Supply chains are crucial to the global economy, but they face significant threats, ranging from product safety to counterfeiting.
It can be difficult to trace, for example, food-borne pathogens transferred in the food supply chain., Meanwhile, extraction industries need to be able to ensure their customers they do not source conflict minerals from the black market. And companies of all kinds need to protect against counterfeit products that erode sales and threaten brand reputations.
A potential solution to all of these supply chain problems is coming from an unexpected source — blockchain. Blockchain is a system that enables the creation of a distributed database which keeps an immutable record of timestamped transactions. Bitcoin and other cryptocurrencies are the most popularly known use-case for blockchain; they use it to record transactions between buyers and sellers of the currencies.
Blockchain provides a secure, transparent, and tamper-proof digital record of transactions at each stage of the supply chain. For example, the sale of a shipment of lettuce from a farmer to a distributor is recorded in the blockchain. When that distributor sells the lettuce to a supermarket chain, another transaction is recorded. Food safety inspectors at the supermarket can query the blockchain to trace a shipment of lettuce back from the supermarket to the farmer that produced it.
Companies including Albertsons, Volkswagen and Seagate are using blockchain technology to protect their supply chains by tracking the provenance of supplies and products from their originating sources. Other companies, like Minespider, are developing industry specific supply chain applications using blockchain. Thanks to the secure nature of blockchain, a shipment can be precisely tracked at every point along its journey.
Allaying fears of contaminated food supplies
One of the reasons the Albertsons grocery store chain is using blockchain is that food-related risks give little warning, and consumer fears resulting from outbreaks can sometimes affect even products and businesses not directly connected to the tainted product. In April 2018, E. coli infections caused by contaminated romaine lettuce from Yucca, Arizona sickened over 170 people. The impact did not stop there. According to a Nielsen report, as news of the contamination spread “romaine dollar sales fell 20 percent … iceberg lettuce dollar sales were down 19 percent [and] red leaf lettuce dollar sales fell 16 percent.”
Even though the actual E. Coli outbreak was limited to one kind of lettuce from one region of Arizona, the business impact was far wider because of uncertainty about where various different lettuce shipments came from. Consumers did not have confidence in a major segment of the food supply chain, all because of a small volume of products that was grown with water from a single contaminated irrigation canal.
If consumers had some confirmation that the contamination was isolated, the financial impact on farmers, distributors, and supermarkets may have been contained. The only way to build that confidence is to track produce through every step in the supply chain.
In order to better track food shipments, Albertsons Companies has joined IBM’s Food Trust network. According to Albertsons, network participants are using the blockchain-based service because it can “make the end-to-end food ecosystem more transparent and trustworthy, and has the potential to transform broad, nationwide food recalls into efficient, precise eliminations of recalled products.”
Stopping the flow of conflict minerals
Manufacturers are also turning to blockchain to better manage supply chains and comply with consumer expectations, as well as government regulations. Volkswagen, for example, is using IBM’s Blockchain Platform “to gain greater insight into the provenance of cobalt used in lithium-ion batteries for electric vehicles and other types of minerals used elsewhere in the production of vehicles,” according to reports.
The problem for manufacturers is that cobalt from some sources is a conflict mineral, and industries are anticipating greater regulation against the use of those sources. According to Africapractice, a consulting firm, “the fact that cobalt from artisanal mines can change hands several times before being mixed with ‘clean’ ore prior to smelting, indicates the challenge companies face in their efforts to responsibly source the mineral. In anticipation of public pressure and eventual regulations, private sector actors are already seeking work-arounds.”
Blockchain helps address problems related to the sourcing of products by providing a trusted record of transactions, from the sale of raw material from the original miner through to the manufacturer using the cobalt.
Even when manufacturers want to protect themselves against conflict minerals, much as supermarkets want to avoid contaminated food, there may be problems with compliance processes. If it is difficult, costly or risky to their business to follow industry or government guidance, some suppliers are less likely to comply.
Minespider, a company focused on preventing human rights abuses in raw materials industries, has developed a public and decentralized blockchain protocol that overcomes this problem. As a Techrepublic report points out, “Blockchain is good tool to accomplish this because it allows producers to maintain the privacy of this data while still complying with a verification process. Previous certification efforts put heavy compliance burdens on the suppliers, and many were reluctant to share proprietary information with competitors.”
Blocking counterfeits in the electronics supply chain
Blockchain applications are addressing challenges that start in later stages of the supply chain, too. Seagate, a member of Fortune’s Blockchain 50, is using the Hyperledger Fabric blockchain platform to track disk drives through their entire lifetime and prevent some of the $100 billion in counterfeit electronics that flood the market annually. Specifically, the goal is to prevent fake hard drives and solid state drives from being “returned” to Seagate where they could be accidentally refurbished and resold.
Blockchain and tools like the Hyperledger Fabric, which underlies IBM’s Blockchain Platform, are giving businesses efficient, secure, and tamper-proof ways of tracking products flowing through global supply chains. The work that is now underway to protect the integrity of supply chains is demonstrating the business value of collaborative, transparent, and secure records of source.
Building networks of trust
If there is a business process that can be improved by building trust and confidence in it, then blockchain may be coming its way. Marie Wieck, general manager for IBM Blockchain, notes that “unlike any technology before it, blockchain is transforming the way like-minded organizations come together and enabling a new level of trust based on a single view of the truth.”
Food supplies, raw materials, and electronics manufacturing are just a few types of supply chains that can benefit from blockchain. Your industry’s supply networks could be next. Learn more about how companies are using blockchain to protect the supply chain and more by reviewing the Fortune’s Blockchain 50.