Supply chains are a hidden force in commerce responsible for moving your food to supermarkets, T-shirts to clothing stores and cars to dealerships. These networks of people and companies aim to produce goods and deliver them to consumers as quickly and cheaply as possible. Unfortunately, they are often messy and inefficient, but believe it or not, NFTs could be the logical answer to this problem. In this article, we take a closer look at how and why NFTs can be used in the supply chain.
How do supply chains work?
Supply chains often begin with the delivery of raw materials to a manufacturer. For example, a semiconductor factory needs to receive the precious metals and electronic components needed to make their goods. From there, the goods are produced and shipped to suppliers, warehouses and distribution centers. Of course this is too simplistic a view of things. In most cases, there are ten or more distributors shipping raw materials and hundreds of stores and warehouses ultimately receiving the finished products.
Why are supply chains inefficient?
There are several reasons why supply chain inefficiencies occur, including:
- Bad communication: Materials and products change hands several times before reaching the point of sale. Along the way, communication errors can lead to delays, loss of stock and additional costs.
- Lack of transparency: It can be difficult for supply chain managers to keep track of goods as they work their way through the supply chain.
- Inventory management: Tracking the amount of inventory shipped to specific retailers and warehouses is essential to understanding how much to send in the future. Sending too much or too little can lead to losses.
How can NFTs address supply chain inefficiencies?
Non-fungible tokens can curb supply chain problems via ‘digital twin’ NFTs. These tokens would act as digital copies of materials and goods as they work their way through the supply chain. Using smart contracts, those working within a supply chain can easily transfer the tokens to each other while transferring the physical goods.
For example, imagine that a materials distributor ships silicon to a semiconductor manufacturer. This distributor can mint an NFT representing these materials. As the materials make their way to the manufacturer, the digital twin NFTs are transferred to the wallets of those who own the materials, letting the semiconductor manufacturer know who has them. These NFTs can even be linked to barcodes and transferred with a quick code scan.
Once the raw materials (and their digital twins) reach the manufacturer, they can start producing the semiconductors. Once done, they can create their own NFTs, which represent batches of semiconductors that will go through the same transfer process as they make their way to distribution warehouses.
Final thoughts
NFTs eliminate many of the problems that supply chains are known for because they can improve traceability and reduce the need to constantly check in to see who has your materials. Ultimately, this would result in lower supply chain costs, and these savings could be passed on to consumers. Still, it will likely take some time before this technology is widely adopted across supply chains.
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*All investment/financial opinions expressed by NFT Plazas are from the personal research and experience of our site moderators and are intended as educational materials only. Individuals are required to fully research any product before making any form of investment.