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How Blockchain will impact working capital management

Most of us have heard of Bitcoin in the news as a new internet based virtual currency that is getting more popular all the time. Most of us have no direct experience of this new currency. Then some more of us have heard the term Blockchain. Most most of the explanations are full of technical jargon that most do not understand but apparently this concept is set to change the nature of supply chain management in the coming years.

What is Blockchain?

Blockchain is a public ledger that records every event in a chain of events in a way that is available to all in the chain but each “block” in the chain can only be changed by the latest person in the chain and the previous blocks cannot be changed by anybody. The ledger is only public to those who are members of the blockchain. So in a simple supply chain transaction the first block might be the order you send to the supplier, the next might be the dispatch of goods, the next the receipt of goods and the last the payment for those goods. Blockchain technology has many other applications ranging from secure messaging to voting, but we will focus on supply chain and currency.

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Traceability and Transparency

One of the major problems in modern supply chains is traceability. There is increasing pressure for corporates to prove that they source ethically and avoid suppliers that may be involved child labour or slavery. In today’s unconnected world we have millions of pieces of data such as invoices and payments that are not easily connected across the supply chain and therefore offer no help in avoiding the above mentioned bad practices. But what if they were connected? Then the end buyer of a product could potentially understand the full supply chain back to source. Procurement professionals could use the same information to understand a complete cost breakdown across the entire supply chain. The usual guessing game about suppliers’ margins would be a thing of the past. It could also mean that using middlemen in unfamiliar markets would become unnecessary since everyone in the chain would be fully visible of each other. There are endless possibilities only limited by the creative flair of those organisations that are already seriously engaging with this new technology who include major banks, insurance organisations and technology giants.

Unrestricted Payments

In a blockchain payment for goods and services is made through the use of a crypto-currency of which Bitcoin is only one, but probably the most popular. The big advantage of these crypto-currencies is that they are truly transnational and unaffected by exchange controls of any kind. This makes for quicker exchanges of payment unrestricted by banking practices or government control.

Risks

There have been a number of bitcoin exchanges that have collapsed. In effect these exchanges have evolved into unregulated banks and regulators around the world are struggling to devise effective forms of regulation that will prevent these collapses and wild swings in the value of bitcoins. But the blockchain itself also carries risk. The data in the blockchain is strongly encrypted, but there are now skilful teams of hackers who are becoming more adept every day at breaking the most sophisticated algorithms. So there is an increased danger that once we start sharing more data over public data systems that more of our data will be stolen and it is more likely that money will be pinched as a result.

Conclusion

Like the internet, blockchain is not a technology that is ever going to be uninvented. It may have some risks attached, but it also presents a fantastic opportunity for supply chain data to evolve. So if you haven’t used a blockchain yet expect to do so in the coming years. If ERP systems were technical revolution of the 1990’s, blockchain is likely to provide the impetus to the next stage of the global supply chain revolution.


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