Impact of Blockchain on Fulfillment Centers

Impact of Blockchain on Fulfillment Centers

Mention the word “blockchain” are you’re likely to get one of several reactions. Some people have embraced this new technology and are very enthusiastic about it. Others are skeptical that it will live up to its hype and recommend caution. Many are confused and don’t understand it. 

Becoming comfortable with the concept of blockchain is a crucial first step to understanding how it could impact your business. Numerous books and articles are available to help people get up-to-speed on the basics of the system. Next, it’s important to understand who is currently utilizing it and their reasons for doing so. Although there are specific advantages to adoption, there are some hurdles to consider, particularly for warehousing and distribution. Keep reading to learn more about this interesting technology. 

What is Blockchain?

Blockchain is a record of transactions that are linked using cryptography. A block consists of three components – a cryptographic hash of the previous block, a timestamp, and the actual transaction data. The transactions form a chain. Because data within a block contains data from its previous block, it is not amenable to modification, and is therefore considered to have a high degree of security. 

Blockchain is a decentralized, data-sharing technology that is managed by peer-to-peer networks. This sharing of data between parties eliminates the possibility of double spending. Early on, this technology was used for bitcoin cryptocurrency and is also being utilized by other more recent cryptocurrencies. 

Who is Using Blockchain?

Numerous businesses have been exploring the advantages of using blockchain with many of them having already adopted it. A survey conducted by Blockdata found that 81 of the world’s top 100 companies have adopted blockchain technology as of September 2021. These companies are in different phases of implementation – 16 are researching, 14 are piloting, 24 are developing, and 27 have a fully functioning live system (e.g., Microsoft, Amazon, J.P. Morgan, Verizon, Walmart).

The companies are using 30 different technologies, with some using several for multiple solutions. Most preferred solutions include Hyperledger Fabric, Ethereum, and Quorum. They are using blockchain in payments, identity and reputation, trade finance, banking, supply chain, and logistics. Blockchain as a service (BaaS), interbank transactions, and traceability are some of the use cases. 

How Will Blockchain Impact Fulfillment Centers?

Logistics involves a complex system of interactions between multiple parties. Efficient supply chain systems rely on the sharing of information. They must be transparent, reliable, and flexible. This makes them prime candidates for the use of blockchain technology.  

A recently published PwC global digital supply chain study reported that the current use of blockchain in the logistics industry is minimal. Only 5% of all companies have adopted its use; however, about half of the companies are piloting blockchain or expressed an interest in doing so. Noted challenges are justifying a business case and deciding whether to purchase standard software or develop it in-house. 

An accompanying article about the supply chain study describes the potential benefits of implementing blockchain in logistics. 

  • Transparency. A large amount of information and transactions need to be shared with multiple organizations in the logistics process. Blockchain can increase visibility into the numerous steps, supporting production, distribution, planning, and control. It can increase trust and collaboration. It becomes the single source of truth. 
  • Speed and efficiency. Manual and offline systems lead to redundancies and errors. A digitized blockchain process can make sure the right goods get to the right place, on time, every time. 
  • Traceability and tracking. These elements are crucial across the supply chain. Blockchain can simplify these tasks. Information is in real-time. Results become the basis for recording performance and developing process improvement plans. 
  • Payment. The transfer of money between the parties in the supply chain requires an efficient process. Blockchain can provide this efficiency, while making the transaction more secure and reliable. It can create smart contracts that automatically take care of invoices and payments. 

It is for these reasons that the implementation of blockchain in distribution centers is expected to grow. Although it won’t solve all the problems and challenges faced by the industry, it is expected that it can help companies deal with increasing complexity and inefficiencies. 

What are the Challenges of Blockchain Implementation?

Adoption of blockchain requires a commitment to new ways of working. It also involves a thorough understanding of its structure, its potential advantages, and disadvantages. A dedicated workforce that can design, implement, and operate the blockchain must be available. Legal, compliance, and auditing teams need to be involved. Users of the system need to trust that the sharing of data will be secure. 

It could be helpful to conduct a competitive analysis and explore ways to form partnerships with others in the industry. There may be opportunities to work with just a few stakeholders and focus on best practices. The focus should be on starting small and having a strategy for growth. 

There is a lack of standardization of blockchain systems and accepted business practices across companies. This is rapidly evolving as adoption becomes more widespread. It’s important to stay abreast of existing regulations and be engaged in discussions about emerging policies. 

Although the use of blockchain in warehousing and distribution is in its infancy, it has the potential to increase transparency and efficiency across the supply chain. Understanding the technology behind this new system of doing business will enable companies to make important decisions around its use and adoption. Companies that can get in early on this new form of infrastructure can help shape the future of the industry.


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