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 ecommerce). 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 which is time and labor intensive. With a blockchain, each information flow creates a digital block which 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 blochckain 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 a payment can automatically take place.
Blockchains are therefore an information substitute and improvement to the conventional processing of information associated with supply chains with expected improvements on their velocity, visibility and security.