How blockchains can transform supply chains
In this post I want to explain you in more details how blockchains can change supply chains for the better. That can help us fight some of todays major problems like human slavery or the destruction of our environment.
I think it is fair to say that almost no big corporation in the world really knows what is going on in their supply chains. That is especially true for big western brands that outsource most of their production to third world countries.
Many of these brands do not know or do not care about the working conditions their first-tier suppliers are using. Even if they do know what is going on and try to ensure fair employment in their first-tier suppliers, they will face a lot of difficulties knowing what happens at their second-tier suppliers. These are the suppliers supplying the raw materials or goods that are processed by the first-tier supplier.
If companies would start to look into their supply chains, most would be surprised to find that in many cases they are either directly or indirectly profiting from human slavery. Even brands that market themselves as fair and honest have trouble guaranteeing a slave free supply chain.
The sad reality of todays world is that we have more slaves than ever before in history. Roughly 27 million people world wide are kept locked up, unfree to leave and work for nothing more than a meal a day. Most of them are found at the bottom of our supply chains, at the commodity level.
Slavery is present in a big variety of industries from fishing to textile, from mining to farming. Since almost all big brands rely on raw materials in their supply chain almost all of them are affected. That is true from Google and Apple as well as for Walmart and Tesco.
So how can companies make sure that their supply chains are free of any slave labour? In my opinion a lot can be achieved with transparency. Companies need to start looking what is going on in their supply chains. That involves taking a closer look at where they source their goods. It also means that they have to take a look at where their partners source the goods. Going all the way down to the raw materials.
That is an expensive and time consuming process, but without it nobody can guarantee that they do not rely on slaves in their supply chain or don’t harm the environment unnecessarily. What essential needs to happen is that we need to be able to trace a t-shirt’s cotton back to the field it was harvested. That way we can make sure that no forced labour was involved in the production of the cotton.
We would also have to be able to understand who wove the cotton, who dyed it and where the dye came from. Lastly we would have to know who manufactured the t-shirt. Only then could we be certain that the t-shirt was produced under fair conditions. Every item would have to be tracked and linked together. So far this has been an almost impossible task.
What would such as system require? Every product would need to be uniquely identifiable and traceable across owners. That would mean we need a massive database hosted by a party in which everybody can trust. That party would need to keep the database secure from hacking and constantly keep it up to date. A task until now nobody has succeeded in.
It is almost impossible to keep a centralized database safe from hacking. Further on would a central database give those who keep it immense powers. They would be able to understand the supply chains of all companies participating, which involves all their trade secrets. Lastly that would mean that only one database could exist, giving the party a monopoly over all data. Something nobody would want.
In comes the blockchain. A decentralized, secure ledger / database in which every kind of transaction can be permanently recorded. The blockchain fulfills all the requirements of our system. It allows to identify products, by giving them a blockchain address which is unique to them.
Further is the blockchain hosted on a peer-2-peer basis, which means that no party controls the database. There is no central weak point to hack and nobody can monopolize the data in the database. In fact those who enter data in the database remain in control of their data. Only they can change it and manage who can access it. Lastly blockchains are interoperable with one another, that means compatibility can be ensured across different platforms.
So how would such a system work? Let us take the t-shirt as an example again:
- The farmer would record a new batch of cotton on a blockchain. Give the cotton a unique address and record information such as harvesting date and location.
- After selling the cotton to a weaver the weaver turns the cotton into textile. That again would be recorded on the blockchain, this time by the weaver. The weaver would create an ID for the textile and link it with the cotton, by recording the cotton as the input into the textile. Along with information such as location, production date and so on.
- The weaver on the other hand sells the textile to the t-shirt manufacturer. Again this step could be recorded on the blockchain, simply by giving access to the manufacturer for the relevant textile. The t-shirt manufacturer could give each t-shirt a unique ID, linking it with the textile.
With these few links a brand could track back the t-shirt’s cotton to its origin. Of course this is very oversimplified, a supply chain will be more complex. That means more actors involved, such as a big range of cotton farmers and so on. Yet the principles remain the same, recording data and linking it up.
Western brands could use this system to understand what is going on in their supply chain. Every actor a long the lines could be certified for fair working conditions and other aspects demanded. These certificates could again be stored in the blockchain, making it very transparent.
How practical is such as system? That remains to be seen. It will for sure be hard to implement and force suppliers to use it. However, in the end it is the buyer who holds the powers. If brands demand of their suppliers a higher level of transparency they will be able to get it, thanks to competition.
I think there is a growing demand from consumers to know where their products are coming from. As discussed in a previous post, consumers are shopping more and more according to ethical standards. That means that companies will need to become more transparent if they want to retain their customers.
Further does legislation demand proof of ever more companies that they do not use slaves in their supply chains. That will count for other production standards as well. So companies are forced to learn more about their supply chains, from a regulatory as well a consumer perspective.
Lastly can companies reap in benefits if they know what is going on in their supply chain. Imagine the possibilities for cost-saving and improvements to production there are, if they would understand this complex web. In addition to that, I think every employee would sleep better if they knew that their employer wasn’t relying on slave labour.