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What Distributors and Manufacturers Need to Know About Blockchain

The past decade has brought immense change to the manufacturing and wholesale distribution industries. Digital transformation is the norm. An eCommerce channel is no longer “nice to have,” but required for growing and maintaining a profitable business. Forward-thinking companies have placed the concept of unified commerce at the heart of everything they do.

But just as distributors and manufacturers are getting comfortable with digital transformation, more opportunities have appeared on the horizon, with the power to bring even greater change to the way companies conduct business. Chief among these new technologies is blockchain, which has the potential to completely reshape multiple industries, especially for B2B companies.

Organizations large and small, and in both the B2B and B2C sectors, are experimenting with and exploring the possibilities of blockchain to fundamentally alter how they do business. While full adoption is still a little ways away, blockchain technology has the power to redefine how businesses approach contracts, supply chain traceability, and eCommerce. It’s crucial for all companies to be aware of the technology and prepare themselves.

Defining blockchain

To grasp how blockchain will redefine the manufacturing and distribution space, it helps to understand what blockchain actually is. But first, let’s make sure to separate blockchain, the technology, from Bitcoin, and other forms of cryptocurrency. Bitcoin and blockchain are not the same thing: Bitcoin was the first usage of blockchain technology, and is just one of the hundreds of uses for the core technology. As analyst Jack Shaw puts it, confusing Bitcoin and blockchain is akin to thinking that email and the internet are the exact same thing.

One popular phrase used to describe blockchain is the “single source of truth.” Blockchain is a decentralized database that provides an immutable record of ownership, business transactions or commitments for services. This information can then be shared among parties, without an intermediary, and without either party serving as the master record holder. This information is available globally to authorized parties. The information cannot be hacked, because blockchain information is stored and synchronized across multiple computers around the world – up to thousands of computers, in some cases.

This means that blockchain technology can be deployed for storing sensitive files, like a credit history, or medical records. Patients can control the access, authorizing doctors and insurance companies to see them, but no single company would control the records. In Cook County, Illinois, the recorder of deeds is working on putting the county’s complete title records on the blockchain to expedite the property sales process.

Improving the supply chain

The ability to transparently track ownership as goods change hands means that blockchain has clear utility for improving the supply chain. Current supply chains are full of opportunities for errors and delays as products move from supplier to manufacturer to distributor to carrier to retailer. Each of these players has its own independent database for maintaining transactions, so even sharing information online results in delays and inaccuracies. Reconciliation is a major drain on time for every party involved.

Blockchain eliminates the gaps in the supply chain, along with the potential for errors, because all of the relevant information is shared and updated by individual players in real time. Because everyone involved in a transaction is looking at the same data, blockchain has the potential to eliminate hours of extra work that manufacturers and distributors spend handling purchase orders, invoices and payments.

Blockchain also introduces the concept of “smart contracts.” This software can track what has happened to date in a transaction and can automatically generate payment once an ordered product is received. It supercharges contracts and eliminates the need for invoices altogether.

Embracing blockchain

Companies like Walmart and Sam’s Club have already mandated that some of its suppliers implement blockchain technology. Many experts claim that blockchain could have prevented the romaine E.coli warning a while back. But the applications extend to B2B companies, especially those who deal with perishable or serviceable products. This is real, tangible change that will impact manufacturers and distributors in a relatively short period of time. Blockchain may not seem like a fit to most companies right now, but many distributors likely felt the same way about eCommerce a decade ago.

And just like eCommerce, it’s not a question of if blockchain will change the B2B distribution ecosystem. It’s a matter of when. Just as manufacturers and distributors have come to embrace eCommerce as an important part of their digital transformation, they’ll need to embrace the potential that blockchain can bring once the technology becomes more widely adopted by B2B companies.