Blockchain in Supply Chain Management: Does It Actually Solve the Major Point of Weakness?
One of blockchain’s most widely cited use cases is in supply chains. Proponents argue that blockchain is the most effective and efficient way to ensure supply chain integrity. Using blockchain technology, physical assets can be digitized and tracked, end-to-end, along a supply chain on an immutable decentralized record of transactions. But can blockchain address the major weakness of any supply chain — the point of on-ramping? The answer lies in accountability.
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Blockchain on the Supply Chain
Countless tech companies, logistics companies, and other businesses relying on supply chains are pursuing blockchain technology to usher in a new wave of efficiencies. The government of the Indian state of Kerala is exploring implementing blockchain technology in its food supply chain in a bid to reduce food waste and increase transparency.
Tech giant IBM has partnered with Walmart, Chinese e-commerce giant JD, and Beijing’s Tsinghua University National Engineering Laboratory to form the Blockchain Safety Alliance (BSA). The BSA’s intention is to improve supply chain traceability and transparency, ensuring food safety for end consumers.
The company has also partnered with a major jewelry consortium to create TrustChain, supported by IBM’s Hyperledger Fabric blockchain to trace precious metals and jewelry to eliminate fraud from the industry. The system will track jewelry along all points on the supply chain from source to final consumer.
In Washington, the Congress’ Subcommittee on Research and Technology and the Subcommittee on Oversight held hearings with industry leaders to explore using blockchain technology in supply chain management. According to the Hearing Charter:
“The purpose of this hearing is to highlight potential and proven applications of blockchain and distributed ledger technology in shipping, logistics, and customs, with an emphasis on supply chain management. The hearing will focus on how this technology can be leveraged to provide greater supply chain visibility and combat the distribution of counterfeit products.”
A Chink in the Armor?
Blockchain technology ensures a transparent, immutable digital record of all transactions along a supply chain in the flow of goods from source to consumer. What it cannot do, however, is resolve the primary weak link in any supply chain — the on-ramping of goods onto the chain.
If a diamond mining company in West Africa placed an inexpensive crystal onto a traditional supply chain and labeled it a six-carat diamond, it might be unlikely to fool a jeweler. If that supply chain sat on an immutable distributed ledger, however, once on-chain the human-intensive processes of manually checking the validity of products and ensuring compliance might be more likely to be overlooked.
The blockchain makes those checks unnecessary, which is part of what makes it so efficient. The crystal flows along the chain unmonitored because it is digitally recorded as a six-carat diamond. The on-ramping problem — the weakest link in any supply chain — is not resolved by blockchain technology. If anything, on-ramping fraud is protected by blockchain tech’s reputation for ensuring integrity and transparency.
The Answer Lies in Accountability
Bitsonline reached out to Omnitude, a British company that recently partnered with Absolute Taste, which provides catering for events such as Formula E, the British Grand Prix at Silverstone, and the Volvo Round The World Yacht Race. Omnitude is a tech company that “enables the creation of blockchain solutions that integrate enterprise systems, supply chains and eCommerce platforms”. Omnitude’s solution is designed to help Absolute Taste ensure the provenance of the food it serves its customers by tracking products along its complex supply chain, all the way back to the farms from which it is sourced.
When asked how blockchain technology deals with the on-ramping problem, Omnitude’s CTO, James Worthington conceded there was little to prevent fraud during the on-ramping process:
“Blockchain technology is fantastic for generating trust and providing transparency to consumers. But, unfortunately, there is nothing in place to prevent false or malicious information being added to the blockchain.”
So how does blockchain technology actually guarantee supply chain integrity? The answer lies in accountability. Per Worthington:
“As blockchain acts as an irrefutable ledger for tracing products through the supply chain, what the technology can do in this situation is make people responsible for their actions. As soon as there is an issue is found within the produce, there is nowhere to hide for the faulty suppliers as the blockchain makes it very simple to trace the source. As blockchain technology brings greater accountability to the supply chain, businesses using it will be forced to actually ensure that their own supply chains are legitimate and avoid taking risks with substandard suppliers, as they won’t want to face the backlash, and damage to the brand, caused by a scandal. So the blockchain can help improve trust in this respect.”
So while blockchain technology does nothing to prevent suppliers fraudulently placing mislabeled or faulty products onto the blockchain, it increases the risks of that fraud being caught, with nowhere to hide for any producer. Earlier this year, Jamie Oliver’s Italian restaurants and Wetherspoon pubs were forced to pull beef from their menus after a Food Standards Agency visit to their meat supplier Russell Hume discovered “serious non-compliance with food hygiene regulations”.
Had their supply chains been fueled by blockchains, identifying the faulty suppliers would have been accomplished sooner and faster, reducing any risks their customers faced.
Let’s start a discussion. Despite all its benefits, blockchain technology cannot solve problems in real time when humans interact with it with ill-intent. Are you convinced by Omnitude’s answer that blockchain tech at least discourages fraud and misrepresentation and helps improve trust by creating an irrefutable ledger for tracing products through the supply chain?
Images via Pixabay