You can ask yourself now does the distributor know that the factory used good quality materials? How can the consumer know for sure that the materials used were not mined using slavery? You could ask the distributor, but who does he ask? This is called a missing transparency and this is one of the biggest problems of Supply Chain.
With the globalization of trade there is also an increasing complexity in supply chains. This, in turn, increases the amount of information asymmetry — such that information is unevenly distributed among participating stakeholders within a supply chain.
Let’s put the information asymmetry in the context of our store owner example. The store owner knows certain things about the computer you just bought, but he doesn’t know the same things the distributor knows, who in turn does not know what the manufacturer knows. They all might be reluctant to share what they know as well.
When participating stakeholders have misaligned incentives, such as the case in which participating stakeholders are different companies, there is no incentive to provide complete information which contributes further to information asymmetry.
As a result, end-buyers of products have no economical way of authenticating what they are purchasing, which creates ideal conditions for moral hazard and fraudulent behaviour.
Both information asymmetry and missing transparency can be basically brought down to just a few root causes:
- The stakeholders in the Supply Chain have no incentive to share Data and Information
- The stakeholders must not share information because it often assumes sharing their customer data or non-disclosed data
- The stakeholders keep their data in different systems and formats and it is expensive to integrate the data toghether
How do we solve them?
Incentivising Data Sharing in Supply Chain
There needs to be some kind of compensation between supply chain data producers and data consumers. A system that would enable data providers to share their information and receive payments for it, and data consumers to pay for access to certain data.
Another option would be big retailers (like Wal-Mart) demanding transparency and enforcing on their suppliers a certain system granting the transparency and data sharing. A lot of suppliers want to work with big retailers, so the retailers would easily find a manufacturer who will comply to their demands. Companies with transparency will be preferred over others that don’t.
How to prove a statement is true without actually presenting a proof
If I am a manufacturer, how do I prove to retailers that I have enough raw materials to produce a product without revealing how much raw materials I have or where did I purchase them and for how much?
We need a method by which one party (e.g. manufacturer) can prove to another party (e.g. retailer) that a given information is true, without conveying any information apart from the fact that the statement is indeed true.
Zero Knowledge Proof is a mechanism providing a way to check that private information matching is provable without revealing the information itself.
Global protocol in which supply chain data is stored and shared between users
A protocol is a set of rules in which the way data is stored and shared is written. You can compare it with language. Grammar and definitions of words determine the way in which we communicate. Analogously, we need a set of rules in which supply chain data is stored and shared between users. Without these rules it would be impossible for users to trust or even read the data, much like it is impossible for a native Chinese to communicate in Chinese with an English speaker. You can hear them talking, but you do not know what they are saying.
OriginTrail is the first ever protocol for supply chains based on blockchain.
- Incentivising Data Sharing. OriginTrail creates models where data is sold up or down the supply chain. Retailers can buy data from the manufacturer and vice-versa. Transparency and data sharing is incentivsed in the system.
- Focus on security of information. OriginTrail implements the Zero-Knowledge Proof (zk-SNARK) as part of the protocol. Sensitive data is protected, but can be used to prove that a given information is correct.
- Global Supply Chain Data Marketplace. By supporting global standards for data exchange (GS1, IoT, compliance standards), OriginTrail assures compatibility with existing ERP systems. OriginTrail has already a working integration with Microsoft Dynamics and other ERP software providers. OriginTrail is planning to offer an integration with SAP in the near future. It follows the goal of seamless and automatic data connection and interoperability between IT systems of different stakeholders in multi-organisation supply chains.
Assuming this project delivers on the roadmap, for the first time ever, we will see a transparent Supply Chain. With OriginTrail, applications will emerge in the near future for product authentication, product journey visibility, supply chain compliance assurance, customs, audit and regulations process optimalisation.
Read more about OriginTrail here:
Value for End-Customers
Imagine that at each stage of the chain, a new rule will apply: The only acceptable products are those with a clear, comprehensive provenance. For the end-customers, it will result in authenticity and a certified origin of products.
Value for stakeholders in the Supply Chain
Firms acting as stakeholders in the Supply Chain will be able to mitigate supply chain sustainability risks, leading to competitive advantages in the marketplace. Firms face a number of supply-side risks including slave labor, product contamination, and environmental damage at supplier locations. Building a transparent supply chain will proactively ensure consumers that the firm is achieving high levels of sustainable performance.
Did you like the content? Leave your thoughts in the comments.
Read this post in German: https://de.quora.com/blog/blockchain-disruption/Mit-Blockchain-auf-dem-Weg-zu-transparenten-Lieferketten