What’s The Role Of Blockchain In Supply Chain Finance?

Blockchain technology, which has had direct positive effects on all financial processes in recent years, and cryptocurrencies, which are the outputs of this technology, continue to cause dramatic changes in many sectors. Blockchain solutions have been a big game changer in supply chain needs now with many offerings for efficiency. 

Supply chain processes are a simple network of multiple units, from the production process to the sales process, including intermediaries. This network used traditional banking and payment methods until the emergence of blockchain technology.

Nowadays, interest in blockchain technology and solutions has increased in every sector including also  non online ones. Undoubtedly, supply chain processes have begun to merge with these solutions in recent years.

Blockchain technology has begun to be used frequently in both digital asset classes and supply chain ecosystems with its high-level data recording and traceability capabilities. Today, many big brands and manufacturers use blockchain networks for their supply chain needs to maximize their efficiency.

How Does Blockchain Improve Transparency And Traceability In Supply Chains?

When this innovative data recording technology is used in supply chain processes, all transactions of all units of the supply chain are recorded digitally by using digital ledgers and thought algorithms and therefore all units can view the transactions of other units in the supply chain ecosystem. In this way, an incorrect data recording or logistics problem is instantly solved or leaked digitally.

Brands or manufacturers that combine supply chain optimization processes with blockchain technology solutions immediately began to observe positive results in terms of efficiency and traceability. 

For this reason, regardless of the sector in which they operate, thousands of companies are looking for ways to digitally transform their supply chain processes and integrate them with blockchain tools. Digital banking platforms and cryptocurrency exchanges generally provide these services online and remotely.

Thanks to these intermediary institutions, by harmonizing their infrastructure with blockchain technology and accessing a more transparent operating system, they provide great practicality in the traceability of every data and asset transfer in supply chain processes.

What Are The Advantages Of Using Blockchain For Supply Chain Financing?

Supply chain processes require significant costs and time regardless of the sector. Especially in supply chain processes managed with traditional banking methods, it is necessary to allocate a lot of resources and time for storage, logistics and financial needs.

However, thanks to blockchain solutions, all units of the supply chain are free from these.  In summary, we should announce the efficiency for the first and primary advantage of blockchain solutions for supply chain financing needs.

Another important advantage is transparency and the high level of security this brings.  Blockchain network structure makes it easier for other units to complete transfer transactions safely throughout the supply chain process digitally. 

Apart from the high level of speed and transparency, blockchain technology also can be a great assistant to payment processes. Assets are transferred at each step in the supply chain processes. These asset transfers can be both slower and riskier when managed with traditional banking methods.

While utilizing blockchain technologies in the supply chain, all payments can be done digitally and remotely in a pretty systemically way. Moreover, thanks to the automation tools developed for regular payments, significant efficiency and flexibility is gained.

How Can Smart Contracts Automate Supply Chain Financial Transactions?

Smart contracts are different from traditional and ordinary contracts as they are digital ones. First of all, these contracts are digital and programmable.

It ensures that periodic transactions, in which the parties agree on a common text and terms, are completed regularly in an automated manner. Thanks to its background technologies, smart contracts bring many advantages to units and managers of the supply chain processes.

We can examine what smart contracts literally are and how they are  operating with a simple example. Let’s imagine the supply chain of an apple we buy from the market. In this supply chain, which consists of units such as Producer, Distributor, Intermediary and Seller, there is a need to periodically make financial transfers between both units.

If the producer of this apple combines the supply chain process with blockchain solutions, the amounts that the producer must pay to the distributor, the distributor, the intermediary, and the intermediary to the seller are predetermined by all these supply chain units and connected to automation.

This process is completed thanks to smart contracts. While it is a costly and long process when carried out using ordinary banking methods, automating and programmable payment processes through smart contracts offer great efficiency for all units.

What Challenges Exist In Implementing Blockchain For Supply Chain Finance?

These challenges are generally that legal banking regulations are not up to date and supply chain units are not sufficiently transformed and ready for new and innovative solutions. Supply chain units that cannot give up old and traditional banking methods will be at a disadvantage in the near future.

Although using blockchain technology products in finance areas where multiple units are in the same ecosystem, such as supply chains, provides advantages such as transparency, speed and efficiency, it is not easy to change some habits. Especially new technologies can be quite costly for integration. Supply chain units that are late to this transformation will be left behind in competitive markets, regardless of the sector.

What Success Stories Demonstrate The Impact Of Blockchain In Supply Chain Finance?

We can remember countless success stories that utilized blockchain solutions in supply chain finance now. For example, a popular company that produces organic food on an international scale has transformed its entire supply chain finance into blockchain technology solutions in recent years.

Consumers who purchase products of this brand can view the entire supply chain process of that product online. This is a solid infrastructure for the end user and increases the profit margin for the manufacturer and supply chain units.

This was an example from the food industry, but similar solutions are also used in areas such as e-commerce projects, cargo and transportation solutions, and the pharmaceutical industry.

See you in the next post,

Anil UZUN