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Promoting Supply Chain Efficiency Through Smart Contracts
The utilisation of smart contracts and blockchain offers noticeable enhancement in the value chain hence allowing a much more efficient, cost effective and safeguarded supply chain.
06 October, 2021

Introduction

In an ever-changing world dominated by illustrious, monolithic companies, efficiency in supply chain continues to reign as a core ingredient for business success. However, sectoral innovation has shown that efficiency is not only promoted through cutting-edge technology, but also through legal infrastructure that expedites and mediates the relationship between suppliers and manufacturers. Smart contracts devised through blockchain technology address far more aspects than just efficiency, they facilitate a mutually beneficial process that is traceable, transparent and trustworthy. This offers a bespoke solution to the most contentious issue faced in supply chain: “‘the last mile problem”. 

The Interplay Between Smart Contracts and Blockchain

In order to understand the interplay between smart contracts and blockchain, it is imperative to define both the terms. Smart contracts are a set of agreements between parties, manifested in computer code which automatically ensures that all parts of the contractual agreement are executed. According to IBM, blockchain is “a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network.”. The interplay between smart contracts and blockchain falls within the fact that smart contracts are code-based programs which are stored inside of a blockchain. The predetermined conditions of smart contracts on blockchains ensure that the contracting parties achieve all calculated obligations before receiving transactions. Blockchain as a distributed ledger (DLT) stores smart contracts as well as updates and mediates the financial transactions taking place between parties on its decentralised network. One of blockchain’s most notable properties is that it is tamper-proof, thus signifying the advantages it offers in contractual agreements which allow no room for breach or change of contractual agreements. 

Smart Contracts and Blockchain in Supply Chain Management

Blockchain, a decentralised ecosystem, allows for a clear breakdown of settlement and reconciliation processes within the transactions. Conventional paper-based systems for supply chain record keeping upsurge issues pertaining to proof of delivery and delays in the transactions/payments. Along the following issues, current enterprise systems for supply chain management offer limited visibility over the processes and activities. On the contrary, blockchain as a decentralized ledger technology allows settlements to take place effectively by offering smart contracts as an alternative to the normal way of dealing with contracts. A smart contract provides proof of transactions while also  building trust and security over the user’s data, thus benefiting companies. It also ensures that both parties meet all predetermined contract conditions,  ensuring fairness across both. Additionally, it offers visibility to both parties (B2B) , therefore increasing transparency. Another useful application can also be realised in reconciliation. For instance, blockchain allows for improved cash flow through facilitating the payments for goods. This allows the company to track the status of money received and receivable, the amount paid or payable and even the unsettled transactions.

The Last Mile

In addition to increased visibility offered by smart contracts and blockchain, the digital verification also allows the company to significantly decrease costs due to offering cheaper settlements and reconciliation of accounts and transactions. Furthermore, payments and clearance processes are effortlessly facilitated because supplier terms, letter of credit, trade finance etc.. are all contained in smart contracts. Besides, it can offer lower costs for auditing transactions. This allows the final bridge of the last mile to be more valuable. Such valuable attributes offered by the decentralized network allow for a fast, secure and trusted verification process.  A  connection can be built between all offline and online activities in the supply chain, through blockchain, thus eradicating the last mile problem. The close monitoring of activities and digital recording of every step from the very first process creates reliability and accurate analysis reporting. Generating granular data and storing it safely on a blockchain allows to build a bridge between offline and online data hence augmenting supply chain management and increasing efficiency. This provides major advantages to the users of such technology.. 

Conclusion

The utilisation of smart contracts and blockchain offers noticeable enhancement in the value chain hence allowing a much more efficient, cost effective and safeguarded supply chain. Having the capability of storing information on a distributed ledger not only permits businesses to create a transparent supply chain system but also affirms legal obligations.

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