Guest Blog Post by Mateusz Rzeszowski
2020, the year marked by COVID-19, has brought about a new business environment across all industries. International supply chains have been significantly affected by border lockdowns and export limitations, creating massive disruption along with uncertainty about the future. However, while the pandemic and its consequences have largely been unpredictable, the long-standing problems within the supply chain management industry escalated the crisis. The inability to prevent or adapt to limited supplies, disrupted shipments, or inventory stockpiling, can be led back to issues such as traceability, accountability, or outdated analogue supply chain management, e.g., relying on mail or fax, which adds further friction and inflexibility.
While the scope of problems plaguing supply chains is massive and no one digital technology can fix them all, blockchain presents possible solutions to a number of them.
Traceability
At the heart of every supply chain lies the product.
Destined to reach the end user, it’s set on a journey through various countries and municipalities, being passed from hand to hand along the way. For a company to understand and improve its supply chain, the ability to see the product’s journey is crucial. Traceability relies then on an efficient way to document the supply chain as it happens. It’s essential in industries where there is not already an efficient way to trace goods, as this could mean potential legal troubles and the loss of customers’ trust, e.g., food or pharmaceutical supply chain management.
Without a uniform traceability system for the supply chain, companies are bound to lose out on efficiency, run into issues with accountability, and have to deal with inevitable disputes. According to a GEODIS 2017 survey, 77% of companies have either no or limited visibility into their supply chain. It’s safe to conclude that the industry is still searching for solutions that can solve that problem.
Blockchain can address some of these issues by providing an all-encompassing ledger of the supply chain.
Accessible by parties along the supply chain, it allows creating a lasting, decentralized, and transparent record of the product’s journey from start to finish.
- Lasting because blockchain is immutable and the contents of the ledger can be used for any future references, for example, in vendor dispute resolution.
- Decentralized because you can set up a blockchain system so that every entity can only make changes within its predefined purview. Companies can also use permissionless, permissioned, or hybrid-approach blockchains, allowing for useful trade-offs between network security and system privacy.
- Transparent because all the system participants can use it to gather necessary information provided by others. The level of trust and transparency among logistics providers, sellers, buyers, and any other party involved, depends entirely on the needs of the supply chain and can be adjusted appropriately.
The ability by all parties involved to track transactions and events within the supply chain as they happen, without the risk of a system malfunction or physical loss of relevant documents, results in various benefits. To name one, if a dispute arises between the buyer and seller, they’re both able to precisely pinpoint and quickly resolve the issue. A good example here is the partnership between IBM Blockchain and Home Depot, where a blockchain system was successfully implemented for purposes of supply chain management. As Brian Quartel, Director of Financial Operations at The Home Depot puts it:
We’re essentially allowing vendors to have visibility into our receiving. They’re allowing us visibility into what they’ve shipped. It’s almost like a settlement is happening with every single transaction versus waiting six, nine, twelve months down the road, hopefully improving the efficiencies on their team and on our team so that we can focus on things that will help the customer experience at our stores.
There is no administrator that’s going to take information away. And then the level of security that we have is such that I can only see what I need to see. The vendor can only see what they need to see. No other vendor is going to see some other vendor’s information. Everybody should feel very confident with the information that they’re getting. (footnote 1)
Recallability
As a direct result of traceable products comes the ability for companies to recall them if the need arises. Especially in the food and pharmaceutical industries, the need to abide by strict customer protection laws requires mechanisms to remove affected goods from the market quickly. Recalls become troublesome when there’s no underlying structure for following and documenting products in their road to enter the market. Slowness to take action can bring a whole lot of troubles to companies: each day passing often means more and more lawsuits for negligence.
With the introduction of blockchain, companies can efficiently track the issue, locate affected goods, and recall them as needed. The supply chain data is immutable and can serve well into the future as a reference point in locating a faulty batch of products, along with its origin, allowing the company to both react and prevent future occurrences.
Customer Trust
A growing population of customers who are environmentally-conscious and inquisitive of their food’s origin for health or other purposes, companies have a direct incentive to track their products and present that information to the consumer. Food items being traceable back to their source as seamlessly as scanning a QR code builds trust with the buyer.
It’s important to note that this customer-facing aspect of supply chain management is a byproduct of blockchain-enabled traceability. After all, the same data from tracking products that adds efficiency to the system, is used to convince the consumer of responsible and ethical sourcing of their food. The potential benefits of incorporating blockchain technology into supply chain management is extensive, so it’s no surprise that Gartner predicts that “20% of top global grocers will use blockchain for food safety and traceability by 2025”. (footnote 2)
Counterfeiting
With fake goods constituting 3.3% of world trade, counterfeiting is one of the greatest plagues troubling global supply chains. Without thorough supervision, the issue may occur at any point in the product’s journey, e.g., replacement of raw materials intended for manufacturing, use of cheaper parts at facilities, or switching in a number of complete, counterfeit products.
The traceability mentioned above can help fight against this particular issue, but blockchain has more to offer to the field. An immutable and decentralized ledger can be used to record data from a wide range of physical trackers to make sure products aren’t replaced with fakes. Near-field communication (NFC) tags can be put on goods and all relevant information be stored on the blockchain, thus connecting physical anti-tampering means with digital security for a better supply chain management system.
An interesting use-case can be highlighted here. Blockchains with smart contract functionalities, such as Flow, allow the minting of non-fungible tokens (NFTs) which can be used as unique digital identifiers for goods within a supply chain. Whenever a physical transfer of the product happens, it can be recorded on the blockchain by moving the one-of-a-kind token to an account belonging to the next link in the chain. When combined with NFC tags or Internet-of-Things devices to create a connection between the item and its NFT representation, certain industries (like luxury products) stand to profit.
All in all, while it’s still early in terms of blockchain adoption, the technology presents various benefits to the supply chain industry. From improved traceability for greater efficiency, through increased customer trust, to an important foundation for anti-counterfeiting measures, we may expect blockchain to become more prominent as time goes on.
1. Quartel, Brian. Faster resolutions. Stronger relationships. Accessed January 12, 2020. https://www.ibm.com/downloads/cas/OZ8ZLZBX.
2. “Gartner Predicts 20% of Top Global Grocers Will Use Blockchain for Food Safety and Traceability by 2025.” Gartner, April 30, 2019. https://www.gartner.com/en/newsroom/press-releases/2019-04-30-gartner-predicts-20-percent-of-top-global-grocers-wil.
