At a time when supply chains are fracturing as a result of the global coronavirus pandemic, is blockchain the solution?
If you listen to the apostles of blockchain, it’s the answer to just about every problem imaginable. So it figures that they would get around to touting the technology’s efficacy in supply-chain management.
The most obvious application of blockchain to the supply chain is traceability. Retailers and distributions have struggled for years to identify the provenance of their products all the way back to the farm, the smelter, and the mine. That’s especially the case with food, for which a means of determining origin is critical in the event of contamination or the need for a sudden recall.
Blockchain would seem the ideal tool for such instances, given its promise of an immutable record of transactions that’s dispersed over multiple computers. Indeed, the technology is already being used for that very purpose, to trace the origin of raw materials such as palm oil, ensuring that it’s not coming from suppliers that are destroying rain forests. The same goes for guaranteeing that cotton isn’t being picked by child labor, or high-tech products aren’t incorporating conflict minerals from the Democratic Republic of the Congo.
Retailers worry about negotiating the last mile of deliveries to the e-commerce consumer, but when it comes to product traceability, blockchain is all about the “first mile,” says Melanie Nuce, senior vice president of corporate development with GS1 US. Her organization develops and promotes standards for conducting a wide range of activities related to the supply chain and global business.
In theory, product information stored on a blockchain can be accessed by the consumer simply by scanning a QR code or inputting the batch-lot number shown on the packaging. That’s vital for the growing number of brands whose continued popularity depends on adherence to ethical standards on sourcing and human rights. “In this situation, it really helps for a brand to have a much better view of the supply-chain pipeline,” Nuce says.
Brands and manufacturers have been striving for that goal for years, but blockchain’s relatively recent appearance on the scene is “reinvigorating the conversation about data sharing,” she adds.
All well and good, except that blockchain has yet to fulfill the promise of total and instant visibility of product and accompanying data. The problem, says Nuce, is that efforts so far have focused on recording a series of discrete transactions between partners — the sending of a purchase order, an invoice, or update on the status of product in transit. And for the most part, that information has been delivered in batches, not real time. (There’s a time lag involved just in getting information onto the blockchain.) The technology hasn’t proved its ability to scale in line with the volume and complexity of transactions that typify a global supply chain.
It would have been nice for manufacturers, importers, distributors and retailers if they had possessed fully functioning blockchains when the coronavirus pandemic struck. That way, they could have obtained a better idea of the amount and location of product in the pipeline when factories in China temporarily shut down. That level of intelligence could have been propagated throughout the supply chain, all the way to the ultimate customer.
Unfortunately, blockchain has been unable to fully deliver at this point in its development. It’s been around as a functioning technology for a dozen years, but has had yet to shake off its association with the mining and transfer of cryptocurrencies. That’s no surprise, given that it was invented expressly for the purpose of registering transactions of bitcoin.
Even today, developers continue to link the technology to various types of virtual coins or tokens as incentives to participate in a blockchain, some tradable as securities and others that can be used to pay for a particular service. (A token for your dental care, anyone?) The uncertain status of such instruments in the eyes of regulators has no doubt contributed to slow adoption by companies new to the technology.
Some say blockchain is also being held back by a lack of shared standards for engaging in the various types of transactions for which it’s supposedly best suited. Not surprisingly, given that she works for a standards organization, Nuce disagrees. “My belief is that the standards are already there,” she says. “It’s just a matter of adoption.”
To achieve full visibility within the supply chain, one must be able to identify containers, pallets and even individual SKUs as they move from raw materials to retail shelves. That capability, Nuce says, “is the heart of GS1 standards.” She sees blockchain as a natural fit with existing techniques for capturing and reading data, made possible by the internet of things.
Yet supply chains are having enough trouble reading and disseminating the mass of data generated by IoT at the product level, without negotiating the complexities and expense of blockchain. In Nuce’s opinion, what’s holding blockchain back now is the need to align business processes across siloed organizations and multiple supply-chain partners.
The places where data gets stored today “tend to be walled gardens,” Nuce says. “We have governance over our blockchain solution, you over yours, and never the twain shall meet.”
And what about the time and cost involved in creating a blockchain, which many say are substantial? They’re shrinking as the technology advances, and users gain a better understanding of what kind of data should and should not go onto a “block,” Nuce says.
“With increased adoption, the cost will come down,” she adds. “We’re definitely at the tipping point right now.”
On another topic: Last week we featured a post on how e-tailers can go green by reducing or eliminating the use of cardboard boxes, especially given China’s decision to stop accepting certain U.S.-sourced waste materials for recycling. Here’s another view, from Jack Ampuja, president of Supply Chain Optimizers:
“In my work I am often asked about new materials for packaging. My response is that corrugated is one of the finest materials because it is relatively cheap and easy to source, especially in Europe and North America, and can be recycled almost infinitely. It makes no sense to use another material with fewer positive attributes.
“What I have learned is that contrary to what you were told in the interview, corrugate is one of the most recycled materials — perhaps number one — in North America, with a 90%+ recycling rate right now….
“On the China deal, I believe what they stopped accepting was mixed trash such as newspapers, catalogues, junk mail and plastics. China needs used cardboard to make boxes since they do not have massive softwood forests like we do in North America. This softwood lumber is the basis of our pulp and paper industry.”
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