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Supply Chain Transparency Through Blockchain: Why Blockchain is Part Of, But Not the Whole Solution
Modern supply chains are more complicated than ever. Raw materials come from all over the world. Hundreds or even thousands of suppliers contribute components to many consumer products. Additionally, consumers care now more than ever about ethical sourcing and product provenance. In today’s economy, supply chain transparency is no longer nice to have. It’s a prerequisite for all consumer-facing companies.
Of course, achieving that transparency is difficult. It involves a lot of work in tracking, verifying, and auditing the materials and locations where products are made. Luckily, new technologies promise to make supply chain management a lot easier. Many of us are tired of the countless articles praising blockchain as the next big thing in supply chains. The truth is blockchain will play an important role as a protocol for verifying information. However, it won’t revolutionize supply chains on its own, and moving to blockchain will require additional technologies and process changes.
The good news is the upside to transparent supply chains is enormous. When a company knows and understands every facet of where its product comes from, it can reduce risk, guarantee quality, and market its products more effectively to the modern consumer. This article will look at the benefits of modern supply chains, how blockchain fits in, and what companies need to do to implement these changes.
The most essential function of a supply chain is to make sure working products arrive on store shelves or delivered to customers’ doorsteps. In the early days of markets, supply chains were simple. Your local blacksmith likely knew the miner or the scrap metal where he got his iron. The cobbler may have known the name of the cow whose leather you’re now wearing on your feet. These were easy supply chains to manage and craftsmen could verify quality in person.
Running a modern consumer goods company is much more complex, and verifying quality is an enormous risk to the brand. Faulty products result in recalls or tarnished reputations. In some cases, bad products lead to deaths when a component in a vehicle, pharmaceutical, or food product goes bad. The stakes are high for quality control.
Making supply chains more transparent makes them easier to track from start to finish. As a result, companies discover defects more quickly. They can also identify which products the defect affected. Doing so involves getting buy-in from third party suppliers and requiring certification of their processes. While blockchain can help with managing and securing these certifications, it can’t perform the inspections for you. You’ll still need third-party investigators to inspect and certify processes.
2. Ethics & Sourcing
In addition to quality, consumers increasingly want to know about the working conditions and living wages paid to factory employees. One famous example of an opaque supply chain causing ethical problems was Apple’s iPhone production at Foxconn factories in China. Working conditions in the factories were so bad that workers were rioting and even committing suicide. When the story broke in 2011, Apple suffered a huge PR nightmare, but more importantly consumers became more engaged and aware of the supply chains behind the electronics they use.
Since then, the anti-sweatshop movement has grown increasingly powerful in western economies. Consumers now demand information about a product’s provenance and whether it was ethically sourced. Supply chain transparency and auditing are the only ways to answer those tough consumer questions.
Of course, provenance isn’t limited to electronics. Many other sectors of the global economy are seeing similar trends in consumer engagement with supply chain. Perhaps none is more pronounced than the organic and whole food movement. Consumers want to be sure their food comes from ethical sources, and they’re willing to pay a premium for farm fresh and organic foods.
That willingness to pay has inspired many scams and fake labelling organizations that promise one thing while delivering another. Using the blockchain could keep companies from claiming certifications they haven’t earned. However, it wouldn’t stop someone from creating and issuing new certifications that are bogus or meaningless. Even with blockchain, there’s still a fair amount of policing that needs to be done.
3. Using a Supply Chain as a Marketing Tool
One of the biggest benefits of implementing a transparent supply chain is ethical products have a huge marketing advantage in today’s economy. There’s extraordinary market potential for products that can prove they come from ethical sources. As such, the supply chain itself becomes a powerful marketing tool.
Fashion is one area where having an ethical supply chain can make a big impact on a company’s bottom line. For example, Patagonia has built their entire marketing strategy around being ethically sourced, and many other smaller brands are following suit to great success. Proactively promoting and sharing your supply chain could turn supply chain management from a risk to an asset.
Blockchain could help companies prove and substantiate the claims they make about being ethically sourced. It also would make it harder for companies that aren’t ethical to claim that they are, only further increasing the scarcity and value of a truly ethical and open supply chain.
4. The Blockchain Opportunity
It’s clear that blockchain has a role to play in supply chain management. There’s an opportunity here for a company to use a blockchain system to act as a single source of truth for every stage of its supply chain. You could track products in real time, have factories certified by outside examiners, and increase efficiency in operations by getting all suppliers on the same page.
In turn, you could share access to the blockchain with consumers and outside reviewers. If the company’s supply chain truly is high quality and ethical, then the company will benefit from sharing that information with the world. In theory, a consumer could see a product they like in a store, look up its information, and check where it came from and the names of the people who manufactured it–all from their smartphone in-store. Blockchain has the potential to shrink our supply chains back down to manageable, human interactions like they were in the past.
5. Why Blockchain Alone Won’t Solve Supply Chains
Blockchain is just a protocol. It’s an advancement in cryptography that makes storing and certifying records easier. That doesn’t mean it’s the magic bullet for every industry. Moving toward a truly transparent supply chain economy will require advances in other technologies as well. Additionally, we’ll need buy-in from the major corporations and a willingness to share supply chain data with the public at large.
Chief among the necessary technological advancements is the internet of things. To make it practical to track complex supply chains, we’ll want the products to track themselves. It would be time consuming and introduce too much overhead for employees to scan or sign each product themselves. Instead, advancements in RFID chips and other sensors could make it so that we can track the location of items within a factory or in transit at any time. Many companies are already using these IoT technologies and seeing massive benefits in efficiency and transparency, without the need for a blockchain.
In order for a blockchain solution to make sense, there needs to be corporate buy-in from every company at every step along the way in the process, from resource procurement to manufacturing to delivery. It’s possible to use blockchain at a smaller scale, but it really starts to make sense at a large scale. Of course, the difficulty is getting that many independent players on board, trained, and ready for such a project would be an enormous undertaking. The blockchain technology would need to be well proven and show a clear business benefit worth the investment. So far, we don’t really have that kind of convincing data for blockchain in these industry use cases.
Transparent supply chains are important because they allow companies to manage and monitor risks within their production. They also lead to higher quality products with clear, ethical provenance. That type of transparency is huge for a company’s reputation and can even be a powerful marketing tool in the modern economy. Consumers care where their products come from.
Technology, blockchain and otherwise, will play a huge role in making supply chains more open and understandable. As we move toward a single source of truth for verifying and certifying the origins of products, our global economy will become more understandable and more ethical. That’s a huge opportunity for companies and consumers.