game changer in this regard. One of the best ways to cut back on the overheads is to use smart contacts based on blockchains. These contracts will help reduce the number of intermediaries to a great extent.

On the other hand, using blockchain for inventory management can eliminate potential data errors and shipment delays. You will also be able to track each shipment, estimate delivery times for different routes, and calculate the cost for deliveries more accurately. Improved inventory management means reduced costs and increased profits.

  1. Improved Trust and Security

Blockchain brings transparency, which in turn, leads to increased trust and security. You don’t have to rely on paper documents which can be readily compromised or stolen. Blockchain, being a public distributed ledger, is safe from tampering or fraud. Plus, you can track it in real-time.

In a smart contract, for example, everyone can see the terms of the agreement. The agreement also gets executed automatically when the involved parties satisfy the preset conditions. In short, the contract is valid only if the delivery reaches its destination in time. Thus, you can make sure everyone involved in a supply chain is meeting their obligations.

  1. Better Record-Keeping and Provenance Tracking

Blockchain eliminates the need to exchange tons of documents, financial transactions, and other information across international borders because virtually everyone from the manufacturer to the end-consumer speaks the same digital language.

Plus, transferring all the necessary information through a secure blockchain is much simpler, safer, and cheaper compared to the traditional process. You can keep adding new information in a blockchain as the cargo moves down the supply chain without the need for a bill of lading or customs papers, among other things.

With blockchain, you can reduce delays in transferring data from paper to the computer. You can see everything happening in real time. Thus, you can check everyone's accountability every step of the way.

  1. Greater Scalability

A vast quantity of transactions occur across a global supply chain, including the exchange of documents, information, and money. With blockchain, you can add any number of parties in a particular supply chain.

However, there is a security trade-off when creating scalable blockchain for supply chain management. Inherently, blockchains designed for cryptocurrencies are less scalable owing to the need to verify financial transactions by the miners.

As a result, the supply chain application of blockchain will need to use a single source of verification around a set of linked transactions to make it more scalable. This change will also make it possible to approve transactions in real time.

But, it is less secure compared to the blockchain used for cryptocurrencies. However, the likes of IBM, Oracle, and SAP are working out the kinks in a scalable blockchain development for supply chain management as we speak.

A Glimpse into the Future

Bext Holdings Inc, a Denver-based startup, is working on creating a blockchain-based solution to boost the supply chain productivity of global coffee trade. Their bext360 system can track goods from producers to the end consumers.

De Beers, one of the leading diamond producers, has also tapped blockchain technology to clear their supply chain of fraudsters. The blockchain platform called Tracr is expected to be launched in 2019, making it available to the rest of the diamond industry. In the wake of increasing operational and situational costs across the globe, an increasing number of supply chain management companies are more likely to invest in.

According to a recent Markets and Markets report, the blockchain supply chain market size is expected to grow from $145.0 million in 2018 to $3,314.6 million by 2023, at a Compound Annual Growth Rate (CAGR) of 87.0%. It also states that companies from various verticals such as retail and consumer goods, manufacturing, healthcare and logistics are major customers of the blockchain vendors in the market.

Wrapping Up

As you can see, blockchain technology is making waves in the 3PL industry. Many supply chain management companies are already using this technology to reduce costs, improve trust and security, better record-keeping, and achieve greater scalability. Several more will join them in the not-so-distant future. Is your organization one of them?

Tell us about your plans to incorporate blockchain into your supply chain management process.

-Ann Neal (twitter: @Ann_G_Neal) is a freelance writer who covers technology and business.