Third-party logistics (3PL) companies that are hesitant to adopt blockchain for key transactions are missing out on how this technological record-keeping ledger can improve supply chain management and the visibility of commerce.
Blockchain is a valuable asset for providing shipping information. It optimizes the tracking of products from production to delivery for clients that outsource services to a 3PL, including overseeing a multichannel sales and distribution strategy, managing inventory, ensuring customer success after purchases, and retaining customers.
Brands and retailers also outsource to 3PLs the handling of procurement, order fulfillment, storage and transportation of goods. A top-notch blockchain can prove vital for those businesses and the companies handling their logistics needs.
With a public blockchain platform, organizations can record in digital form a list of machinery, tools for building and equipment, and create a decentralized, tamper-proof record of all trades. This history of transactions can be reviewed by anyone or by a select few for the most proprietary data, reducing the need for paperwork and manual records. Purchases are trackable from production to delivery or use. Blockchain also allows companies to increase efficiency by enabling process automation and reducing paperwork.
Far from a futuristic concept, blockchain is in regular use today, and is already making a dramatic difference in worldwide commerce. It’s changing how we do business and providing access to information now. Supply chain companies still relying on older methods to track shipments and record transactions are at a supreme disadvantage.
“Supernode” for Super Speed
Nodes, the computers or devices that verify and keep record of blockchain transactions, are essential to ensuring that the blockchain ledger is immutable. The number of nodes required depends on the client’s specifications, but six or more facilitate the most secure types of transactions. While some will be tempted to minimize the number of nodes to avoid long wait times, they run the risk of compromising the platform’s security.
With the evolution of blockchain technology comes a concept called “supernode” middleware to support a higher volume of data on a platform. A merchant who has outsourced services to a 3PL and requires a blockchain with six or more nodes is in luck; that platform can process millions of transactions every minute, allowing the 3PL to scale and provide the needed speed for e-commerce during the busiest times.
Many supply chain networks suffer from a lack of visibility. Blockchain solves the problem through distributed ledger technology that provides a shared, single version of the truth. Users can view price, date, quality, certification and other essential details. Increased visibility helps prevent losses from counterfeit products, promoting ethical manufacturing and brand reputation. Blockchain technology enables quicker action in response to unexpected events.
Expect blockchain to become increasingly important not just for 3PLs, but also their small and medium-sized retailer partners. While big businesses may control large swaths of their supply chains — providing them with an easy flow of data — smaller entities often struggle to influence their supply chains. Blockchain gives them information from all over the world, allowing them to act rapidly and efficiently.
Clearing up a Misconception
Some 3PLs are reluctant to adopt blockchain, due to the misconception that keeping data proprietary within a closed environment is safer. But technologists develop blockchain platforms with security at the top of their minds, and enhancements can always be made for extra layers of protection. They include establishing two-factor authentication, vetting trusted senders and recipients so they can input their listings in the blockchain, using unique passwords, configuring private key management, making sure the latest security updates are installed, patching, understanding custodial services, using cold (hardware) wallet storage, and VPNs.
Blockchain is a transparent means of recording data viewable by those permitted to see it, and the recorded data is immutable. Technologists can build an even more sophisticated blockchain by adding side chains where the heavier data lives. This type of platform ensures protection from data tampering.
A highly sophisticated blockchain for use by 3PLs for supply chain management might consist of two layers, public and private. This allows for the handling of sensitive, confidential and internal information on the private layer, while all other transactions are transparent on the public one. Although the private layer requires that users obtain permission to view the data, private and public layers live on the identical blockchain in this scenario. This way, the entire platform exists on one decentralized, transparent network.
We often hear the word “encryption” in cybersecurity, which also applies to blockchains for supply chain management. They can be designed with bit keys of encryption that protect against attacks from sophisticated cyber criminals.
Further, by creating a master-mode encryption algorithm, technologists can encrypt all data that goes through the blockchain. They can also devise a way of encrypting the mnemonics and private keys with the user identity, preventing hackers from accessing the wallet or network, or executing any other type of attack.
For the Future, or Now?
Supply chain businesses looking to grow need to stop thinking of blockchain as a far-into-the-future concept. On the contrary, it’s already helping to enhance and grow today’s enterprises. And it’s constantly improving: blockchain is becoming more layered, intricate, scalable and attack-proof, as technologists create new platforms to manage supply chain visibility.
In modern-day supply chains, transparency and speed of access to information are essential. A unified commerce platform is required to integrate technologies and provide all relevant data in the form of a “single source of truth.”
Suppose that a 3PL wants to sync hundreds of millions of products from an inventory warehouse in Atlanta to another facility in New Jersey. To do that, it needs access to information, services and solutions immediately, with data sync occurring at the speed of light.
That’s where the “supernode” middleware aspect of the blockchain platform saves the day, enabling the platform to work with a higher capacity of transactions than ever before. This is particularly helpful for supply chain and e-commerce businesses, although it also benefits many other industries, including insurance, healthcare and others requiring background checks and verification, indexing and data sharing, and financial compliance.
An ideal, super-enhanced blockchain platform should sync with other blockchain technologies and cryptocurrency networks, as well as with supply chain technologies for data analytics, asset tracking, artificial intelligence and machine learning, robotics and other types of automation. Technologists can further ensure that blockchain is the most secure method of conducting transactions for supply chain customers by developing a sophisticated encryption protocol and employing a firewall, securing the platform against attacks by hackers.
“Proof of Stake”
Ethereum recently switched from being a “proof of work” platform to “proof of stake.” The latter is the more cost-efficient option for validating the work of miners, one that doesn’t require them to invest large amounts of money or employ powerful computing equipment that consumes massive amounts of electricity. Proof of stake also allows for faster transactions with greater security than a “proof of work” platform offers.
3PLs want to guarantee their clients visibility and transparency around product authenticity, shipping, tracking and all other aspects of supply chain management. Blockchain helps speed up cash flow and offers greater visibility into such transactions, accompanied by extensive product information. In the process, while simultaneously prioritizing security, small to mid-sized businesses can obtain the enhanced level of service afforded to the giant corporations of today.
Shlomi Amouyal is co-founder and chief technology officer of Verte, a cloud-based supply chain platform.