Brands are increasingly held responsible for their suppliers’ social and environmental actions. Blockchain can create supply chain transparency.
Clothing company tentree uses 98% sustainable materials.
But when there are claims that 30% of all sustainable fibers are fake, how can they prove their clothes are legit?
Similarly, vaccine manufacturers can monitor their production facilities. But after they ship vaccine doses, can they be sure distributors will handle vaccines in a way that keeps end users safe?
Consumers expect brands to be accountable for product integrity (e.g. avoiding hazardous contaminants) and process integrity (e.g. avoiding child labour or environmentally harmful processes). But product creation and distribution often involve third parties. Therefore, brands need to understand and manage the performance of their partners.
Historically, brands have tracked supplier performance with individual suppliers, using paper records and auditing. It’s a time-consuming process and the data are easy to falsify. Data also often aren’t connected across suppliers, making it hard to have a holistic view.
Blockchain technology is one way to address these challenges, experts say.
Blockchain technology enables all actors in a brand’s supply chain to record information about their activities in a single, chronological and unchangeable record. “Blocks” of data are stored in a digital “chain,” within a system called distributed ledger technology.
The goal is for key information about a company’s products – even down to the level of a single vaccine dose – to be traced all the way from raw material extraction to final usage, in a single place.
Blockchain has loads of potential, yet experts agree there are still many challenges.
NBS brought together three blockchain experts to identify how blockchain is currently used for supply chain transparency, and what challenges remain.
Kathleen Buckingham is Sustainability Director at Canadian apparel company tentree, which uses blockchain to track its fiber and product supply chain, and veritree, which uses blockchain to track tree planting.
ManMohan S. Sodhi is Professor of Operations and Supply Chain at Bayes Business School, City, University of London, where he researches supply chain risk and sustainability.
They spoke with Jury Gualandris, director of NBS and associate professor of Operations Management and Sustainability at Ivey Business School.
Read edited conversation highlights below.
Six Ways Blockchain Can Help Your Supply Chain
Mohan Sodhi: Blockchain allows you to trace every product, from raw material to final assembly, all the way to the customer or even customer returns. The ability to do this can improve sustainability in multiple ways:
Prevent illegal business practices. Having greater transparency and oversight makes shady activities like fraud or corruption harder to execute without detection.
Improve sustainability performance. Blockchain provides the traceability. That means all supply chain partners joining the blockchain will have visibility of each other’s operations, including information about how responsibly products and materials are sourced, shipped, processed and distributed.
Enable operational efficiencies. For example, a company can reduce excess inventory and improve fulfillment rates. By leveraging the information stored in the blockchain, supply chain partners can find optimal ways to redistribute products and materials to where they are needed the most, efficiently matching final demand.
Improve overall supply chain management. Blockchain is not a technology you do on your own; it’s a technology you do with your supply chain partners. You collaborate and you cooperate. So the improved relationships it requires with your suppliers is an advantage.
Satisfy shareholders. Shareholders want to know that the company is doing the right things. If the company uses blockchain to provide traceability, it provides comfort to the shareholders.
Sense market forces and trends. Being able to collect all the information in one place helps you detect and address supply chain risk and deal with globalization trends — what’s selling, what’s not selling.
2 Case Studies of Blockchain in Supply Chains
Kathleen Buckingham and Sid Chakravarthy shared how their companies use blockchain for increased transparency.
Case study 1: tentree
Kathleen Buckingham: tentree is an apparel company that plants 10 trees for every item of clothing sold. At tentree, we created veritree, a ground-based monitoring application that uses blockchain to track data on our tree planting. With veritree, we wanted to address three challenges:
Transparency regarding which trees are being planted. We need to ensure that trees are not being double counted and therefore impact being amplified. Having a permanent record allows us to ensure that we are planting the trees we say we are planting.
Understanding tree survival rates. We provide periodic updates on the blockchain to keep a permanent record that allows us to track this.
Improving data access. Before veritree, planting partners used paper records or localized data recording. Each planting partner had a different process for record keeping which wasn’t standardized or a permanent record.
Blockchain has helped us create a system to store and aggregate data on trees we plant. We have GPS coordinates, site images, planting details, along with ground-based sensors with timestamps that are permanently recorded on the blockchain. We’re calling this “NFTrees.”
We’re also rolling out a blockchain-enabled system for fiber tracing. This isn’t our own. It’s called TextileGenesis. Sustainability is the core of our brand and we’re claiming to have 98% preferred fibers, or sustainable materials. But according to TextileGenesis, around 30% of sustainable fibers are fake. We use the TextileGenesis blockchain system to better track our fibers
Blockchain solves a problem that exists within our supply chains. Is it perfect? No, but I think it can transform supply chains and provide greater accountability and allow us to make better data-driven decisions over time.
One challenge: Many people are concerned with blockchain’s energy use. The blockchain, we use, “Cardano,” is a “proof-of-stake” blockchain. Proof-of-stake is much more energy efficient than “proof-of-work” blockchain like Bitcoin, which a lot of people have heard about.
Case study 2: Statwig
Sid Chakravarthy: When we started working with vaccine supply chains in 2018, there was very little visibility. After manufacturers shipped the product, they got very little data back in terms of what happened as the product moved through airports, storage facilities and clinics. What condition were the products in by the time they reached users?
Some of the safety issues include:
Products getting damaged because they’re exposed to high temperatures.
Expired products not being discarded but instead being used for vaccinations.
Counterfeiting. More than 10% of the products in the vaccine industry are counterfeit.
“Black markets,” where products intended for one market get sold in a different market.
We thought we could solve these problems by taking a very simple approach. Our system, VaccineLedger, has a digital profile for each product, such as a vial of vaccine. Once we have the profile, transactional data can be recorded at each touchpoint in the supply chain. Information can include when the product was purchased and received, the product’s physical condition. Touchpoints could be airports, warehouses, or different locations where the product would be stored in transit and at final destinations.
That creates a complete journey of the product from start to finish. You pick a product anywhere in the supply chain, scan it through our software and it gives you the journey that it took so far.
How to Implement Blockchain Successfully
Here are some tips the experts offered on implementing blockchain.
Tip 1: Collaborate with stakeholders
Sid Chakravarthy: One thing that we learned the hard way is for the first couple of years we had a very narrow focus on solving the problem of vaccine tracking. We were only thinking of it from a software point of view.
But there is a bigger problem. Sometimes companies in the supply chain don’t want to talk to each other. They ask: “What is in it for me? Why should I participate and go through all this effort to share this data with other companies and stakeholders?”
We had to figure out a way of incentivizing different companies in the supply chain using the same software. It’s a game of creating different value to different stakeholders using the same software. You are solving a completely different problem for distributors than for manufacturers.
Tip 2: Take it slow
Kathleen Buckingham: It will take time to transform the industry. We’re having to do it very piecemeal.
We have to look at, say, our cotton supply chain or our polyester supply chain independently, and start to collaborate with the actors within that supply chain to transform the system. There will be a learning curve and process development. And it’s not going to happen overnight.
Tip 3: Provide strong leadership
Mohan Sodhi: Weak leadership can be a challenge. Maybe the chief supply chain officer wants blockchain, but the chief financial officer doesn’t want blockchain. There may not be a sense of urgency, and there may not be a technology vision in the organization.
To ensure your efforts are successful, make sure there’s leadership:
Within the company
Across your supply chain
Maybe even across your competitors or the industry as a whole
Tip 4: Create technological readiness
Mohan Sodhi: A company must have the appropriate processes and technology in place to support the transition to blockchain. This can mean having a high level of expertise within the IT team. It can also include well-established IT processes, such as clear processes for developing, using and maintaining IT systems with the company.
If you don’t have a strong technological foundation, such as an enterprise resources planning software (ERP), moving to blockchain will be difficult.
Tip 5: Have a legal framework
Mohan Sodhi: Traceability has liabilities that are legal issues. Do you have a framework in place for ensuring the safe exchange of private information amongst companies? Your partners will want to ensure their trade secrets and intellectual property are protected.
You’ll also need a way to verify the reliability of any data being recorded in the block. Reporting inaccurate information could have negative consequences for your company’s reputation, as well as potential legal implications.
Is Blockchain Right for Your Company?
Blockchain isn’t for all companies. Mohan Sodhi identifies several issues that can make blockchain a non-starter.
You have a simpler alternative. Yes, blockchain provides traceability that is credible and smart. But what if a company has the credibility already — for example, with very trusted suppliers? In that case, the existing system may be enough.
The data are wrong. Blockchain experts often talk about “garbage in, garbage out.” If partners aren’t entering accurate data into your blockchain system, then blockchain might give false credibility to incorrect information.
Ultimately, technology will only be one part of the solution to supply chain transparency and sustainability. Blockchain has received a lot of attention and companies that announce blockchain pilots see their stock prices go up. But human relationships, shared goals and supply chain governance still matter. If alignment between different partners is not there along the entire supply chain, then putting effort on technology is going to be a waste.
Hastig, G.M. and Sodhi, M.S., 2020. Blockchain for supply chain traceability: Business requirements and critical success factors. Production and Operations Management, 29(4), 935-954
Podcast and conversation edited by Chelsea Hicks-Webster