Discover how tokenization boosts supply chain resilience through transparency and efficiency, addressing logistical challenges with blockchain innovation.
after reading this, you'll understand:
Tokenization in supply chain management means creating a blockchain-based equivalent of physical goods or documents.
Tokenization of inventory, invoices and shipments can help improve supply chain resilience.
Distributed ledgers, smart contracts and the IoT are well suited to tracking and tracing events across a complex, multi-party relationship like a supply chain.
Supply chain resilience is the ability of a supply chain to anticipate, adapt to, and recover from disruptions while maintaining its essential functions. This concept is a cornerstone of modern logistics and global trade, especially in the face of pandemics, natural disasters, geopolitical instability, and other challenges.
Resilient supply chains avoid downtime, improve customer satisfaction, and support long-term profitability. Achieving resilience requires innovation, and one of the most promising new tools is tokenization.
Tokenization is the process of representing physical or digital assets as computer coding, called tokens, on a blockchain. In supply chain management, this means creating a blockchain-based equivalent of physical goods or documents.
For instance, a batch of pharmaceuticals can be tokenized, and its blockchain representation will carry all relevant data — such as origin, handling conditions, and expiration date. As the batch moves through the supply chain, the token tracks its journey immutably, automating agreements through smart contracts.
AVC Global is a supply chain platform with track-and-trace technology and supply chain financing available through a Fintech platform on a distributed ledger. For its clients in the pharmaceutical industry, AVC Global uses a “double digital notary” system that verifies every step of a drug through the supply chain.
When a batch of medicine is made, it receives a GS1 compliant serial number (a globally recognized traceability identifier) that is recorded and verified on a distributed ledger. In other words, it is tokenized. As the medicine moves from the plant to the patient, the codes are scanned, and each is verified through this non-corruptible, dual notary system.
The pharmaceutical industry is a frequent target for fraud and drug counterfeiting. Some points of the journey pose particular risks, such as the export/import stage within customs. Tokenization removes the risk of the GS1 serial numbers being faked or modified. This eliminates the potential for theft, while making sure that tax and tariff payments are recorded and verified. Both security and cash flow are optimized.
AVC Global also uses IoT sensors to monitor shipments, smart contracts for compliance and government clearances, and FinTech for supply chain finance and cross-border payments.
This case study shows how supply chains are inherently complex and typically involve multiple geographies, regulatory frameworks, and stakeholders, such as buyers, sellers, shippers, and customs, tax and compliance officials.
Tokenization simplifies and secures these processes by creating a single source of truth. Some applications of tokenization in supply chains include:
Invoice tokenization. Converting invoices into digital tokens can streamline financing, reduce fraud, and provide transparency in payment cycles. This approach has proven especially effective in deep-tier supply chain finance.
Inventory tokenization. By tokenizing inventory, businesses can improve inventory visibility and enable real-time tracking, reducing overstock and stockouts.
Product tokenization. Industries like seafood have used product tokenization to enhance traceability.
Tokenization offers many advantages in logistics, transforming how businesses manage and monitor their supply chains. Let’s go over some of these benefits:
Enhanced efficiency. Tokenization reduces the need for manual paperwork and redundant data entry. Processes are automated through smart contracts, so businesses can save time and focus on core operations.
Real-time tracking. Digital tokens provide real-time visibility into the movement and status of goods, improving decision-making and coordination among stakeholders. For example, IoT sensors integrated with tokenized systems can provide instant updates on shipment conditions.
Cost reduction. By eliminating intermediaries and reducing inefficiencies, tokenization can significantly lower logistics costs. It also mitigates losses from theft and fraud. Furthermore, it reduces the financial burden of resolving disputes by offering immutable proof of transactions and the condition of goods.
Improved traceability. With immutable records, tokenization provides complete traceability, reducing counterfeit risks and boosting compliance with regulatory standards.
Fraud prevention. Tokenized systems provide secure and tamper-proof records, making it harder for malicious actors to alter data or commit fraud. This is particularly important in high-value industries like luxury goods or electronics, where counterfeit products are an issue.
Enhanced inventory management. By tokenizing assets, businesses gain greater visibility into inventory levels, locations, and movement. This reduces overstocking or stockouts, streamlining inventory processes and cutting costs.
In addition to these advantages, tokenization also supports businesses by improving data integrity, enabling faster dispute resolution, and offering opportunities for predictive analytics to anticipate future supply chain needs.
Several advanced technologies underpin the success of tokenization in supply chains, creating an ecosystem of interconnected tools and innovations. Together, these technologies address the complexities of modern supply chains and enable smoother, more secure operations.
Smart contracts are key to tokenization. They automate agreements by embedding the terms of a contract into self-executing code on a distributed ledger so that processes are carried out without intermediaries. For example, payment can be automatically released upon confirming the delivery of goods, and the blockchain maintains an immutable transaction record.
Beyond financial transactions, smart contracts streamline multi-party workflows. Imagine a scenario where multiple approvals are needed at different supply chain stages — smart contracts can execute these sequentially, validating compliance and reducing administrative delays. They also bolster security by eliminating the risk of tampering and following the contractual terms precisely as programmed. This automation not only speeds up operations but also reduces costs associated with manual intervention and dispute resolution.
Artificial intelligence (AI) brings predictive power and analytical depth to supply chain optimization. Through its ability to process vast datasets, AI identifies trends, predicts demand fluctuations, and optimizes routes and schedules. When combined with tokenization, AI unlocks new efficiencies. For instance, it can provide real-time delivery forecasts by analyzing variables like traffic, weather conditions, and historical patterns, allowing stakeholders to plan more effectively.
AI also aids in risk mitigation. For example, it can detect early warning signs of supply chain disruptions, such as delayed shipments or port bottlenecks. By addressing such issues proactively, businesses can maintain continuity and resilience in their operations. Additionally, AI enables smarter decision-making in inventory management by predicting stock needs and reducing waste.
IoT devices play a vital role in gathering real-time data about goods in transit. Sensors and RFID tags monitor parameters such as location, temperature, and humidity to show whether products meet quality standards throughout their journey. The data integrates with tokenized systems to create a transparent and accurate record of goods’ conditions.
A practical example is the use of IoT sensors in cold chain logistics. Temperature-sensitive products, like vaccines, require strict handling protocols. IoT devices can monitor and log temperature data, which is then tokenized on the blockchain. This creates an immutable record of whether safety standards were met.
By leveraging these interconnected technologies, tokenization transforms supply chains into highly efficient, secure, and transparent systems, paving the way for a more resilient future.
Despite its promise, tokenization faces several challenges that must be addressed for widespread adoption.
Different stakeholders often use different systems, so it's a challenge to integrate tokenized solutions seamlessly across the supply chain. Standardized protocols and APIs are essential to bridge these gaps. Without these, data silos and miscommunications can undermine the efficiency and transparency that tokenization seeks to provide. Also, the lack of universal standards complicates cross-border operations, particularly in global supply chains.
Digital transformation requires alignment among manufacturers, logistics providers, and retailers. Resistance to change, often rooted in a need for more understanding or an aversion to the perceived costs, can slow implementation. Education and collaboration are key to overcoming this issue. Showing tangible benefits — such as reduced costs, enhanced security, and improved operational efficiency — can help alleviate skepticism. Pilot projects and phased rollouts can also build trust and momentum among stakeholders.
Tokenization must comply with diverse regulations across jurisdictions. Navigating these complexities requires robust legal frameworks and adaptive systems capable of meeting local requirements while maintaining global operability. Data privacy laws, trade restrictions, and industry-specific mandates contribute to the challenge. Companies must invest in compliance expertise and develop scalable solutions to ensure adherence without sacrificing efficiency.
Ensuring the security of tokenized data is critical. Cyberattacks, data breaches, and unauthorized access can compromise the integrity of a tokenized supply chain. Businesses must adopt advanced encryption methods and implement strict access controls to safeguard sensitive information. Regular audits and updates to security protocols are also essential to mitigate risks.
Implementing tokenization requires significant investment in technology, training, and infrastructure. For small and medium-sized enterprises (SMEs), these costs can be prohibitive. Offering scalable solutions and incentives, such as government subsidies or collaborative funding models, could help lower the barrier to entry.
Regions with limited digital infrastructure face unique challenges in adopting tokenization. Poor internet connectivity, outdated hardware, and a lack of technical expertise can hinder progress. Investments in infrastructure development and targeted training programs are crucial if the benefits of tokenization are to become accessible to all participants in the supply chain.
The future of supply chain resilience is bright, with ongoing innovations that can potentially address current challenges and unlock new opportunities:
Cybersecurity. Advanced encryption and secure consensus mechanisms will play key roles in protecting sensitive supply chain data.
End-to-end visibility. Innovations will focus on creating comprehensive visibility all along the supply chain, from raw materials to end consumers. Platforms integrating AI, IoT, and blockchain promise a seamless flow of information across all stages.
Supply chain innovation. Emerging technologies like quantum computing and advanced blockchain protocols promise to make tokenization more efficient and accessible. These innovations could further reduce costs and improve system reliability.
Environmental sustainability. Tokenization can contribute to greener supply chains by optimizing routes and minimizing waste. For instance, blockchain-based systems could track carbon footprints to help businesses to make more sustainable choices.
Tokenization presents a transformative opportunity for supply chain resilience because it offers enhanced transparency, efficiency, and security. Thanks to technologies like IoT, AI, and blockchain, businesses can confidently navigate modern logistics.
Although challenges like interoperability and regulatory compliance persist, ongoing innovation and stakeholder collaboration can pave the way for a tokenized future.
The performance, low cost, and finality of the Hedera Consensus Service, make Hedera well suited to manage the tracking and tracing of events across a complex, multi-party relationship like a supply chain.
On Hedera, supply chain operators are able to easily verify the lineage and provenance throughout the chain while having equal ownership of that data.
AVC Global chose the Hedera platform because it supports AVC's core requirements of authenticity, compliance, validation, clearance, certification, financing, and auditability. Hedera Hashgraph’s Consensus Service (HCS) provides fast, fair, and secure consensus at a lower cost than any other public distributed ledger network.