EXPLORE HOW BLOCKCHAIN TECHNOLOGY CAN ENHANCE TRANSPARENCY, EFFICIENCY, AND TRUST IN SUPPLY CHAIN FINANCING, AND ASSESS ITS POTENTIAL TO DISRUPT TRADITIONAL FINANCING METHODS

Abstract

Blockchain became popular in recent years as a disruptive technology that offers the possibility to revolutionize a number of industries including supply chain financing. Old traditional ways of financing a supply chain would entail several middlemen and an effective but complex supply chain information system hence characterized by inefficiencies, lack of transparency and trust deficit. These challenges result in longer time to complete the financing process, high costs and even open gateways for fraud to take place, thereby are the negative impacts of supply chain financing. This paper aims at evaluating how distributed ledger technology can solve such issues by improving on the transparency, speed together with reliability within the supply chain financing arrangements in order to present a viable supply chain financing option to traditional techniques.

Blockchain runs on shared and secured database that is open for all the members of the network where all the transactions are logged. Thus, all the members of the supply chain have access to the accurate information in real time and the cases of fraud and mistakes here are minimized, as well as information asymmetry. Also, the use of smart contracts with blockchain allows processing various financing operations, for instance, invoice approval, payment, etc., without intermediaries. The automation of these processes not only fastens the transactions, and at the same time lowers the operational costs which makes the financing mechanisms less sensitive to human interference.

To evaluate the prospect of blockchain to revolutionize the standard supply chain financing, this paper contrasts blockchain based systems with standard financing techniques. The research shows that application of block chain onsite can bring measurable advantages in such a sphere as transparency, cost reduction and trust between the members of the supply chain. For instance, in financing, middlemen may be removed by the technology thus adding flexibility in the supply of capital to the financial suppliers besides avoiding long payment periods. Furthermore, seen from block chain perspective, the distribution of the financing process also avoids a single centralized body controlling the whole process, making the financial system more credible. However, several challenges are in the way of the envisaged uptake of blockchain technology in supply chain financing. Possible problems of its application stem from the questions related to its scaling, compliance with legal requirements, and interactions with existing technologies. Similarly, proponents argue that the harmonization of blockchain technology with financial and legal systems is important in the realization of the technology. In other words, despite the great potential which is inherent in the method of blockchain for the change of the scenario of further evolution of the sphere of organization of supply chain financing, its ability to become the highly effective verge of rupture with conventional approaches will largely depend upon the mentioned challenges. The study suggests that efforts should be continued to investigate the benefits of blockchain technology and major players of the supply chain financing should come forward to work in unison to unlock the potential of this technology.