A vision of an ethical supply chain

Enabled by IoT and Blockchain technology

In an ideal world, the consumer would have full information about the social and environmental impact of the products she is going to buy. She would be able to consider the full aggregated impact of her purchase.

Each party touching the product would add their social and environmental impact to the sum of impacts already aggregated in the supply chain. The total adds up in the product footprint.

Ethical Supply chain

The total social and environmental impact of the product could be displayed with two figures (e.g. a simple score from 1 to 10) and drilled down by the customer via a QR-code up to the single blockchain secured input. Of cause, there must be a guidance for consumers so that they understand how the specific product compares to the average product of this type.

1. CHALLENGES

This ideal world doesn’t exist (yet) and it is hard to achieve. The major challenges are:

1. How can you trust the input data?

2. Too much work to gather all the data

3. No trustworthy instance to store the data

4. Expensive to audit the data

2. SOLUTION — IOT SENSORS FOR THE INPUT DATA

IoT sensors can automatically record system inputs like gasoline usage, water usage, GPS data, CO2 emissions, temperature, humidity, use of herbicides and pesticides etc.

Source: What is the Internet of Things? by Postscapes and Harbor Research

3. SOLUTION — IMMUTABLE STORAGE ON THE BLOCKCHAIN

Since some years there is the perfect technology to store all data involved that ensures that the data can’t be deleted or tempered with: the blockchain.

The data on the blockchain is stored decentral. The only way to change the data would include an attack on the network that is so expensive to perform that it is highly infeasible.

The “only” checks that need to be performed are those on the input side.

4. SOLUTION — MANUAL INGREDIENTS

Even if we would track everything and every step on the blockchain we don’t have all ingredients necessary for a full coverage of the supply chain:

Original input

A way must be found to enable the original creators deriving value from the mud or the sea to easily commit their work so that the original input is properly stored on the blockchain.

The easiest way to receive trustable input data would involve IoT sensors that measure the usage of chemicals, water etc. Alternatively, the first buyer has to cover missing data. Optimally these data should be backed by sensor data.

Complementing the data of IoT sensors

Not everything can be measured with sensors. But some data can be delivered automatically as input of the supply chain record, especially when they are transferred to the blockchain and bound to individual personal IDs of the workers:

- payments for salary, medical treatment, training, community projects etc.

- anonymized workforce stats

Of cause these inputs also have to be checked during an audit as.

Audits

Checking IoT sensors that measure and transmit the input must be part of an audit. Automated satellite checks and picture recognition can help with additional automated checks. Unheralded full inspections and complementing micro audits checking single facts can be a strong combination to ensure the validity of the input data.

AI can assist to find irregularities in the official data on the blockchain and propose or automatically commission micro audit tasks to trustworthy individuals.

Willingness to join the transparency initiative

Good actors will join when the process is easy enough as they know that it is the right thing to do and will also profit from it. They will ensure that their social impact is positive and their environmental impact minimal. They will strengthen their efforts as they finally show where it matters: on the end products. Bad actors will fight the transparency initiative as they will lose when their practices are revealed.

To have complete data on the product and steer the whole system towards adoption the system might add artificial data for each step that delivered no input. When no data are delivered, you could e.g. add the average environmental consumption of a truckload and add +100%. This would drive adoption. When no data is delivered, you might also think of adding a “?” to “child labor” and “slave labor” when the respective country has problems in this area.

5. NORMS

The following norms are a good start for the inputs worthwhile to measure:

· ISO 26000 (link)

· UN Draft Norms on the Responsibilities of Transnational Corporations (link)

6. OFFSET

A participant in the supply chain can decide to offset a part of e.g. his C02 impact by payments to Coolearth or similar initiatives. This would mean that this participant in sum adds less C02 to the environment and would thus be a more attractive partner for companies that aim to have a positive product footprint. These players might even add a positive social impact to their part of their supply chain.

This would of cause mean that these initiatives must be intensively regulated and audited to ensure that their positive offsetting effects are truly generated. We have enough greenwashing initiatives that pretend to have far greater impact than they actually do. They are part of the problem and not of the solution.

I would argue that an offset shouldn’t show up in the total social or environmental score but in the details that can be researched via the QR-code. A wrong done to humans in one part of the Earth cannot be offset by a good done to other humans in another part of the world. Both should show in the product audit trail.

7. ADDITION: CRADLE TO CRADLE

But the supply chain doesn’t end when the product arrives at the customer. A complete chain has also to take care about the resource cycle of the materials contained in the product and their reuse, refurbishment, and recycling.

Blockchain can play a vital role in the resource cycle.

I found a very good paper on this topic and was kindly allowed to use the graphic by its author Benedikt Christian Eikmanns.

Source: “Blockchain: Proposition of a New and Sustainable Macroeconomic System“ by Philipp Sandner

8. ADDITION: SUPPLY CHAIN FINANCIALS

Looking at the supply chain, there is another challenge that needs to be tackled:

Producers in poorer countries pay far higher interest rates for their investments and wait longer for the payment of their receivables. Farmers in poorer countries pay between 18% and 37% interest rate annually while large enterprises pay far less than 5%. Additionally, small companies often wait for 90 days until they get paid, or even longer.

In international trade, additional fees for currency exchange add to this. In almost all cases the local currency has to be converted to US Dollar. Then the US Dollar is exchanged again for the local currency of the business partner. This adds another 5–15 % to the cost.

We always talk about fair competition. But charging smaller players 20–50% of financial fees on top while you charge larger players 5% for the same services doesn’t sound like a level playing field to me. No wonder that exporters from developing countries find it hard to compete and prosper. This is especially sad when one developing country is exporting to another developing country delivering vital food with e.g. rice prices that nearly double because of the financial services involved.

A part of the solution is offered by Binkabi. They provide a smart bartering service that massively decreases the exchange costs and provides blockchain secured efficient digital blockchain based processes that further reduce the cost.

The cost for interest rates for the values locked in the supply chain will be soon reduced by Sweetbridge. They provide a solution to

a. lower the interest rates up to zero

b. reduce the time of payment of receivables close to zero

c. provide efficient settlement

d. reduce counterparty risk

I have written a longer article on Sweetbridge. To learn more about their vision, watch the presentation of Scott Nelson, the CEO of Sweetbridge, from March 5th 2018. You will be impressed by the size of their vision and what it would mean for society.

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Icons used in this article are made by Freepick and Google and dDara from www.flaticon.com

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