How Blockchain Will Revitalize the Fractured Global Supply Chain

Global Supply Chains Have Not Yet Caught Up With Technology, But Blockchain Will Help

90% of all goods in global trade are carried by the shipping industry, but even in the age of smartphones and self-driving cars, manual paper-based systems – such as fax machines – are still the industry-standard method to process shipments. Almost 50% of large global companies communicate with their suppliers using email, phone, or fax when ordering stock, processing invoices, and producing bills of lading.

We all know the conventional method of how goods get processed and shipped across the globe, which involves moving a good from a producer to the seller and ultimately arriving at the end-user. We call this process the ‘supply chain’. In actuality, this process is in fact not quite a chain at all. Its’ procedures may include everything from the extraction of raw materials, manufacture of goods, storing in appropriate packaging, loading to freight on board for shipping, and finally delivery to the end customer.

Managing today’s supply chains is extraordinarily complex. Depending on the product, the supply chain can span over hundreds of stages, multiple geographical (international) locations, involve a swathe of invoices and payments, and extend over months at a time.

The conventional supply chain is broken in a myriad of ways. When it was pioneered in the last century, supply chains were relatively simple as business was generally conducted between local suppliers and buyers.

Due to globalization, manufacturing and procurement can be undertaken abroad in countries such as China and India, and as a result, shipments can be met with heavy slow-downs due to friction encountered across the supply chain. Products can move from one country across a border to another, and in many cases, the same product may have different names and classifications.

It’s common practice for collaborating companies to keep their own internal inventory management systems, and shipment documents, making it harder to match corresponding information, causing delays and inefficiencies.

Documentation is not centralized and is not located on one streamlined, easy-to-access platform. All this data is stored separately and kept in ‘information silos’ that are virtually impossible to access without prior permission given to external users. As a result, synchronicity is difficult to achieve as companies operating across international borders and speak both literally and figuratively different languages.

For example, it can take weeks or months for a payment between a manufacturer and a supplier to be settled. Contractual agreements require the services of lawyers and bankers, each of which adds extra layers of cost and delay. Products and components are often hard to trace back to suppliers, making defects challenging to eliminate. In regards to public health and safety, food that is sold unbeknownst as spoilt or contaminated can’t be quickly traced to its origin.

Consumers have grown more sophisticated in their evaluation of purchases and make many choices that align with their own beliefs and ethics. There is a growing trend for consumers to want more of an influence that their purchasing decisions make. They want to know as much information as they can in regards to the goods they are consuming, including the origins, whether or not chemical fertilizers were used and if the goods are classified as fair-trade.

Traditionally, consumers placed emphasis on price, convenience, and taste when making their purchasing decisions, but according to research conducted by Deloitte in 2015, the modern consumer now prioritizes health and wellness, food safety, social impact, and experience instead.

Growing demand in emerging markets such as China has whetted the appetite for pure, locally sourced high-quality meats from the United States and Australia. Conversely, where there is high demand and profits to be shared, there is an equal chance to invite underhanded behavior from unscrupulous individuals selling counterfeit, contaminated, or falsely labeled goods, just to take advantage of the change in consumer behavior.

Deloitte also found that transparency appeared to be an overarching concern that was shared amongst all consumers, as more thought is given to the production methods used to grow and produce food.

Currently, in China, PricewaterhouseCoopers (PwC) estimates that 50% of all the meat sold labeled as Australian beef isn’t what it claims to be, and is often a mix of different animals such as pork and duck meat. Additionally, only one in every ten kilograms of meat sold as American or Australian beef is the true-blue article.

How can customers possibly know the true origins and value of a product if there is no transparency in its transport and traceability is almost non-existent? There is an increasing demand for growers to demonstrate their sustainability practices, but up until now, there was no incentive or reward for them to do so.

To address these challenges, the world needs faster payment networks and easy-to-access supply chain systems that provide a transparent ledger of transactions, and offer a collective bookkeeping solution for ensuring transparency and trust.

What is Blockchain in Supply Chain?

Without getting too bogged down in the technical aspects of what blockchain is, what the focus should be driven towards is what advantages blockchain can provide and how it is so suitable to be integrated into supply chain management.

Blockchain technology was developed to achieve one main objective, the need for an efficient, cost-effective, reliable, and secure system for conducting and recording financial transactions.

Blockchain utilized in supply chain management systems aims to revolutionize and revitalize an archaic and chaotic system that has well and truly existed beyond its expiry date. With blockchain traceability, a supplier won’t just be able to tell you the origins used to transport your food from farm to plate. The level of detail and application goes far beyond that.

While the most prominent use of blockchain is in cryptocurrency, such as Bitcoin, the reality is that blockchain—essentially a distributed, digital ledger—has many applications and can be used for any exchange, agreements, contracts, tracking, and, of course, payment.

The stakes are high, $990 billion is lost in food waste globally each year as a result of poor labeling and mismanagement in processing packaged materials.

During transportation, goods need to be properly refrigerated, packaged, and stored. When shipping internationally, goods need to be sorted and approved through the correct agencies before going to market. These agencies can include the European Food Safety Authority (EFSA), U.S Federal and Drug Administration (FDA), and China Food and Safety Law.

Simple errors such as spelling mistakes, labels placed on the wrong product, labeling on the wrong side of the product, and unclear translation from one language to another can result in premature spoiling, contamination, consumer illness, and in the most extreme of cases, deaths. All of these mistakes are points of friction along the supply chains and can result in a total recall or permanent losses for that product, where the batch of goods can’t be sold or needs to be destroyed.

In a blockchain, every transaction is recorded on sequential blocks that are distributed over many nodes (computers). This essentially means that all data is interconnected where the contents of which can’t be altered without a mass consensus approving the edits. This in turn establishes two of the main proponents of blockchain, immutability and increased security.

Information such as product certifications can be embedded into the blockchain, negating the need for time-wasting inspections when shipments are moved from one point to another along the supply chain.

Ultimately, blockchain can increase the efficiency and transparency of supply chains and greatly improve efficiencies in business systems for everything from warehousing, delivery, and payment. This is how trust is not only established but ensured through blockchain technology.

A decentralized blockchain provides a tamper-resistant, immutable ledger, which means less room for fraud. A fully digital supply chain system is cost-efficient in the long term.

Blockchain’s Ability to Improve Supply Chain Traceability

There are important health and safety reasons for having granular levels of tracking capabilities for perishable goods. According to the US Library of Medicine, food-borne illnesses make thousands sick every year and cost businesses an estimated $90 billion in lost revenues.

Globally, the World Health Organization estimates that tainted food causes 600 million illnesses annually and 420,000 deaths. There have been several high-profile cases of food tampering, adulteration and simply selling foods that are expired or contaminated with disease. A recent Globe-scan survey found that 70% of consumers want to know more about the sustainability of the seafood they eat.

It is also estimated that by 2025, 25% of the world’s top supermarkets will be utilizing blockchain for food safety.

A burger restaurant that realizes blockchain traceability would be able to share with its customers not only what types or how many different cows went into creating your burger patty for dinner, but it can in fact drill down to providing information about which specific cow your meat has come from.

These cows are tagged and have their location, diet and health tracked from birth. This unparalleled level of detail has never been available en masse to consumers before. The immutable nature of blockchains would catalyze greater trust and deliver ease of mind to consumers. This is precisely what organizations like Beef-chain in America and Beef Ledger from Australia are providing. In the event of a product recall, these companies can also see which batches were affected and to which seller they were shipped.

Since blockchains allow for the transfer of funds anywhere in the world without the use of a traditional bank, it’s very convenient for a supply chain that is globalized.

Blockchain and RFID-driven (Radio Frequency Identification) Contract Bids and Execution

RFID tags are commonly used in supply chains to store information about products. IT systems can read the tags automatically and then process them. Implementation in supply chains could be set up to allow for carton or pallet tracking, and logistics partners can create a marketplace where they can bid against each other for a delivery contract. The partner offering the best price and service wins the contract. A smart contract is then created, which then tracks the status and final delivery performance.

These readings can then be stored on a blockchain and entries on a blockchain are permanent and tamper-proof, if storage conditions deviate from what is agreed, all members across the blockchain will be notified immediately.

A smart contract termination can also be triggered by any given number of situations. Depending on the nature of the anomaly, the contract may be able to be adjusted or canceled. However, it could also extend to changing “use-by” dates, declaring products unfit, or applying penalties if the storage temperatures drop or if an alien substance is detected. Perishable goods such as food and pharmaceuticals can automatically be listed as unsellable when storage temperatures reach beyond a safety threshold. This would remove any compromised produce that is not fit for safe human consumption before it even hits the shelves and supermarkets.

The Challenges to Blockchain Adoption for Global Supply Chains

Despite its many benefits, blockchain faces several difficulties before it can be adopted en masse by our global supply chain. Blockchain is a new technology and as such lacks the maturity of the legacy systems that are still being utilized today. Companies would have to be willing to test this new technology to evaluate its benefits to justify the initial extensive investments needed.

By its very nature, a distributed ledger requires the collaboration of multiple parties, whether it is to be used for traceability or executing commercial transactions with the help of smart contracts. In an effort to make the supply chain more visible and transparent, we are asking for companies that are historically reticent to sharing delicate logistical and operational information, to do just that.

Conclusion: Blockchain Adoption in the Supply Chain Industry Won’t Happen Immediately, But It Will Have a Big Impact

It will not happen overnight, but as more organizations become aware of the benefits of integrating blockchain into their supply chain, this burgeoning technology has the potential to transform entire ecosystems.

Supply chains are prime examples of blockchain’s potential that could be scalable across multiple industries.

Blockchain is delivering significant value to complex supply chains around the world, eliminating traditional friction points and providing entirely new degrees of transparency and trust.

References:

1. (Heins, M.) (2013) The Shipping Container and the Globalization of American Infrastructure. The University of Michigan.
2. (2018, Aug.) How Blockchain and Smart Contracts Can Impact IoT. Medium: Smartz.
3. Del Castillo, M. (2019, Jan.) Blockchain’s Movable Feast: How The Tech Is Changing Food Supply Chains. Forbes.
4. Marr, B. (2018, Mar.) How Blockchain Will Transform The Supply Chain And Logistics Industry. Forbes.
5. (2019, Jan.) Blockchain Technology is Set to Transform the Supply Chain. Logistics Bureau.

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