What are the applications of NFTs in supply chains?
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What are the applications of NFTs in supply chains?

Why should businesses adopt nonfungible tokens in their supply chains?

NFTs can be used in supply chains to make them more transparent and efficient, leading to several billion dollars being saved. This is yet another space where Web3 technologies can have real-world applications.

The supply chain is an integral part of any business. Right from pharmaceutical giants and fast-moving consumer goods (FMCG) behemoths to local direct-to-customer brands, most businesses are dependent on efficient and resilient supply chains to deliver their products and services effectively. Despite being a vital cog in the wheel 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 use cases by banks such as HSBC. This is a use case that relies more on smart contracts and blockchain infrastructure layers like the Ethereum and Solana blockchains.

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

Here are a few numbers, statistics and narratives to put things into perspective.

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

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


What role do NFTs play in the supply chains?

Real-time tracking, settlement and documentation of the supply chain cannot only create more efficiencies for businesses but also help with better financial products that they can rely on for their operating capital.

NFTs create a digital record that is immutable and transparent. What this offers the supply chain industry is a transparent trail where everyone in the ecosystem would have complete visibility. Therefore, right from producing the raw material for goods to displaying them on a website or brick-and-mortar shop, the usage of NFTs will provide traceability and help in supply chain management.

Phygital NFTs have proven to be a great utility when they are tagged to real-world goods. Using NFTs for tracing a good or a manufactured product right to its source can add credibility to 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 providence of the product.

Apart from traceability, NFT-gated procurement and NFT-gated warehousing will help data scientists with valuable insights into product journeys at an individual level. Such granular data will help analysts, business owners and investors assess inefficiencies in the supply chain. This will help set new service level agreements (SLAs) with service providers on the supply chain and monitor them to hit 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 once goods are delivered. Multiple checks and balances before transferring payment for finance teams would be a thing of the past once real-time traceability is enabled. 

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


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

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

Last but not the least, the end-consumer will get access to the evolution of a product. They have transparency on where the raw materials were produced and the companies that were involved in the production. This offers another dimension from a customer experience perspective bringing creators of products closer to the end-user. 

In the FMCG, pharmaceuticals and sectors where expiry and counterfeiting are a major hassle and could potentially lead to catastrophic consequences, NFTs can be a lifesaver. Along with that, the trust factor in brands also increases among customers. 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 the markets demand more sustainable practices from global businesses, ensuring a transparent and efficient supply chain can help firms with their ESG narrative. Should a company wish to weave sustainable practices into its supply chain, carbon efficiencies achieved through the use of NFTs could be a great value add. For the new age-conscious consumer, this means sustainable products, and for the globe, it means lower emissions. 


Which companies are using blockchain for supply chain management?

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

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

Walmart utilizes digital twin technology to track the food supply chain ecosystem, increasing trust. Automobile giant Ford uses digital ledger technology to ensure it gets ethical minerals for production. 

The diamond behemoth De Beers also uses blockchain to validate whether diamonds are sourced from war-free zones. Along with this, transportation 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. As nonfungible tokens act as digital twins of real-world goods, they not only offer transparent supply chains but also greater community retention through customer experience.


What are the real-world challenges of implementing NFTs at scale across supply chains?

Technology is often only a means to an end and is seldom a silver bullet. There are several real-world issues that can hinder progress with rolling out NFTs and blockchains across supply chains globally.

The benefits of digital twins for real-world goods can’t be underestimated. However, today’s supply chains globally are extremely intermediated and run on trust. A farmer in Africa sells their produce to an intermediary as they have for years. This develops a certain amount of trust between the two parties. 

As a result, resistance to change would be high, even when the farmer realizes that they will accrue value better in a more transparent supply chain. On the other hand, the intermediary wouldn’t want a new system, as their livelihood relies on the margins they make using the farmers’ produce.

Consequently, supply chains are susceptible to resistance from various stakeholders to such implementation. Drug supply chains could become extremely efficient with nonfungible tokens and blockchains. Yet the industry thrives in countries such as India and Nigeria, and corrupt stakeholders across the supply chain would be opposed if a new system is proposed.

Therefore, any technology being introduced into these supply chains will need to have both a top-down approach and a bottom-up approach. The top-down approach will involve governments and regulators mandating better traceability; the bottom-up approach would be firms solving this issue by working on the ground with stakeholders and spreading awareness of the benefits of the technology

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