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Learning Supply chain management

How Smart Contracts can bring Trust and Provenance to the Supply Chain

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Manufacturers often use multiple third-party logistic providers to transport their goods from the factory floor to their customers, but their supply chain is fraught with inefficiencies. Up to 25 to 30 people across different companies may be involved at various stages of the shipping process of one item.

These interactions are currently recorded independently by each company on paperwork or digital systems, which makes it very hard and time consuming for the manufacturer to consolidate this data and make sense of it. Having multiple documents coming from various sources in an untimely manner leaves ample room for documents to be mislaid or doctored. Supply chains need an efficient and foolproof system that everyone involved in the supply chain has access to in real time. So what is the solution?

blockchain and smart contract

Blockchain and Smart Contracts

Consolidation of all transactions and incidents in the supply chain can be recorded in real time by having all participants upload their information to a shared blockchain. This removes the need to manually consolidate documents days or even weeks after the deliveries have been made.

In some instances, documentation can be approved and processed before the goods even get to their final destination and this is made possible by using smart contracts.

Smart contracts are digital agreements that will self-execute when predetermined conditions are met. An example of a smart contract in the supply chain is that payment is released to a logistics provider once it’s been recorded on the blockchain that they’ve shipped the products in the standard that was required by the manufacturer and have delivered the products to the next company in the supply chain.

smart contracts

Smart contracts on the blockchain have the following distinct advantages:

Autonomy: There are no intermediaries in the process as the contract is executed automatically by the network.

Trust: The contract is placed on a shared ledger and as such cannot be altered or removed by one party.

Savings: There are no intermediaries involved so you don’t have to pay 3rd party fees.

Safety: The documents are kept in a safe/encrypted environment and cannot be altered by parties with ulterior motives.

Efficiency: Software code executes the smart contracts and removes the need for manual consolidation of dispersed hardcopy and digital records.

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