Last reviewed 12 June 2018
Laura King looks at how blockchain can improve supply chain transparency and boost consumer confidence.
No company would want to be faced with accusations of slavery or find out that its products have been adulterated with fraudulent ingredients. However, this is exactly what has happened time and again over the last few years.
In 2013, we saw the horsemeat scandal hit, wiping £300 million from the value of Tesco alone, as well as the tragic — and needless — loss of life when over 1000 workers died in Bangladesh after the garment factory they were working in collapsed. More recently, the National Food Crime Unit has reported on stomach-churning instances such as offal that was destined for pet food being used to feed people at large events, and there have also been disclosures from high profile brands such as Nestlé and Patagonia, both of whom have uncovered forced labour in their supply chains.
Given issues such as these, it is hardly surprising that the market for products of proven origin and high ethical standards is growing. Sales of organic food, for example, rose in 2017 for the sixth year running by 6% — an impressive 4% more than the equivalent non-organic sales. Although the growth was in part down to more choice, much of the rise in popularity was seen in independent and local shops, really demonstrating the value that shoppers put on origin and trust when deciding what to buy.
Customers are not the only ones requiring assurances. Government too is starting to require additional disclosure from certain companies through legislation such as the European Directive on Non-financial Reporting and the UK Modern Slavery Act.
Although certification schemes are valid ways of demonstrating the credibility of a product, many supply chains are incredibly complex and hard to bottom out. Before they reach the customer, most products have already travelled through an array of companies that have designed, constructed, stored, packaged and transported them. It is very challenging to audit such a complex web of interactions, especially when companies are rarely dealing with one item or component.
This is where blockchain comes in.
What is blockchain?
The concept of blockchain was originally a solution for the Bitcoin — a system that allowed transactions to be made between individuals without the need for a bank. It does this by creating a digital, transparent and permanent ledger that is held in a decentralised network of computers.
However, although the Bitcoin has become something of a celebrity, it is the wider uses of blockchain technology that are sending ripples through the business community, especially within the world of supply chains and quality assurance. Put simply, this is because the creation of a digital ledger allows the supply chain to tell the story of an item — from provenance to point of sale — in a way that is open to all and protected from tampering or revision.
It does this by allowing the creation of a unique identity that sits on the blockchain. Once this digital asset has been created, it moves through the supply chain with the physical item as a form of digital register. At every touch point in its journey, the ledger gets instantly and permanently updated through methods such as SMS messages, smartphone interfaces or by linking into existing supply chain management systems and architecture.
As blockchain is a type of technology that sits on top of the internet, the data is held on a decentralised system that is not managed by any one organisation, ensuring the transparency of the information collected. In a similar way to cloud-based platforms like Google Documents or Dropbox, every time the data is updated, it can be seen by anyone. However, a crucial difference is that unlike these platforms, there is no third-party ownership over blockchain. As many parties control the ledger, the data that is entered gets locked in and it cannot be altered without everyone knowing about it.
Trials and developments
The benefit of a transparent supply chain is not a new concept. Fish supplier John West was reported to have added £17 million to the brand’s sales when in 2011 it took the initiative of adding a code on tuna cans to allow consumers to trace the product back to the fisherman. Although the company has since been dogged with severe criticism around its sustainability, the basic concept remains true — people want to see where their produce comes from.
Fishing is an incredibly difficult industry to manage. Issues such as human rights abuses, and illegal and over-fishing are relatively widespread making it a prime candidate for using blockchain-based solutions along with other high profile and notoriously tricky markets such as diamonds.
Although blockchain is being trialled in these industries, its benefits are not restricted to companies with a high level of risk in their supply chain. The Co-op, for example, has also trialled using blockchain as part of a proof of concept project tracking gladioli to see how blockchain technology could be used within their supermarkets. These sorts of trials are beginning to form a basis of a model that has huge potential to be scaled up.
What else can blockchain offer?
As well as opening up supply chain transparency, blockchain also offers other advantages to managing the supply chain more efficiently. For example, the technology can:
record the quantity of assets as they move between supply chain nodes
track orders, receipts, shipment notifications and other trade-related documents
hold contractual information about the product and be used to deliver “smart contracts”
verify certifications of products, such as determining whether a food product is organic or fair trade
share information about manufacturing processes, assembly, delivery and maintenance.
Excitingly, it also offers opportunities to the circular economy where it can provide alternatives to marketplace systems such as Airbnb, or be used to provide information to help with disassembly or reuse. For instance, when decommissioning a building, blockchain could be used to provide a valuable source of information.
The technology certainly has the potential to create new systems and ways of working. However, despite the hype, it is very much like email or social media in that its full value can only be realised when others are using it.
Furthermore, as with all new systems and ways of thinking, the technology can seem daunting and there are a lot of questions that still need to be answered. As a result, adoption is likely to be slow while businesses work out what it means for them.
However, in the same way that most people cannot code their own website, but can understand and take advantage of its benefits, organisations can undoubtedly start to work towards understanding how the technology might be able to meet their own needs. This might be by building up skills internally to improve how assets are managed, or by working with trusted partners to create localised networks. Some areas of the business will be a better fit than others, but it is a technology that certainly should not be ignored.
Blockchain offers a secure, unbiased and reliable open platform that creates a form of digital ledger.
It is a way of providing proof of origin and sustainable and ethical sourcing, production and manufacture.
Many organisations are already trialling blockchain and there are applications that have already been developed and can be used.
Companies should consider what opportunities blockchain could offer, perhaps by identifying some low-risk projects to start their journey.