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

One of today’s innovative and profitable business solutions is blockchain in supply chain finance. Many popular sectors or markets in our modern lives are being shaped by blockchain technology. One of the areas affected by this rapid change is supply chain finance.

The supply chain is the concept that covers the process of operations in which a product or service reaches the consumer or customer from the producer or server. With the development of digital solutions and the change in market dynamics, supply chain management is also developing with innovative solutions such as blockchain.

Unlike traditional financial instruments, blockchain provides a more secure, highly traceable, and transparent supply chain finance. Although these advantages are the first ones that come to mind for the subject of blockchain in supply chain finance, I think blockchain technology, the modern way of digital assets and digital finance, has many more benefits for supply chain finance.

Ensuring trust between units in the supply chain process, although not a financial concept, also improves financial processes. Trust is the most important requirement for many professional financiers today.

Trust is the primary expectation of the units or participants in the market, not only for supply chain finance but for all markets. Blockchain technology, as the most popular financial technology of the last 10 years, brings new solutions full of trust in blockchain in supply chain finance thanks to the transparent ecosystems it offers.

How Does Blockchain Revolutionize Supply Chain Finance?

So how does the blockchain revolution, which we can see in almost every sector, work in supply chain finance? To give a good answer to this question, it may be necessary to briefly explain the structure of blockchain. In other words, it would be better to explain blockchain in supply chain finance separately.

Blockchain technology is a technology that enables data to be recorded in common ecosystems with high security and transparency levels using digital tools such as smart contracts, powerful algorithms, and digital ledgers and enables the formation of digital asset classes by completely evolving the traditional perception of finance. It has been rapidly used in sectors such as supply chain finance, where transactions such as data recording, financial relations, and financial transfers have been needed in recent years.

Smart contracts may be the first blockchain tool that comes to mind when it comes to blockchain in supply chain finance. In traditional supply chain management methods, data recording is done manually, and this causes a great risk of loss of trust.

However, supply chains that integrate their infrastructure with blockchain technologies continue to manage operations in a more transparent and more secure ecosystem, unlike those using traditional methods.

Blockchain provides this speed and trust due to the fast and transparent recording of data protected by highly demanding algorithms called smart contracts. Moreover, all of these transactions can be monitored instantly by other units of the ecosystem.

What Are The Benefits Of Using Blockchain In Supply Chain Finance?

If we are to talk about the advantages of blockchain in supply chain finance, I should put the concept of transparency first because the biggest problem or deficiency of traditional methods for traditional supply chain management finance is transparency.

In supply chain operations carried out with traditional methods, the data likely added and created from the producer to the consumer will be manipulated and financially harm other supply chain units. 

However, when all these transactions and the automatic and digital recording of these transactions as data are managed within the blockchain ecosystem, transparency and the trust that is created due to this will be the most important advantage of blockchain in supply chain finance.

I can mention the significant reduction in efficiency and costs as another blockchain in supply chain finance advantage. I can give an example to explain this better. Let’s assume that there are two businesses named Company A and Company B. Let’s assume that Company A of these businesses continues its supply chain finance with traditional methods while Company B uses blockchain in supply chain finance solutions.

Since Company A manually records data in the supply chain process, there is a high probability that this data will be recorded incorrectly, manipulated, and financially damaged by different units in the supply chain. However, Company B, which evaluates blockchain solutions, automates all transactions with smart contracts and achieves great financial efficiency by eliminating intermediaries.

How Can Blockchain Reduce Costs In Supply Chain Finance?

I mentioned the reduction of costs, which is one of the most critical advantages of blockchain in supply chain finance. The main reason for this advantage is the elimination of intermediaries in supply chains using blockchain technology.

In a traditional supply chain, there are also intermediary costs such as commissions. However, innovative businesses integrated with blockchain technologies and tools reduce the margin of human error up to 0 in the automated and digital supply chain process and reach a more efficient speed.

Recording data in any sector and making financial transfers more securely provides great efficiency. Therefore, the use of blockchain tools in supply chain finance problems will reduce costs.

In recent years, many businesses have transformed their supply chain finance processes into completely digital and secure ecosystems by reducing the need for manual labor. In addition to the speed and confidence this new technology provides, it also greatly reduces costs in the supply chain management process.

What Are The Challenges Of Implementing Blockchain In Supply Chain Finance?

Although blockchain in supply chain finance brings many advantages, it may not be easy to implement blockchain solutions in supply chain finance for every business today. Both the fact that it is a new technology makes adaptation difficult and it can be difficult to change perspectives that are accustomed to traditional methods. In addition, unfortunately, blockchain solutions have not yet been officially accepted in every country in the modern world in terms of regulation.

Another effective challenge is infrastructure investments. It takes some time for a company and many units in the supply chain process where the product it produces or the service it offers to the customer to accept this new technology and integrate their infrastructures.

Regardless of the size of the business, integrating supply chain management with blockchain tools can be a costly process. However, I should remind you that it will bring much greater efficiency in the medium and long term.

Another challenge is integrating the business infrastructure with blockchain, both digitally and physically. Although this may seem like a costly and tiring process at first glance, it will be a profitable commercial operation in the medium and long term thanks to the efficiency it will bring to supply chain financing for businesses. Therefore, businesses need to re-evaluate the financial advantages of integrating with blockchain technologies.

How Does Blockchain Improve Transparency In Supply Chain Finance?

Blockchain technology solutions provide transparency by ensuring that all transactions are recorded digitally through a common ecosystem in the supply chain finance management process. Transparency is one of the most important issues in blockchain in supply chain finance. Because trust and transparency are the biggest problems in supply chain processes carried out with traditional methods.

However, in supply chain finance management where blockchain technology is used, all transactions are accessible and traceable by supply chain units. Problems such as possible human error or manipulation that will both harm companies financially and lose the trust of all supply chain units, including customers, are solved with blockchain tools.

Every commercial transaction in the supply chain, from the manufacturer to the last customer, is recorded in digital ledgers and can be monitored by every unit. This provides great transparency and trust.

Since blockchain technologies are generally protected by strict algorithms, it is impossible for data to be lost or altered. In this way, the efficiency and transparency that every business desires can be achieved.

How To Utilize Blockchain For Supply Chain Finance Efficiency?

With blockchain in supply chain finance, businesses increase efficiency by minimizing some crucial costs. The primary goal of almost all businesses in supply chain finance is to increase efficiency. One of the most common ways to achieve this is to benefit from modern and up-to-date digital solutions.

In recent years, many participants from different markets and sectors have started to manage their supply chain finance processes with blockchain tools. This revolutionary change brings great efficiency thanks to the speed and trust it offers.

Unlike traditional supply chain management which is managed manually, all transactions are automated with smart contracts when blockchain is used in supply chain finance.

Thanks to this automation, both the need for manpower is reduced and commercial operations are completed in shorter periods. In this way, it provides great efficiency compared to traditional methods for supply chain finance processes.

Which Companies Are Leading The Use Of Blockchain In Supply Chain Finance?

Today’s most popular and worldwide giant companies have started to benefit from blockchain tools and platforms in supply chain finance processes in recent years. Many popular businesses from IBM to Walmart can be counted among these.

Even on Amazon, the world’s largest online trading platform, many sellers benefit from blockchain solutions in supply chain finance processes. Although many companies operating on a global scale today benefit from blockchain platforms, they are not widespread enough due to some regulatory issues.

However, in the near future, with the increase in regulatory issues and faster and cheaper integration processes and infrastructure processes, I think almost all sectors will benefit from blockchain in supply chain finance solutions. Apart from these, thousands of technology and finance companies also manage their supply chain financing processes entirely with blockchain tools.

How Does Blockchain Impact The Profitability Of Supply Chain Finance?

Commercial operations and supply chains bring a certain amount of expense. Businesses or manufacturers try to minimize these expenses in order to increase the profitability of their commercial operations.

Possible expenses in the supply chain management process can be listed as follows:

Logistics expenses

Raw material supply

Intermediary commissions

IT  and infrastructure expenses

In the modern world, businesses are also resorting to blockchain solutions while minimizing these expenses. Many innovative businesses benefit from the advantages of blockchain in supply chain finance. In this way, they get rid of intermediary commissions and gain great speed in all transactions.

What Is The Future Of Blockchain In Supply Chain Finance?

When I look at the increasing investments in recent years in detail, I can speak quite optimistically about the future of blockchain in supply chain finance. Although it is not widespread enough today due to regulatory issues and infrastructure integration difficulties, I can foresee that millions of businesses from almost every sector, large or small, will benefit from blockchain in supply chain finance solutions in the future.

The further spread of smart contracts, the greater recognition of digital asset classes, and the greater awareness and spread of the importance of digital identities will accelerate the spread of blockchain in supply chain finance. Because blockchain tools provide truly effective results for supply chain units. Automated, fast, efficient, and secure supply chain finance will be a process targeted by participants from every sector in the future.

How Can Small Businesses Use Blockchain For Supply Chain Finance?

Blockchain offers suitable solutions not only for large enterprises operating on a global scale but also for small enterprises. Blockchain in supply chain finance offers many solutions for small enterprises.

Small businesses also expect trust and transparency in supply chain management processes. In addition, faster and automated supply chain management is more critical for small enterprises in terms of efficiency.

Large enterprises can tolerate mistakes in supply chain financing from time to time because they can have thousands of employees and supply chain units. However, it is very critical for small enterprises that supply chain financing expenses are lower. Therefore, I can claim that blockchain solutions have a significant impact on supply chain financing problems for small enterprises.

Since small businesses have less tolerance for expenses such as logistics, brokerage commissions, and manufacturer costs in supply chain finance management, they should be more interested in blockchain tools that minimize almost all of these expenses.

Although they are not as fast and advanced as large companies in integrating their infrastructure, they will benefit from the advantages of this transformation in the medium term.

See you in the next post,

Anil UZUN