Four main elements are to be considered for blockchains to support supply chains :
- Physical flows. The sequence of processes and movements from suppliers, manufacturers, distributors, and the final customers (e.g. a retail store or an individual for e-commerce). It requires facilities (e.g. distribution centers), modes, and terminals.
- Information flows. Each supply chain task generates information flows. For instance, a manufacturer ordering parts from a supplier will generate an order number for a GTIN (Global Trade Item Number) or SKU (Stock Keeping Unit) that it provides. This information is associated with production information such as batch numbers. Then, the carrier will generate an associated order and shipment number on a load unit being carried on specific equipment (a truckload, a container, etc.).
- Blockchain. Conventionally, the information flows stated above were processed through various information systems, at times in paper form, a process that is time and labor-intensive. With a blockchain, each information flow creates a digital block that is attached to a previous block. As we progress through the supply chain, each actor uses previously created information stored in the blockchain to perform its role and, at the same time, adds its own blocks to the blockchain. At the end of the supply chain, the blockchain would contain all the associated tasks and processes that have led to the procurement of a specific good to a customer.
- Smart contracts. They refer to programs using the information contained in a blockchain to automatically fulfill an agreed-upon contract. Since the contract is stored in the blockchain, it cannot be tampered with without the agreement of the concerned parties. Specific events in the blockchain will trigger the resolution of the contract. For instance, once a delivery has taken place, and that meets all the contractual requirements (e.g. quantity, quality, timeliness, etc.), then payment can automatically take place.
Therefore, blockchains are an information substitute and improve the conventional processing of information associated with supply chains with expected improvements in their velocity, visibility, and security.