Can blockchain manage supply chains?

By Lumai Mubanga

Supply chain management is one of the most complex undertakings in the business world. From production to distribution, this complex chain requires full proof of transferable and ownership of physical products or assets. Whether vertical or horizontal integration models, demand and supply issues continue to exhibit challenges that modern technology need to embrace and tackle.

In a previous article, we mentioned that if you can own it, you can tokenize it. Tokenization of physical assets is a new concept slowly getting attention on the blockchain. Once fully embraced in the business world, tokenization promises to easy many of the challenges related to both asset transfers and supply chain management.

For example, real estates can easily be transferred using smart contracts on the ethereum blockchain.  A popular conception is that blockchain is the perfect solution for supply chain as well. However, there are quite a few caveats when using blockchain to solve supply chain challenges.

Blood Diamonds

One critical problem that the world faced sometime back was the use of diamonds to fund rebel groups against governments. Such diamonds were referred to as conflict diamonds, or “blood diamonds.” Africa was full of news related to this in the DRC, Central African Republic and Sierra Leon.

Many diamond fields were captured by rebel groups that mined and sold the mineral on black markets to raise money for their operations. In the process, millions of lives were lost. These civil wars were fought in a complex chain of diamond supply which experts sometimes failed to decipher. Who was mining, shipping, processing, buying and supplying arms? Could blockchain bring an end to that?

The Kimberley Process & Blockchain

As a first step to solving this problem, the Kimberley process was born. It is an inter-governmental effort requiring participants to certify the origin of their diamond. The process requires all diamond-producing countries to declare a commitment to remove diamonds in conflict zones from the global diamond supply chain. Since its inception, the process has been declared effective as 99.8% of all rough diamonds in the supply chain have been from conflict-free territories.

However, skeptics argue that there are some potential issues with the system, which include corrupt officials taking bribes to validate or sign certifications, and the masking of actual trails by complex supply chains. This could potentially throw the idea out.

Suppose the Kimberley process with its successes in certifying diamonds integrates blockchain in its supply chain, can that change the processes even for the better? Here is how it may play out. Every ledger is created to solve this problem using blockchain technology. The Kimberley process will tokenize every diamond and track its movement on the blockchain as individual countries trade. At any point in time, someone can cross-reference the blockchain to see the diamond’s path from mining to the current product. This will easily be overcome if the issue of representing real-world data on the blockchain is solved.

We have to trust that individual country only input correct data and avoid falsification and bribery at the entry points. We also have to trust that the identifier of the diamond did not tamper within the process. With lots of corporation, blockchain will manage supply chains easily.

Disclaimer: These are the views of the Author.