NFT in Supply Chain: Meaning, Applications and Challenges

“The virtual world will open thousands of new opportunities for this new generation”

― Anuj Jasani

 

By quickly and effectively removing frequently occurring pain spots that cause significant disruptions, non-fungible tokens (NFTs) have the potential to disrupt the supply chain sector (in a good way). That's due to their ability to track data and leave behind a digital trail.

 

While 2021 will forever be remembered as the year of the supply chain catastrophe, supply chain mishaps really occur very frequently and cost businesses huge amounts of money each year. 

 

NFTs and blockchain (distributed ledger technology) can get rid of bottlenecks, save costs, make supply networks more transparent, and help to avoid chaos throughout all the phases of the supply chain, from onboarding to production to transportation. In this blog you will learn more about NFT in Supply Chain.

 

 

What are NFTs?

 

A contract-like digital document known as an NFT (non-fungible token) is one that is registered using blockchain technology. This means that NFTs benefit from the features of blockchain: they are publicly available, any modifications are preserved, and they are impervious to outside modification. 

 

In 2020, the global NFT market had a triple-digit growth rate, growing to a $250 million market value, according to the NFT Yearly Report produced by NonFungible.com in partnership with L'Atelier BNP Paribas.

 

The fact that NFTs are non-fungible is what really distinguishes them. In contrast to bitcoin or regular currency, they cannot be replaced. There are never two identical NFTs. The worth of a coin or a banknote, on the other hand, is unaffected by an identical one. 

 

NFTs, in contrast to cryptocurrencies, were developed to authenticate the ownership of specific assets rather than to be used as a means of payment. These resources have mainly been digital up to this point. 

 

This data continues to be stored in the blockchain (which, in the case of NFTs, was created by the Ethereum business), ensuring that these contracts continue to exist and are accessible to the public (everyone knows who owns what).

 

Since the network is decentralized, anybody can view NFT data; however, only the owner of the NFT has the authority to delete it or transfer it to another party. A simple tweet can be uniquely identified by an NFT, as can a photo or a piece of art.
 

 

Why are NFTs a supply chain solution?

 

NFTs produce digital footprints or a "token ID" that is connected to the item throughout its lifetime rather than the vast, lengthy, and complex paper trails that accompany transactional ownership and activity of a range of goods. 

 

The information contained in each NFT's metadata, which leads to priceless digital assets updated in real-time on the blockchain, serves to determine the uniqueness of each NFT.

 

By allowing the participants in the supply chain to access the same immutable record on the ledger, NFTs can help to reduce or even completely eliminate information flow inconsistencies. The supply chain data's validity and dependability are guaranteed by the immutability and transparency of the blockchain. 

 

In order to source and acquire the goods and services a firm requires, NFTs can boost efficiency and lower costs. The position, quantity, and other important information about a part are likewise produced by NFTs in an end-to-end view.

 

Also Read | How to create an NFT Wallet? 

 

NFT Use Cases for Supply Chains

 

The question of which unique assets we can represent by tokens and when does it make sense to make these tokens non-fungible comes into being if we tie the current use cases of NFTs to the realm of supply chains. The following list contains some of the NFT use cases for supply chains to clearly show their ownership or exchange history.

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Use cases of NFT in Supply Chain

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1. Unique physical products or product batches (Product authenticity)

 

One common application of blockchain technology is the provenance and traceability of products. To track things like food, medications, or clothing, blockchain technology and tokenization are used in numerous businesses. 

 

Through the use of tokens, the trade and movement of products may be tracked. An individual digital twin that is connected to unique identifiers of the physical goods can be established by making up NFTs for products or product batches.

 

2. Unique physical assets (Asset tracking)

 

The manner that NFTs can represent goods also applies to other assets, including manufacturing equipment or real estate. By developing distinct revenue-generating assets that are NFT-specific, NFTs have already been used to streamline real estate transactions and to promote fractional investments. Another revenue-generating asset is factory machinery, which might be financed in other ways by tokenization.

 

3. Unique digital business documents (certificates and transactional data)

 

There is always a unique identity present in business papers like invoices, certifications, and sales orders. NTFs may also be used to represent this kind of document.

 

Also Read | Top 10 Tools traders use to mint NFTs

 

Application of NFTs in the Supply Chain

 

Few people are aware of the advantages of simplifying the supply chain because NFTs in supply chains are a relatively new idea. Although NFTs are irreplaceable tokens with more substantial uses, the industry is aware of Blockchain's potential as a problem-solver.

 

1. Traceability of the Product

 

The system is heavily influenced by globalization. The journey of a product begins six to twelve months before the retail or market shop actually makes the sale. Every service is outsourced to the point where firms or retailers are unaware of the source of a particular product component. 

 

The 2013 tragedy at Rana Plaza serves as an excellent illustration. H&M, Gucci, and Versace, for example, were not even aware that the Rana Plaza plant supplied them.

 

NFTs will demonstrate their value at that point. A corporation may simply identify the owner of the asset by performing rapid scans and generating reports thanks to the tokenization system's capacity to track the product's movement in real time. 

 

Knowing the distribution nodes for determining shelf life and the selling window for perishables is crucial for businesses. Every product in the system has metadata created by NFTs, and managers are always aware of the current location of every product. 

 

The tokenization method will also improve how supply chain inventories are maintained. Businesses can benefit from having real-time replenishment data, fewer stock checks that are necessary, and fewer stock-outs.

 

In addition to witnessing the growth of the pharmaceutical sector, we also witnessed all of its malpractices. As an illustration, an article from ABC News (Australia) indicates that many people received safe saline injections rather than the covid19 vaccination. 

 

Due to customers' awareness of the complete supply chain, the producer/name, owner's storage locations, and the viability of the goods, NFT technology can assist in eradicating the majority of malpractices practiced globally.

 

2. Data Sharing

 

Customers benefit more from this application because businesses are unwilling to provide them with useful information. Consider a smartphone as an example. 

 

We choose a smartphone based on its features and the manufacturer; we have no idea where it is made, when it is made, or how long its batteries will last. Through the creation of a transparent platform between the business and the customer, NFTs can foster a sense of mutual trust.

 

3. Better Supply Chain Collaborations

 

NFTs offer a lone source of reality. Starting with a single fact from the seller's seller to the buyer's buyer, the cycle of creating improved supply chain cooperation can be started. 

 

To establish supply chain collaboration (SCC) and enable businesses to share resources and data in order to benefit from collaboration, trust is required.

 

VMI (Vendor Managed Inventory) and CPFR are current examples of supply chain collaboration in the business (Collaborative Planning Forecasting & Replenishment). Companies want to save expenses while maintaining a competitive advantage. 

 

A great illustration would be the supply chain alliance established between two FMCG titans, P&G and Walmart. According to a report by Michael Grean and Michael Shaw, these factors include better decision-making, shorter inventory runs, and a customer-centric mindset. 

 

Starting a partnership and maintaining it are two entirely different things. In order to save a partnership, one organization must provide all pertinent data for each phase, and going forward, technologies like NFTs will be crucial.

 

NFTs support providing the participants with a single set of data. For instance, a scannable code will be present on Gillette razors, a P&G brand. 

 

These scannable codes (cryptographic implementation) will show who the raw material supplier was, the shelf life, the pallet size, the financials, the trucking companies involved, the facilities involved, who is the final retailer, stakeholders to Walmart, if the razors are produced in Poland (one of P&G's factories). These technologies establish the foundation of a strategic collaboration by fostering trust between the parties.

 

4. Streamlining Procurement Operations

 

Absolute openness on both the buyer and supplier sides is essential for streamlining procurement operations. Procurement involves more than just purchasing a variety of commodities from vendors.

 

It also entails planning, supplier identification, evaluation of hundreds of potential suppliers, supplier selection, modification of supplier performance objectives, contract management, and payment evaluations.

 

Companies can prevent supplier-boarding inconsistencies by implementing NFT into the system. Data cannot be changed because NFT is an asset that cannot be changed. 

 

NFT assists in establishing a common procurement platform for all the enablers. The onboarding process for new suppliers is sped up by 70% to 80%, according to a white paper produced by blockchain company Chainyard. 

 

Because NFT uses blockchain technology, it can identify suppliers with low risk, offer a single platform for comparisons, forecast and manage risks, and match suppliers' requirements with industry norms.

 

5. Production, Transportation, and Warehousing

 

For each component that is a part of a system, NFTs produce a digital identity. In the car industry, for instance, every semiconductor will have a unique digital identity that is kept in the system. Through time-stamping & geopositioning, it will also automatically update data.

 

Defects will appear more quickly than before if NFTs are used. NFTs will decrease recalls, saving the corporation millions of dollars. For businesses, reverse logistics can be highly expensive, particularly in the FMCG industry. 

 

NFTs will make it easier to follow back the whole supply chain by identifying the product line and production batch more quickly than before. 

 

Feeding every little detail into one computerized ledger is another example from the trucking industry. The issue here is that there isn't a consistent driver for one vehicle each week while the trucks are undergoing repairs and maintenance. 

 

In this case, non-fungible tokens will provide information on all fixes done to the truck since the beginning and keep an eye out for potential future break-outs. Consequently, the lead time goal was met. NFTs and blockchain are expected to significantly alter the shipping sector, lowering the overall landed cost.

 

NFTs are used in the warehouse management system under the name NFTW or NFT Warehouse. NFTW enables many parties to carry out the order simultaneously. The most notable example of a company using NFTs and the Amazon Warehouse Blockchain system to its advantage is Amazon. 

 

Small enterprises could expand their operations with the use of NFTs in warehouse management. Choosing which sorts of warehouses to utilize, allocating profit margin based on duties, and analyzing carrying costs are all challenging decisions for small scales. 

 

Better tracking, party-to-party communication, and product mobility are all made possible by NFTW. Knowing the current direction of each stock is having a tokenization notion. 

 

Blockchain provides a bird's eye perspective of the logistics and supply chain, whereas NFT is similar to having micro-knowledge of each supply chain transaction.

 

Also Read | Uses of NFT in Marketing

 

Challenges of NFT in Supply Chain

 

1. Cybersecurity threats and online fraud are two of the major problems. The tokens are non-fungible, although fraudsters might be able to duplicate them. These con artists are able to memorize the full automotive supply chain ecosystem.

 

2. The time-consuming and expensive process is another difficulty. Not every company in the supply chain system has the knowledge or authority to adopt NFTs. 

 

To implement the NFT programme, all supply chain partners need in-depth analysis and knowledge. For instance, P&G and Walmart should share similar knowledge, viewpoints on cost adjustments, and understanding of any implications.

 

NFTs enable businesses to demonstrate their transparency to clients across the globe. Implementing NFT has a little advantage over rivals in the areas of blockchain, IoT, and digitization. In the future, sophisticated and paper-trail methods will be sought after when representing unique assets digitally.

 

NFTs will serve as a source of uniform information for all chain participants, from manufacturing facilities to retailers and from exporter's port to importer's port. NFTs may serve as the change catalyst in complex supply chains, enabling organisations to establish superior value chains from the outset.