Supply chains are the hidden forces in commerce that move food to grocery stores, T-shirts to clothing stores, and cars to dealerships. These networks of people and businesses aim to produce and deliver goods 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. This article details how and why NFTs are used in supply chains.
How does the supply chain work?
Supply chains often begin with the delivery of raw materials to manufacturers. For example, semiconductor factories must accept precious metals and electronic components needed to manufacture their products. From there, goods are produced and shipped to vendors, warehouses, and distribution centers. Of course, this is an oversimplification. In most cases, there are 10 or more distributors shipping raw materials to hundreds of stores and warehouses that ultimately receive finished products.
Why are supply chains inefficient?
There are many reasons why supply chain inefficiencies occur. These include:
- lack of communication: Materials and products change hands many times before they reach the point of sale. Along the way, communication errors can lead to delays, inventory losses, and additional costs.
- Lack of transparency: For supply chain managers, it can be difficult to stay on top of the goods that are passing through the supply chain.
- Inventory control: Tracking the amount of inventory shipped to a particular retailer or warehouse is essential to understanding how much you need to ship in the future. Sending too much or too little can result in loss.
How can NFTs address supply chain inefficiencies?
Non-fungible tokens can curb supply chain issues through “digital twin” NFTs. These tokens act as digital copies of materials and goods as they pass through the supply chain. Smart contracts allow people working within the supply chain to easily transfer tokens to each other when handing over physical goods.
For example, imagine a materials distributor ships silicon to a semiconductor manufacturer. This distributor can mint NFTs representing those materials. Once the material reaches the manufacturer, the digital twin NFT is transferred to the wallet of the person who owns the material, allowing the semiconductor manufacturer to know who owns the material. These NFTs can also be linked to barcodes and transferred with a simple code scan.
Once the raw materials (and their digital twins) arrive at the manufacturer, semiconductor manufacturing can begin. Once complete, you can mint your own NFT representing a batch of semiconductors, which goes through the same transfer process as it would go to a distribution warehouse.
NFTs eliminate many of the known problems in supply chains by enhancing traceability and reducing the need to constantly verify who owns materials. Ultimately, this could reduce supply chain costs and pass those savings on to consumers. Still, it will likely be some time before this technology is widely adopted in the supply chain.
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*All investment/financial opinions expressed by NFT Plaza are based on the site moderator’s personal research and experience and are intended as educational material only. Individuals should research the product thoroughly before making any type of investment.
NFT artist. musician. The founder of Crescendo.