Blockchain technology is revolutionising warehouse management systems (WMS) and other supply chain applications.
The inherently secure nature of the technology allows supply chain partners to create and share detailed information about items as they move from one location to another: in simple terms each action or movement creates a new irreversible block in the chain.
Built-in safeguards prevent unauthorised transaction entries and create consistency in supply chain partners’ shared view of those transactions. Data is secure and nothing can be deleted or modified unless everyone agrees. This means that data contained in the blockchain can be used as an authoritative record of the item’s history. The technology is growing in popularity and was one of the five trends in WMS that we identified earlier this year.
There is no doubt that product traceability and provenance tracking is the major benefit of blockchain technology. This is important across almost every industry and at a basic level the technology supports the quality, consistency, assurances, and trust that underpin all good business relationships.
But with supply chains becoming increasingly complex and global there are more opportunities physical interventions, disruptions, and fraudulent activities such as counterfeiting that have even more serious implications. This may be particularly true in industries or sectors covered by strict governance and regulations such as agriculture, food, pharmaceutical, chemicals, aerospace, and automotive. In these and other industries knowing that an item is what it claims to be, and being able to trace its origins, can have much wider implications for safety and health.
To illustrate how blockchain works, imagine a scenario where a warehouse receives a shipment of perishable goods, such as fresh produce or pharmaceuticals. Using a blockchain-based system, each item in the shipment is assigned a unique digital token.
Throughout its journey from the supplier to the warehouse, the item’s status (e.g. temperature, humidity, handling conditions) is recorded on the blockchain. This creates a record of the item’s history, ensuring that everyone involved (suppliers, logistics providers, warehouse staff) can verify its authenticity and quality. If any discrepancies or deviations occur (e.g. temperature spikes), the blockchain can trigger alerts, allowing immediate corrective action. When the goods are dispatched from the warehouse to retailers or customers, the same process continues, providing end-to-end traceability. In case of recalls or quality issues, the blockchain enables rapid identification of affected batches, minimising risks and ensuring consumer safety.
The result is enhanced supply chain transparency, reduced fraud, and improved overall trust in the quality and origin of products within the warehouse ecosystem. In some ways, none of this is new. WMS have, after all, offered benefits such as data accuracy and consistency that support and enable highly detailed and effective product traceability. Blockchain builds on these capabilities by enabling the security that adds reassurance for all supply chain stakeholders. But there are inevitably some challenges to address.
Complexity and Learning Curve: blockchain is a relatively new and complex technology. Understanding its intricacies can be challenging for warehouse operators and IT teams. This can create barriers to adoption and innovation, as well as potential for misuse and errors. Learning how to design, deploy, and maintain a blockchain network requires specialised knowledge. Much of this burden will be removed as WMS and other application suppliers embed blockchain capabilities into their products so that they work in the background.
Integration with Existing Systems: most warehouses already have established legacy systems for inventory management, order processing, and logistics. Blockchain technology is not generally compatible with existing systems and standards, which can make it difficult to integrate with legacy infrastructure and applications. This can require significant modifications and investments to adopt blockchain solutions. Nevertheless, it is still fundamentally data that is involved so there is no reason why WMS cannot work well with the technology.
Scalability and Performance: blockchain networks have limited capacity to process transactions, which can result in slow performance and high fees. As the number of users and transactions increases, the network can become congested and inefficient which will limit speed and responsiveness. Ensuring the blockchain can handle the volume of data generated by a busy warehouse operation is crucial. Most modern WMS are optimised around requirements such as interoperability and scalability and in themselves should not present a limiting factor on blockchain.
Costs and Resources: setting up and maintaining a blockchain network involves costs related to infrastructure, development, and ongoing management. Allocating resources (both financial and human) for blockchain implementation can be a challenge, especially for smaller warehouses. Again, much of this will become less of an issue when the technology is more commonplace in the applications that work with it.
Data Privacy and Security: while blockchain provides transparency, it also exposes data to all participants in the network. Ensuring that sensitive information (such as customer details or proprietary inventory data) remains secure is essential.
Regulatory Compliance: each country or trading bloc is likely to have different regulations covering data privacy, storage, and security. Complying with these regulations while using blockchain can be complex, especially when data is stored across multiple – particularly international - locations. Application developers should be abreast of the rules covering the territories where they operate.
Interoperability: warehouses collaborate with suppliers, logistics providers, and retailers. Ensuring that all parties can participate in the same blockchain network requires interoperability standards. As before, this will be less of an issue as blockchain becomes a standard (or optional) part of a WMS.
Energy Consumption: proof-of-work (PoW) blockchains (such as Bitcoin) consume significant energy because of the way the technology is applied in the so-called “mining” process. Supply chain partners will no doubt be mindful of the need to manage energy consumption but the type of blockchain they will be using will be more clearly defined and less open-ended which should prevent any major issues.
Resistance to Change: employees and stakeholders may resist adopting blockchain due to fear of disruption or unfamiliarity. Change management strategies are crucial to overcome this challenge.
Lack of Industry Standards: the lack of standardised protocols and best practices for blockchain in warehousing can hinder widespread adoption. Collaborative efforts are needed to establish industry norms. In practice, there are many forms and flavours of blockchain or at least systems based on the same concepts.
Principal Logistics Technologies, for example, developed its worldwide patented Unique Referencing (UR) mechanism years before blockchain although both are based on the same concepts. Today, UR is the backbone of the ProWMS product suite.
Whenever a stock item undergoes a new transaction, such as being moved or picked, ProWMS applies a new UR which is added to the chain for that particular item and provides complete forward and backward traceability at any time. A chain can comprise an unlimited number of URs. Crucially, a new UR cannot be added unless the previous UR exists and the new transaction has been confirmed.
Integrating blockchain with warehouse management systems offers the prospect of enhanced data security and accuracy covering aspects such as inventory levels, order processing, and shipment tracking. This offers immense potential for improving transparency and trust in warehousing but addressing the associated challenges is essential for successful implementation.