What are the uses of NFTs in supply chains?

Why should companies adopt non-fungible tokens in their supply chains?

NFTs can be used in supply chains to make them more transparent and efficient, leading to billions of dollars in savings. This is yet another place where Web3 technologies can have real-world applications.

The supply chain is an integral part of any business. From pharmaceutical giants and fast moving consumer goods (FMCG) to local direct-to-consumer brands, most businesses rely on efficient and robust supply chains to deliver their products and services efficiently. Despite being an important cog for organizations, supply chain networks are far from efficient on a global scale.

One of the key applications of blockchain technology has been traceability in a supply chain. This feature of the technology has been experimented with in trade finance cases by banks such as HSBC. This is a use case that relies more on smart contracts and blockchain infrastructure layers such as the Ethereum and Solana blockchains.

While non-fungible tokens (NFTs) as a technology paradigm were not necessarily planned to disrupt supply chains, they could lead to a massive transformation of pain points in this space. NFTs can act as “digital twins” of real-world goods and can contribute to traceability in supply chains.

Here are some numbers, statistics and stories to put things into perspective.

• 49% of businesses have zero knowledge of what is happening at key touchpoints in their supply chain due to a lack of visibility.
• Counterfeit goods cost global brands more than $232 billion in 2018.
• In industries such as pharmaceuticals, the counterfeiting market alone can be close to $200 billion per year.

The extent of the problem can be understood from the figures above and NFTs can offer solutions to these inefficiencies. In addition to this, there are also other interesting use cases that lie at the convergence of blockchain and supply chain, which are discussed later in this article.

What role do NFTs play in supply chains?

Real-time tracking, settlement and documentation of the supply chain can not only create more efficiency for companies, but also help with better financial products that they can rely on for their working capital.

NFTs create a digital record that is immutable and transparent. What this offers the supply chain industry is a transparent path where everyone in the ecosystem will have complete visibility. Therefore, right from producing the raw materials of goods to displaying them on a website or a physical store, the use of NFTs will provide traceability and aid in supply chain management.

Phygital NFTs have proven to be a good tool when tagged to real-world commodities. Using NFTs to trace an item or manufactured product straight to its source can increase the credibility of the product. It can also offer consumers a method to understand the source of the product they are looking at and choose one based on the product’s providence.

Apart from traceability, NFT-gated procurement and NFT-gated inventory will help data scientists with valuable insights into product journeys at the individual level. Such granular data will help analysts, business owners and investors assess supply chain inefficiencies. This will help set new service level agreements (SLAs) with service providers in the supply chain and monitor them to achieve these SLAs.

Furthermore, weaving NFTs and digital twin technology into the supply chain will enable companies to automate payments through the system and perform instant settlement when goods are delivered. Multiple checks and balances before transferring payment for finance teams will be a thing of the past when real-time traceability is enabled.

Real-time tracking will also help fund products such as trade finance, where the status of goods can be used to borrow working capital from supply chain stakeholders. Supply chain managers who have an enhanced vantage point can intervene at the appropriate checkpoint in the event of congestion or bottlenecks. This makes supply chains more efficient, resulting in better revenues and lower costs.

What are the benefits of using NFTs in the supply chain from a customer perspective?

Customers can see where products come from and the different routes they take before they arrive at supermarkets.

Last but not least, the end consumer will have access to the development of a product. They have transparency about where the raw materials were produced and the companies that were involved in the production. This provides another dimension from a customer experience perspective that brings product creators closer to the end user.

In FMCG, pharmaceuticals and sectors where leakage and counterfeiting are a major problem and can potentially lead to catastrophic consequences, NFTs can be a lifesaver. Along with that, the trust factor in brands among customers also increases. Apart from the primary benefits, NFTs can help make supply chains more sustainable, which in turn can help the environmental, social and governance (ESG) narrative of businesses.

As nation states, central banks and markets demand more sustainable practices from global businesses, and ensuring a transparent and efficient supply chain can help companies with their ESG narrative. Should a company wish to weave sustainable practices into its supply chain, carbon efficiency achieved through the use of NFTs can be a major value-add. For the new age-conscious consumer, this means sustainable products, and for the planet it means lower emissions.

Which companies are using blockchain for supply chain management?

Several luxury and logistics brands are using blockchain technology and NFTs to track their products and create digital twins that can help with community-building initiatives.

Major marquee brands in the automotive, luxury and retail industries have already started integrating NFTs into their supply chain to achieve the myriad benefits they offer.

Walmart uses digital twin technology to track its food supply chain ecosystem, increasing trust. Auto giant Ford uses digital ledger technology to ensure it sources ethical minerals for production.

Diamond behemoth De Beers also uses blockchain to validate whether diamonds are sourced from war-free zones. Along with this, transport companies such as FedEx and Maersk use this technology for their operations.

Luxury brands such as DeBeers, Louis Vuitton, Dolce and Gabbana and Gucci have turned to NFTs for customer integration and loyalty. Since non-fungible tokens act as digital twins of real-world goods, they offer not only transparent supply chains, but also greater community retention through customer experience.

What are the real challenges in implementing NFTs at scale across supply chains?

Technology is often just a means to an end and is rarely a silver bullet. There are several real-world issues that could hinder progress in rolling out NFTs and blockchains across supply chains globally.

The benefits of digital twins for real-world goods cannot be understated. However, today’s global supply chains are extremely intermediate and run on trust. A farmer in Africa sells his produce to a middleman as they have done for years. This develops a certain degree of trust between the two parties.

As a result, resistance to change will be high, even when the farmer realizes that they will accrue value better in a more transparent supply chain. On the other hand, the middleman would not want a new system, since their livelihood depends on the margins they earn by using the farmers’ products.

Consequently, supply chains are exposed to resistance from various stakeholders to such implementation. Pharmaceutical supply chains can become extremely efficient with non-fungible tokens and blockchains. Nevertheless, the industry thrives in countries such as India and Nigeria, and corrupt stakeholders throughout the supply chain would be opposed if a new system were proposed.

Therefore, any technology introduced into these supply chains must have both a top-down approach and a bottom-up approach. The top-down approach will involve authorities and regulators demanding better traceability; the bottom-up approach would be for firms to solve this problem by working on the ground with stakeholders and spreading awareness about the benefits of the technology.