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Smart Contracts and Tokens for supply chain automation

on March 24, 2021

Photo by Tamanna Rumee on Unsplash

Blockchain-based supply chain management system enable tracing and tracking goods including their transformation in the production process using smart contracts. The outcomes are: 

  • transparency,
  • end-to-end real-time visibility, 
  • tracking assets that are in transit and managing warehouse inventory. 

Traceability can be useful in product recalls, may improve process control and production optimization and reduce costs of liability claims and lawsuits. 

Blockchain allowing multi-enterprise ecosystems to work cooperatively, encourages collaboration and trust across all the stakeholders.

Smart contracts and tokens for supply chain automation are of paramount importance

Tokens are digital entities that may be used as a digital representation of physical assets (raw materials, subproducts, etc.) and information. Furthermore, with tokenization, suppliers reap the ultimate benefits of blockchain assets. Tokenization forbids duplication, making it non-fraudulent and ensuring accurate tracking and proof of ownership in a transaction. And not just these.

What is the reward for tracking goods within the supply chain?

The first answer could be the strengthening of the relationship with clients. But going deeper we see that all the partners involved in the supply chain can get compensation for providing information about a product. The traced product is an asset and so is the data contained in the accompanying documents. 

Date and information can be related to on how, when, and where the goods were moved and stored, raw materials, data included in a bill of lading, data and information in customs clearance, and so on. All these kinds of information are crucial to make the entire system work and flow. And have a value. Therefore, a stakeholder would get paid not only for the service provided but also for the information given on that service.

Information is digital tokens: when a product is sold, the information that goes with the product is sold as well. That means who provided within the supply chain that information is rewarded with the ownership of a portion of that asset. 

On the blockchain, the digital tokens become a monetizable asset and can be claimed in various ways:

paybacks, discounts, loyalty points, bonuses to purchase other goods. 

There is also another interesting aspect for companies to consider that could have an impact on the financial side.

From all the date collected within the supply chain flow, companies are able to select and extract non-financial data to develop alternative supplier credit risk assessment criteria. 

Relevant non-financial date could be: 

  • on-time payments, 
  • quality of the products, 
  • on-time deliveries, 
  • compliance,
  • correct fulfillment, 
  • correct documentation (i.e., shipping note, bill of landing, certification of origin, letter of credit). 

Upon all these dates the company can build a risk profile and share it with banks.

Therefore, the latter has the chance to decide what level of risk they want to bear, price it, and loan money to companies that would be left out of the supply chain finance loop due to their risk profile.

Nowadays smart contracts and tokens for supply chain automation are revolutionizing the way the different stakeholders acquire, communicate and access information on a secure, shared, and transparent platform. 
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