Blockchain for more efficiency and transparency in supply chain management

When it comes to use cases of blockchain technology beyond cryptocurrency, the optimization of supply chains is usually one of the first fields of application. With regard to supply chain management, it has become clear that the initial euphoria about the potential of blockchain has rarely been transferred to actual implementation.

According to a study by the Leipzig University of Applied Sciences Leipzig, the influence of blockchain on supply chain management in the investigated companies is very low. While 80.2 percent of respondents envisioned the (future) use of blockchain in supply chain management, the technology was only deployed at 0.8 percent of companies at the time of the survey. Only three per cent of the companies used prototypes and 6.8 per cent of the companies researched possible application scenarios in project groups.

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One reason for many companies’ hesitant approach to blockchain is certainly that they are trying to develop blockchain solutions out of classic thinking patterns. However, to capitalize on the potential of blockchain technology, a new approach is needed: optimizing corporate collaboration requires common, cross-enterprise solutions. A look at the textile industry shows that a collaborative approach can solve key challenges in supply chain management and develop concrete blockchain applications.

Global supplier networks and corporate social responsibility in the textile industry

Especially in the supply chain management of the textile industry companies are confronted with highly complex, global supplier networks. Numerous work steps are carried out by different actors in several countries. Up to now, the documentation is often done analogue or via centralized databases and is thus not only expensive, but also susceptible to manipulation.

At the same time, the demand for transparency in the textile supply chains is increasing on the part of politicians and consumers. For example, supply chain transparency is part of the United Nations National Action Plan for the implementation of the United Nations Guiding Principles on Business and Human Rights. Consumers are also increasingly expecting textile companies to become aware of their corporate responsibility. Among other things, they demand that clothing companies should provide more detailed information about their environmental commitments and measures to reduce their environmental footprint.

With the growing importance of Corporate Social Responsibility (CSR), compliance with the environmental and social standards of textile manufacturers and the forgery-proof, transparent documentation of these become critical factors. Often the individual companies carry out numerous audits with each individual supplier and producer.

Even if, for example, goods are produced for different textile companies in a factory, the test is carried out independently so as not to lose the competitive advantages of an anonymised supplier pool. In addition to high costs, this procedure also entails a heavy burden on suppliers. Last but not least, textile manufacturers face the challenge of documenting the results of the audits in a forgery-proof manner.

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With the blockchain to efficiency, trust and transparency

Today’s standard way of solving the need for digitization in supply chain management are central platforms that make trusting digital cooperation possible in a simple way, but at the same time gain market dominance with every transaction that is carried out. Here, neutral platforms based on blockchain technology offer an interesting alternative. In contrast to organizing global supply chains using centralized databases or even an analogous approach, Blockchain enables the development of digital industry solutions.

Joint cooperation standards increase the efficiency of cooperation. At the same time, the sovereignty of the data and thus the independence of the individual actors is safeguarded. The basis for this is the shared access to a set of encrypted, validated enterprise, production and transaction data.

With regard to the textile industry, such cross-company cooperation on a block-chain basis in supply chain management can significantly reduce auditing costs and thus save costs. At the same time, counterfeit-proof audit results increase trustworthiness and create more transparency.

Joint block chain solution from textile manufacturers for the traceability of environmental and social standards along the supply chain

A blockchain solution, in which various actors work on a common, practical business application in supply chain management, has been launched by KiK Textiles and Non-Food GmbH on the basis of the blockchain evan.network. It is the common goal of KiK, other textile manufacturers and regulatory authorities, to demonstrate compliance with CSR standards throughout the supply chain. At the same time costs and effort of the auditing should be reduced and the possibility should be created to share already performed audits with partners.

The key element of this solution is, from a technological point of view, that a digital corporate identity is created for each supplier involved, which receives a non-manipulatable verification from a trustworthy entity (eg TÜV or BMZ). In the form of digital twins, the production batches of precisely these certified suppliers are displayed on the blockchain and likewise certified counterfeit-proof. It can thus be demonstrated for every production batch that all participating partners have the required certification. At the same time, the anonymity of the suppliers involved can remain, since not the respective name, but only the certification status of the batch is documented and viewed.

Further participants in the supply chain therefore only see the participation of a certified company in the digital delivery order. On this basis, a trustworthy certification in the supply chain is created, even though the network partners do not know each other.

Blockchain turns cooperation into a competitive advantage

The application described shows that there are already concrete application scenarios in which the potential of blockchain technology can be harnessed. Central challenges of supply chain management, such as tamper-proof mapping of data or increasing the efficiency of administrative processes, can be mastered by means of blockchain, without making companies dependent on central players.

On the contrary, cross-company, decentralized cooperation in supply chain management is given a new status by the blockchain. Digital and efficient collaboration with other companies no longer means relying on key, market-dominant players. Rather, companies can gain competitive advantage through efficient supply chain management and meet the demands of politicians and consumers for more transparency.

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Thomas Müller is CEO and Managing Director of evan GmbH. The Blockchain enables the digitization and automation of business transactions based on digital twins.

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