Blockchain and Value Chain: A "Love Story" of Two Chains

Author: Gospel Bassey; Compiler: ChainMarket

Blockchain technology is a fascinating engineering marvel that has taken the 2020s by storm. Currently, you may only associate blockchain with crypto. Interestingly, however, blockchain technology has applications far beyond what BTC, ETH, and other alternatives have achieved.

As a decentralized and distributed ledger technology, blockchain has the potential to revolutionize customer data security in healthcare, transfer of wills, copyright and patent protection, the Internet of Things, voting and of course crypto . But there is one area in particular that focuses on blockchain: the value chain.

With the increasing facilitation of technology, especially for small and medium-sized enterprises, the complexity and competitiveness of enterprises have also increased dramatically. Most businesses are forced to improve value chain efficiency in order to maintain a competitive advantage and ensure business continuity. **The value chain is simply the whole process of turning a business model from an idea into a reality, while maintaining a competitive advantage and controlling costs reasonably. **

Michael E. Porter of Harvard Business School introduced the value chain concept, and some well-known brands such as Starbucks have successfully used this concept.

To understand better, we can explain it with the help of supply chain: supply chain involves the process of sourcing goods and services from suppliers, while value chain involves adding value at various stages of production and marketing to create a profitable value for product delivery. That is, supply chain is a subset of value chain.

In this article, we will explore the relationship between blockchain and enterprise value chain, especially how blockchain technology can improve the efficiency of the company's value chain (the article is divided into two parts, this issue is the first half). However, our focus is not just on how blockchain can improve a business's value chain, but also insights into future possibilities and why this area needs more attention.

Specifically, we’ll explore the “how” of leveraging blockchain technology, but before doing so, let’s look at the “why” of blockchain being a value chain driver.

*****Why blockchain is the value driver of the value chain? *****

Currently, a typical value chain may contain thousands of entities such as retailers, supply chains, distribution centers, manufacturing spaces, and warehouses. These layers of processes, buildings and equipment are a daunting task to manage and need to be effectively coordinated and managed while maintaining good visibility and understanding of the entire supply chain.

Maintaining good visibility into the extended supply chain is critical, as lack of visibility can lead to increased production costs and time, damaged customer relationships, and more. Traditional centralized databases can be used to manage value chains, but blockchain has advantages in terms of comprehensive performance and the possibility of merging with artificial intelligence (AI) and the Internet of Things (IoT). So, what are the advantages of blockchain technology in the value chain?

Increase efficiency and trust through smart contracts: Smart contracts are protocols for creating and managing contracts between multiple parties. The smart contract executes the final terms of the contract when the conditions set in advance by all parties are met. Smart contracts ensure that contract terms and values cannot be tampered with, and that contracts can be executed in a timely and accurate manner. This eliminates the errors, delays and inefficiencies that can be incurred by manual verification of contracts, thereby building confidence and trust in operations and day-to-day processes throughout the value chain.

Information sharing in a large network: The value chain involves suppliers at all levels distributed in different regions and not directly connected with the brand company. However, branded companies are responsible for any defective or low-quality products that their suppliers trigger in their own facilities. Public blockchains can improve visibility and communication across the value chain and address this issue in the following ways:

• Blockchain provides a trustless communication and transaction platform through smart contracts.
• The decentralized nature of the blockchain solves the cybersecurity threats and downtime issues that a single/centralized database may face as it decentralizes the storage and processing of data and information.
• Blockchain has a better structural ability to support a large number of users without restricting user access.

Competitors Collaborating Safely: Although competing businesses may initially be reluctant to cooperate, there are times when they need to collaborate to meet government regulations, improve operational efficiency, or support accelerated product development. However, due to constrained trust, businesses may hesitate to share information through centralized databases or even third-party databases due to the risk of data loss. However, blockchain, as a decentralized peer-to-peer (P2P) technology that can provide security protection for information and provide a trustless transaction platform, solves this problem.

All in all, blockchain technology offers many advantages in value chains, including increased efficiency and trust, enabling information sharing in large networks, and the possibility of secure cooperation. These advantages make blockchain an important tool for improving the value chain of enterprises.