For instance, when a shipment reaches a designated location, payment can be automatically released to the supplier. This not only reduces the need for intermediaries but also accelerates transaction times, providing an agile and efficient supply chain ecosystem. Once a new block is added to the chain, it cannot be modified without sufficient consensus of the network due to the cryptographic way each block and its contents are linked to all that came before it. Unlike centralized databases, a blockchain can be updated with a new transaction submitted by any node on the network (assuming it passes verification by the network), with all nodes’ copies of that blockchain being identical. This book investigates how the Blockchain Technology (BCT) for Supply Chain Finance (SCF) programs allows businesses to come together in partnerships and accelerate cash flows throughout the supply chain. BCT promises to change the way individuals and corporations exchange value and information over the Internet, and is perfectly positioned to enable new levels of collaboration among the supply chain actors.
Additional papers were identified through the bibliography of the relevant articles found by the initial keyword search. Current solutions rely on private legal frameworks established through multipartite agreements-contracts to establish rights and liabilities [57]. Hence, the adoption of a stable legal environment is imperative for blockchain-based trade and supply chain finance to succeed [15, 150]. Even though the SCM literature does take into account legal considerations in abstract, as a general factor that impedes blockchain adoption in SCF [86, 150], there is limited in-depth consideration of the specific legal issues that arise and affect the feasibility of each theoretical proposition. The benefits of blockchain in eliminating or reducing information asymmetry have recently been analysed using game theory in Chod et al. [35] and Lee et al. [91].
- The financing of trade transactions was estimated by the European Commission to be worth USD 10 trillion in 2017 alone [98].
- This allows smaller transactions to receive financing because some banks are reluctant to expend resources on complying with KYC regulations on low-value trades.
- Despite the continuous development and improvement of the technology to achieve digitalisation in SCF, the absence of enabling regulatory and legal frameworks and broadly accepted standards may impede blockchain diffusion in SCF.
- The first blockchain application was a data protocol for keeping the chronological records of Bitcoin transactions [105].
Blockchain technology is not necessarily a cure-all for dishonest participation or fraud, particularly regarding the points at which the external world and the blockchain intersect. For example, regardless of whether the appropriate documents are paper or digital and whether the validity of transactions is verified on a shared ledger, fraud can still be perpetrated in the physical world (for example, a shipping container full of rocks instead of televisions). In a supply chain system, unless the blockchain implementation incorporates communications with oracles (external electronic data inputs that can validate that the assets in the supply chain are what they claim to be), there is some risk of fraud. Some external off-chain element of trust, such as an individual who can confirm the nature of the assets being supplied, is necessary. The book gives a good introduction to peer-to-peer value exchange systems, group consensus mechanisms and smart contracts. The authors describe commercial opportunities for SCF instruments which blockchain can offer, e.g. the visualisation of the physical flow of goods, as well as other B2C applications.
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Implementations involving personal data must be carefully constructed to comply with applicable data privacy laws. This section presents the scientific publications identified through the research protocol outlined in Appendix 1 and the state-of-the-art business developments. Nicola Bosia holds a Bachelor of Arts degree in management from the University of Lausanne (HEC), and a Master of Arts in accounting and finance from the University of St. Gallen (HSG).
- Various projects have sought to offer on-chain access to US Treasury securities, for example — the largest and most liquid government bond market globally.
- Future research could focus on the notion of co-opetition with a view of determining the organisational conditions under which a blockchain SCF network is feasible and stable.
- Moreover, Li et al. [94] introduce a blockchain use-case in logistics finance to tackle financing shortages for SME retailers.
- Predictive data analytics and visibility tools can help distributors and clinical facilities collaborate to anticipate needs, instead of reacting from stockout to stockout.
- As a result, many large companies are requiring carbon emissions reporting from their upstream and downstream manufacturing and distribution partners to complete their own statutory carbon reporting obligations.
- Therefore, further theoretical development is needed to understand the conditions for the establishment of blockchain-based SCF networks.
The coupling of information and material flows enables financers to reduce both the financial and operational risks within the supply chain and mitigate the credit risk [10, 92], thereby enabling capital-constrained firms to access capital sooner and at lower rates [31, 93]. This work investigates how the adoption of blockchain technology increases visibility into reliable trade data and allows businesses to form partnerships and accelerate cash flows throughout the financial supply chain. This paper is one of a few works that endeavour to illuminate the positive disruption caused by blockchain for trade and supply chain finance processes. The review examines the existing research on the subject matter and highlights the identified gaps in the literature.
Current developments in blockchain supply chain finance
These governance questions are complex, and agreement often becomes more difficult to achieve as the number of participants increases, so they must be addressed early in the process. Coordination issues can be challenging because supply chain blockchain systems may require use and acceptance by a critical mass of suppliers, manufacturers, buyers, shippers, freight forwarders, logistics providers, ports, and customs officials. Depending on the type of transaction, parties may still execute a traditional written agreement and use a smart contract as an agreed-on mechanism to quickly execute payment and other obligations in the manner dictated by the agreement. In a classic implementation of blockchain, copies of a complete ledger (the distributed database), which includes both the current state of a network and its entire history, are distributed among many or all the computer systems of participants on the network (nodes) and updated simultaneously. Each node that elects to be a “full node” by maintaining a full copy of the blockchain has access to the blockchain’s entire database and complete history. Blockchains can be useful in supply chain management and the administration of systems that move goods around the world by providing a secure way to verify transactions involving multiple parties that typically do not know or have reason to trust each other.
1 Supply chain finance
It has enriched this emerging field by discussing several theoretical studies and industry blockchain applications. This paper is one of the first to consolidate the state-of-the-art of blockchain applications in trade and supply chain financing. By elucidating the current perspectives in academia and practice, the areas where blockchain may bring value to trade and supply chain finance have been identified. This review sets out to explore how blockchain technology may transform SCF by exploring the answers to three research questions. In practice, numerous initiatives have been vigorously researching blockchain-supported proposals that tackle the inefficiencies occurring from manual processing of information in trade finance (see cases from Komgo to Marco Polo in Table 3).
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It proposes a re-examination of the subject matter through the prism of foundational concepts and results from supply chain management (SCM), economics, legal analysis and platform theory. The provided practical and theoretical insights can be conducive to reflection by SCF practitioners and serve as a base for future academic studies on blockchain adoption in SCF. An important but still relatively undervalued use case of blockchain technology is Supply Chain Finance (SCF). Up to \(80\%\) of international trade transactions require trade and SCF to provide liquidity and risk mitigation [42]. The financing of trade transactions was estimated by the European Commission to be worth USD 10 trillion in 2017 alone [98]. It includes both various methods for the discharge of the payment obligation as well as techniques and practices for the optimisation of the working capital invested in supply chain transactions, such as receivables purchase techniques or accounts payable-centric finance.
Availability of data and material
However, quantum computers may be powerful enough to disrupt the systems currently in use that protect secure online communications and encrypted data. Once a block is selected through the consensus mechanism and verified by the network, it is added to the blockchain, logically and inextricably linked to the chain of all of the verified blocks that preceded it, and then distributed to all of the nodes on the network. In doing so, the transactions embodied in the new block are etched across the network as the verified “truth,” and the network’s “chain” is extended.
Sequential input and manual checking of the paper documentation is costly and error prone [25, 30], and results in delays in invoice reconciliation as well as in the receipts of payments [103]. Costs occur from the complexity of inter-organisational supply chain collaboration and intra-firm cross-functional coordination [124, 165]. Tedious, time-consuming and opaque document flows that use a computer-paper-computer manual operation model [85] introduce errors and risks [155], resulting in high administrative costs [25] and expensive A Contribution to the SCF Literature billing operations [15]. The cost of processing this paperwork is estimated to be between 5 and 10 percent of the transaction value [148]. An unsettled question is which portions of the UCC will remain applicable in the blockchain context and which ones must be revised to reflect this new digital paradigm. For example, blockchain assets could potentially be treated as general intangibles or investment property under Article 9 of the UCC, but they could potentially also be considered financial assets under Article 8 of the UCC.
Following the guidelines of Snyder [128], the literature review can be conducted in phases by reading abstracts first, making selections, and then reading full-text articles, before making the ultimate selection. Papers that discuss mainly different topics, e.g. cryptocurrency markets and Bitcoin’s price fluctuations, or that focus solely on specific sectors, e.g. use of blockchain in healthcare were discarded. Considering the rapidly evolving nature of blockchain technology and the paucity of publicly available results on the implementation of blockchain-supported SCF, we have used critical literature review methodology to be able to generate new perspectives [140]. To conduct a transparent and reproducible critical literature review, the process suggested by Torraco [140] and Snyder [128] has been adopted, which was extended by some elements of the PRISMA statement (see Fig. 1). Lu and Xu [97] and Kouhizadeh et al. [86] discuss technical issues, such as usability, energy consumption, size and bandwidth and throughput latency, while Wang et al. [149] point out that despite the immutable character of blockchain, hacking is still possible [163].
The book provides a good introduction to the SCF, different financial solutions and contracts, such as reverse securitisation, buyer-led SCF, dynamic discounting, reverse factoring, as well as approved payables financing. These concepts are then analysed through the liquidity they provide, key drivers including firms of different sizes and the risks involved. Subsequently, the book gives an overview of how the BCT works and provides insights into technical aspects. After having introduced the reader to the financial solutions, barriers for technologies are discussed and possible blockchain-driven supply chain models to achieve lower overall costs of financing are presented. After the analysis, the authors discuss the practical implication of previously analysed findings and the limitations of SCF.
Industry giants such as IBM, Maersk, China-based Dianrong and FnConn (a Foxconn subsidiary) are currently working to digitize the global, cross-border supply chain using blockchain technology, and will likely soon create blockchain platforms for supply chain finance. This book offers a highly topical resource for stakeholders across the entire supply chain, helping them prepare for the upcoming technological revolution. In this context, Iansiti and Lakhani [71] developed a blockchain applicability model based on how innovative technologies are naturally being adopted. To this end, Wang et al. [150] propose using sense-making in assisting managerial decision-making, which refers to the process of developing specific assumptions, expectations, and an awareness of the said technology [147], which then frame the actions of the decision makers towards it [99]. Wang et al. [150], thus, focus on managers’ prospective sense-making perspectives and extricate their views on the issues that may negatively influence blockchain diffusion through interviews with 14 supply chain experts.