A Guide to Supply Chain NFTs and How they Work

2 Mins read

Supply chains are a hidden force in commerce responsible for getting your 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’re often messy and inefficient, but believe it or not, NFTs could be the logical answer to this problem. In this article, we’ll dive into how and why NFTs could 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 must receive the precious metals and electronic components necessary to make their goods. From there, the goods are produced and shipped to vendors, warehouses, and distribution centers. Of course, this is an oversimplification. In most cases, there are ten or more distributors shipping in raw materials and hundreds of stores and warehouses that ultimately receive the finished products.

Why are supply chains inefficient?

There are various reasons supply chain inefficiencies occur, including:

  • Poor communication: Materials and products change hands several times before reaching the point of sale. Along the way, communication errors can lead to delays, inventory losses, and added costs.
  • Lack of transparency: It can be tricky for supply chain managers to keep up with the goods as they make 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 you should send moving forward. Sending too much or too little may result in losses.

How can NFTs address supply chain inefficiencies?

Non-fungible tokens can curb supply chain issues through “digital twin” NFTs. These tokens would act as digital copies of materials and goods as they make their way through the supply chain. Using smart contracts, those working within a supply chain can easily transfer the tokens to each other as they hand off the physical goods. 

For example, imagine a material distributor is shipping silicon to a semiconductor manufacturer. This distributor can mint an NFT representing those materials. As the materials make their way to the manufacturer, the digital twin NFTs get transferred to the wallets of those possessing the materials, thereby allowing the semiconductor manufacturer to 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 begin producing the semiconductors. Once finished, they can mint their own NFTs, representing batches of semiconductors, which will go through the same transfer process as they make their way to distribution warehouses.

Final thoughts

NFTs eliminate many of the issues supply chains are known for, as they can enhance traceability and reduce the need for constantly checking in to see who has your materials. Ultimately, this would result in lower supply chain costs, and these savings could be passed onto consumers. Still, it’ll probably be a while before this technology is widely adopted in 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 material only. Individuals are required to fully research any product prior to making any kind of investment.

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