BLOCKCHAIN IN SUPPLY CHAIN MANAGEMENT
TRUST IS GOOD, BUT TRACEABILITY IS EVEN BETTER
When you drink your morning cup of coffee, do you ever stop to think about the journey it has taken to get to you? How many steps does a special roast undergo before it reaches your favourite barista? Or how about the type of bean? Is it an Arabica or a Robusta?
The journey of a coffee bean is a diverse, long and complex process. It starts with a nursery at a plantation in a country where the sun shines brightly, such as Colombia, Honduras or Peru. Two to five years after being planted, a coffee bean starts to mature. And when it’s ripe enough, the bean is harvested by machines or plantation workers. Then comes the next processing stage, when a bean is dried, milled and sorted into different varietals based on its quality.
After the bean has been shipped and exported, it will be roasted in a small roaster and prepared by a cupper, whose job is to test the aromatic and flavour qualities of the bean. Roasting is done at very high temperatures, and the beans are constantly moving to avoid burning.
Then comes the packing, which ensures the full freshness of the newly roasted beans. There are two main ways that coffee beans are packed. They will either be ground according to brewing processes or left whole for consumers to grind.
Finally, a consumer selects a favorite blend and takes it home. By using espresso machines, french presses or pour-over cones, those beans are turned into the elixir of life, also known as coffee.
As you can see, coffee’s bean-to-cup journey is truly incredible. It’s a process that involves a network of farmers, suppliers and shippers. And just like coffee beans, other products have stories of long trips through multilayered chains of suppliers, transporters and storage facilities before reaching consumers. All of these parties need to collaborate and exchange immense amounts of information, and each of them can affect the quality of the final product.
Yes, global supply chain management is highly complex. And broken.
HOW DID THAT GET HERE, AND WHERE DID IT COME FROM?
Globalisation has increased the movement of goods and the complexity of supply chains. Today, we have multiple participants performing both local and cross-border transfers with various services and logistics involved.
In such a multilayered network, answering questions about the origin of a product or material or the production and transportation conditions throughout the supply chain becomes challenging.
Yet, these are only a few of the questions consumers and regulators are increasingly asking brands, manufacturers and companies while calling for safe, transparent and ethical supply chain management.
Today, producers are expected to identify and report any risks and fraudulent activities, as well as take the appropriate remedial action if any such activities take place. But this proves to be difficult. Despite technological advancements and progress, supply chains are burdened with reduced transparency, lack of automation, limited interoperability and data that is incomplete, fraudulent or even completely missing.
In cases of production errors, due to lack of automation and the inefficiency of paper-based documentation, participants have a hard time tracking down the issue and miss the opportunity to respond fast.
Luckily, certain technologies, if applied correctly, can surpass these obstacles. For example, blockchain.
SUPPLY CHAIN MANAGEMENT — REIMAGINED
Blockchain can disrupt and redefine the global supply chain in several areas. These include exchanging information in real time to accelerate product delivery, detecting counterfeit products within the chain of custody, optimising supply chain finance processes with peer-to-peer payments and monitoring and recording storage facility conditions.
However, priority is given to certain areas. In November 2020, 101 Blockchains analysts conducted an online survey with 180 respondents based in North America, Europe, and Asia-Pacific. Participants were asked to answer multiple-choice questions regarding their prediction and anticipation revolving around the enterprise blockchain trends in the supply chain. According to the analysis, traceability and tracking the origin of raw materials to finished goods is the highest voted business priority.
Blockchain’s smart contract functionality, along with the use of IoT devices, could deliver an effective, continuous tracking capability. The full provenance of a product, its conditions, authentication and storage approvals would be available, enhancing the complete audit trail of each product in the chain.
Using technology, such as bar codes, QR-code or tags, we can give identity to physical goods and allow their tracking along a supply chain. And which data can be recorded? Well, the sky is the limit. Properties of the product, its locations, all participants in the supply chain transactions, compliance with regulatory and industry standards, chemical and production conditions, humidity, temperature, pollution and more.
And the benefits are immense. From building trust between parties and time efficiency to reducing paperwork and costs and, finally, to the development of a transparent market with responsibly produced goods.
“And the big challenge is not only to meet the needs of the EU Commission for greater investigative power with regard to transactions but also to protect the individual and the individual consumer.”
Thomas Fürstner, founder and CTO of RIDDLE&CODE in an interview for Umweltbundesamt
Some companies have already recognised the business and brand value of improved traceability. For example, fish suppliers John West Foods tagged their tuna cans to allow consumers to trace the product back to the fisherman. This initiative added £17 million to the brand’s sales.
Now, let’s take a look at how blockchain can be applied to solve traceability issues in the food, pharmaceutical and metals industries.
YOU ARE WHAT YOU EAT
But do we really know what we eat?
According to the European Commission’s Food Safety policy, every European citizen has the right to know how the food they eat is produced, processed, packaged, labeled and sold. In addition, the European Commission Food Law Regulation 178/2002 contains general food traceability requirements, including that food must be traceable through all stages of production, processing and distribution. Unfortunately, that’s not always the case.
The inability to verify labor and environmental conditions at food production sites, as well as origin and accurate ingredients, has always been an issue, but it came to the spotlight when horse meat was mislabeled and sold as beef. In January 2013, it was reported that horse DNA was found in frozen beef burgers sold in several Irish and British supermarkets. According to the conducted analysis, a smaller number of products also contained other undeclared meats, such as pork.
The scandal, which later spread to thirteen other European countries, revealed a major breakdown in the traceability of the food supply chain on an international level. And it’s not just about mislabeling. When an outbreak of a food-related disease happens, it can take days, weeks or even months to find its source and, consequently, implement an appropriate remedy. For example, a salmonella outbreak in Mexican papayas took two months to identify the source and recall the produce.
A number of companies already recognise the potential that blockchain can provide for traceability of the food supply chain. Walmart, one of the largest retailers in the world with one of the most complex global supply chains, partnered with IBM to create a food traceability system powered by Hyperledger. To test it, the company tracked mangos sold in Walmart’s US stores and pork sold in China. And guess what? It worked.
Pork suppliers in China are regularly uploading certificates of authenticity, recording on a blockchain the identification details about each party that handles the pork. By doing so, Walmart can more quickly track the provenance of pork and react in case it becomes contaminated. And the time necessary to trace a mango went from 7 days to 2.2 seconds. A second phase of the project has been announced and will include 10 of the world’s largest food manufacturers and retailers, such as Dole, Kroger, McCormick, Nestlé and more.
“… local producers can more easily sell high-quality food on international markets and achieve better prices. In addition, completely new forms of financing and market access will be created.”
Thomas Fürstner, founder and CTO of RIDDLE&CODE in an interview for Umweltbundesamt
ENSURING THAT THE RIGHT MEDICATIONS REACH THE RIGHT PEOPLE
How well do consumers know the medication they take every day? How can they be sure that they’re not taking a counterfeit medication or that an active pharmaceutical ingredient was produced and shipped in compliance with quality standards? In short, it’s hard to know.
Before reaching consumers, medications go through a complex network of manufacturers, wholesalers and couriers. Each of these actors is required to have proper procedures in place to ensure that medications are the highest quality, appropriate formulation and not damaged by temperature or humidity.
The problem is that these parties are exchanging and operating with limited amounts of data and different procedures in place, which makes it hard to ensure proper medication quality. Manual, paper-based processes, outdated technology and the lack of a real-time collaboration system are compounding the problem.
As a result, more often than expected, consumers are getting wrong, expired or even falsified medications with no active ingredients. In fact, according to the World Health Organization, it is estimated that up to $200 billion worth of counterfeit pharmaceutical products are sold globally every year.
The chaos of the Covid-19 pandemic has created an even higher urgency among supply chain participants to find a suitable technological solution to cope with the current and upcoming challenges. As a recent Bloomberg story puts it, the supply chain isn’t ready to handle the effort of shipping an eventual Covid-19 vaccine from drugmakers to billions of people:
“Already stretched thin by the pandemic, freight companies face problems ranging from shrinking capacity on container ships and cargo aircraft to a lack of visibility on when a vaccine will arrive. Shippers have struggled for years to reduce cumbersome paperwork and upgrade old technology that, unless addressed soon, will slow the relay race to transport fragile vials of medicine in unprecedented quantities.”
Blockchain-powered traceability can be crucial in creating a safer, smarter and more trusted supply chain to better protect consumers and ensure the integrity of the medications. The technology can ensure that every stage of the process is recorded on a distributed ledger, which in turn records and creates an audit trail of the medication’s journey from the moment of creation to the moment the patient takes it home.
All parties in the supply chain can access the relevant information when needed to ensure the quality of the medications and see if the process has been compromised at any point. Authenticity of medications can be verified, counterfeiting is minimised, data is kept safe and, most importantly, patient harm is reduced.
SUSTAINABLE PRODUCTION OF RAW MATERIALS
Most people have never heard of rare minerals called tantalum, cobalt and lithium. But these elements are part of our everyday lives. Tantalum is present in almost every smartphone. Cobalt and lithium are key components of lithium-ion batteries that power most laptops and electric vehicles (EVs).
The African country Rwanda is the world’s biggest supplier of tantalum. But the mineral can also be smuggled in from the politically unstable Congo, where it’s often mined by children and enslaved workers. Besides tantalum, Africa is also rich in cobalt, which comes from several large mines in the Democratic Republic of the Congo (DRC) that were recently associated with child labour.
This led various countries, such as the United States, France and the United Kingdom, to pass laws that require buyers of metals and minerals to conduct increased due diligence on the provenance of the raw materials and to answer questions about which mines the minerals and metals are from, which methods they are produced under and if they are produced responsibly. Among them are the U.S. Dodd-Frank Act of 2010, the EU Conflict Minerals Legislation, the French corporate vigilance law and the Modern Slavery Act in the United Kingdom.
However, tracing a product that changes characteristics at several processing points is a more challenging endeavour than tracing a mango.
“Metals usually undergo various production stages before they become available as a tube, sheet or bar. This makes their tracing much harder compared to other goods.”
Stefan Grüll, CEO of S1Seven
Blockchain technology has the potential to fundamentally change the way the metals industry and connected supply chains operate. The properties of minerals — weight, quantity, grade or ownership — at a certain supply chain point and the transfer locations could be immutably recorded on a blockchain system.
This means manufacturers would finally have all the proof they need to report to regulators with confidence and to label their products as “conflict-free” for consumers.
For instance, S1Seven leverages blockchain to replace paper-based processes with digital certificates that establish a common set of data, ensure network resilience and track materials from raw to final product.
To boost the Industry 4.0 evolution, supply chain management needs advanced solutions and technologies. And blockchain, allowing all participants to have full visibility into the supply chain and to track and monitor products in real time, is such a technology.
At RIDDLE&CODE, we love cutting-edge technologies like blockchain and the Internet of Things. We believe in their power to change old systems that are harming not only the businesses and environment but also us as human beings. And we recognise that these disruptive technologies are powerful tools to achieve far greater traceability, transparency and efficiency in many industries.
And this leads us to the topic of our next blog post, where we’ll illustrate the potential and impact of blockchain in supply chain management through relevant projects from different industries.
Stay tuned …