It makes sense that, in a digital world with digital transactions, digital contracts would exist. Smart contracts are necessary to ensure all parties involved follow agreed-upon rules. We want digital contracts, because the whole idea of blockchain is a seamless digital democracy that operates efficiently and objectively. Smart contracts bring a crucial layer of oversight and legitimacy to the evolving world of blockchain technology. Thanks to Ethereum, anyone can now create a smart contract on a blockchain.

Why do we need smart contracts?

In today’s economy, products are touched by multiple providers before ending up in consumers’ hands. At every stage in the production and distribution journey, information is passed between suppliers, shippers, distributors, and retailers. When people are removed from the equation, information travels more efficiently. Smart contracts enable instant transmission of production information, logistics data, inventory levels, and sales data.

Supply chain failures affect us all

There has been growing concern about supply chain accuracy and accountability for pharmaceutical products and food supplies. Canada and the U.K. both experienced shortages of EpiPens in recent months, and product shortages have been traced back to the distribution level of the supply chain. A spokesperson for Pfizer, the manufacturer of EpiPens, stated that the problems were due to “manufacturing delays as well as limited third-party quantities of a component of the product.”¹

In addition to consumer shortages, the pharmaceutical supply chain must manage compliance, ensuring specific regulations are followed in every jurisdiction. Shipping conditions are another concern, since many products must be kept in temperature-controlled environments for their effectiveness to be guaranteed.²

Recent media reports also highlight issues with the labelling and selling of seafood: a recent study found that more than 40% of fish sold in restaurants and grocery stores was labelled incorrectly. Seafood is highly susceptible to labelling fraud because it is part of a complex global supply chain, and the product passes through many hands between the fishing boat and the restaurant or store.³

Fraud of this nature has several serious implications, including environmental (due to the illicit harvesting of at-risk species), consumer health (consumption of fish contaminated with biotoxins or mercury), and human rights (by creating a market for illegally-caught fish).⁴ And while smart contracts tracing specific seafood along its supply chain cannot prevent specific instances of labelling fraud, the inherent security of blockchain records will make it possible to trace the exact point at which the fraud occurred, and to identify the offenders.

Benefits of smart contracts

Smart contracts bring accuracy, speed, efficiency, security, and trust to the supply chain process.⁵

  • Accuracy: Because they execute automatically upon completion of agreed-upon terms, smart contracts reduce the possibility that errors will be introduced into the supply chain.
  • Speed: When data transmission is automated, delays are eliminated. Business partners receive information in real-time, enabling nimble responses to production or logistics challenges.
  • Efficiency: Supply chains have long relied on moving large volumes of paper documents. Digitization and the removal of intermediaries makes transaction processing more efficient.
  • Security: The immutable nature of blockchain records generate a built-in level of objectivity. Because audit information can be transmitted along the blockchain, smart contracts ensure product quality for consumers, and protect suppliers against the risk of data breaches that can occur when suppliers are added to a digitized supply chain.
  • Trust: Once the terms of the smart contract are formalized, they cannot be changed, and neither party can default. Transactions are facilitated and verified transparently, with no possibility of tampering.

Supply chains in every industry require oversight to prevent fraud and uncertainty. Smart contracts allow seamless connection between the agreed-upon stipulations and the actual operation of the supply chain without the intervention of third parties. Finally, smart contracts are essential elements of a supply chain that is both efficient and ethical.


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