2022: Blockchain and supply chain transparency
Blockchain and supply chain transparency
Bitcoin, crypto, NFTs, DLT etc etc… we’ve seen blockchain related terms being bandied about for years but for most of us it has all seemed rather theoretical. Money that isn’t money that actually is money except it’s not an actual currency allowing you to buy things that don’t exist except you can because you have the token to prove it?
That being said, blockchain is here to stay. And that could be a very good thing for sustainable businesses.
What is blockchain?
Let’s start with an important distinction. Blockchain isn’t a digital currency. Whilst it is often conflated with Bitcoin which is a digital currency, blockchain is the framework which supports bitcoin. Bitcoin needs blockchain and not the other way around.
Blockchain is also neither a single company nor a brand. Technically speaking it is a Distributed Ledger Technology (DLT) – the words “block” and “chain” were first used by the purported inventor of the technology Satoshi Nakamoto and refers to a process rather than a business. ‘Block’ points to the entries of information (financial records, parties involved etc) whilst ‘chain’ references the fact that every block is linked to the previous and subsequent blocks. Blockchain as a compound noun was coined in 2016. Any DLT can be referred to as a blockchain.
Once those blocks are in place, they are impossible to tamper with, so the information is reliable at any stage of the supply or audit process.
Beyond Crypto
Blockchain technology has moved well beyond its original fans in financial services. Innovations across the art world, shipping, logistics, fashion, farming and more have shown blockchain’s adaptability across industries. In our sphere of responsible business and ethically sourced products and goods, block chain has the potential to revolutionise traceability and transparent sourcing.
As Leonardo Bonanni, founder of blockchain based provenance platform Sourcemap said as long ago as 2015:
“Without understanding the impacts of goods and services, we buy into systems that deplete natural resources, worsen environmental and social problems and endanger humans and ecosystems”.
If a supply chain works across multiple organisations and/or countries, it can be difficult to scrutinise individual events. Whilst the pandemic has proven that shorter supply chains and more local suppliers make for a more resilient supply chain, the Supply Chain Council of the European Union put it succinctly when it says “the world runs wholly and solely on the basis of supply chains.”
However short that chain maybe, there’s really no getting away from the fact it is a chain. Most company information will flow through that chain with little or no agreement when it comes to data taxonomy and sharing, with no uniform way of recording, storing and exchanging data. Blockchain technology can help with this.
Possible benefits
There is a wealth of research to show that consumers increasingly look for some form of provable sustainability policy from companies they buy from. There is also evidence to show that more people are prepared to pay a premium for products they know are responsibly sourced. Ethical Consumer’s annual ethical consumerism report shows an increase of 21% on values-based spending year on year 2019-2020 Proving your sustainable, ethical credentials makes business sense.
The major advantage of blockchain is its ability to track processes in near-real time giving an accurate supply chain mapping never before available. For companies that wish to do so, the entire product manufacturing and delivery process can be made transparent. The complete lifecycle of a given object, product or garment can be followed – including any workers involved or eco-friendly processes that need to be adhered to. This has the potential to revolutionise harmful processes such as palm oil production (imagine being able to capture information such as the tree’s location, plantation identity, worker identity, date and time harvested, and batch ID and upload it into a blockchain application in near real-time) as well as strengthen current efforts already in place around sustainability (see the current scandal engulfing organically produced cotton in India and the near-impossibility of proving most suppliers’ organic credentials).
The technology is decentralised, meaning anyone, anywhere can upload data. Whilst that part might remain manual, the formalising of the data into a single place is automatic meaning that all stakeholders in a given process have full oversight at any given moment – a far more efficient way of handling paperwork and bureaucracy. And, again, a way of doing business that removes most opportunities for lost paperwork or opacity.
There is also an argument to be made that blockchain can help prevent fraud or counterfeited goods. Items can be assigned unique identifiers specific only to that object and connected to it at every juncture of its manufacturing and shipping. In 2019 LVMH Group partnered with fellow luxury brands Prada and Cartier along with systems providers Microsoft and ConsenSys to develop AURA, a blockchain-based platform to authenticate luxury goods.
The technology matches a product ID to a client ID, enabling consumers to access the history of a product and proof of authenticity at every step of the value chain, from raw materials to point of sale. Customer can access the product’s online certificate after purchase which is tamperproof and cryptographically signed by the brand and all parts in its supply chain.
What’s the catch?
Given that blockchain can seemingly be applied to any industry and any set of processes, it’s easy to wonder why it hasn’t already taken over the world.
There are a few good reasons why we haven’t all dived into the digital world.
The first and most simple answer is that it is expensive and complicated to set up, unless you have someone on the team with real proficiency in the technology. As with anything new and innovative, it takes time to understand.
A fully transparent, effective and trustworthy blockchain narrative is a complex system to put in place. Professor of Strategy and Supply Chain Management at the International Institute for Management Development, Carlos Cordon, explains that for a supply chain “you’re talking about thousands of products. For each product, a lot of information is required, like weight, format, expiry date, composition, etc.” This comes down not just to manpower but cooperation and absolute accuracy; plus immediate update to the details should something change. Real time data flows require a constant eye on the accuracy of the data provided.
Digitisation for many is a leap of faith. The NY Times sums it up neatly when it says “the decentralised ledger…replaces trust with algorithmic documentation”. Until something is proven, it can be difficult to have faith in it. The business worlds amplify this given that revenue, staffing and reputations are at stake so any leap of faith has implications far beyond a personal disappointment.
Blockchain and sustainability in 2022
Blockchain has had quite the ride since its inception in 2008 and as we still grapple with the fall out from COVID19 and commitments made at COP26, making predictions is a tricky business.
However, what is clear is that blockchain will continue to insert itself into sustainability efforts, particularly for large companies with both complex supply chains and deep pockets.
In the past couple of months, Jaguar Landrover has announced it will be using supply chain traceability platform Circulor to track the components in its sustainably sourced leather supply chain.
Importantly the EU has just announced funding for the development of Circular System for Assessing Rare Earth Sustainability (CSyARES) to help companies track supply chains when it comes to critical and rare earth materials – components used for electric vehicle batteries, mobile phones, computers, wind turbines and the defence industries.
Possibly the biggest contribution blockchain will make in terms of sustainability will be in its own business model. At one stage bitcoin was estimated to use more electricity in a year than Thailand. Storage of blockchain information is itself enormously energy heavy – regardless of the fact that blockchain information is decentralised and intangible, it still has to be stored somewhere, somehow, and that somehow is invariably huge factory floors of computers. Developers of blockchain models are therefore looking at how to minimise their impact.
Offsetting comes up frequently – with all the controversy around effectiveness that entails.
Another rather counter-intuitive possibility essentially reverse engineers the solution to the problem by suggesting that the ever-increasing energy demands made by Blockchain, will lead to greater investments in generating renewable energies upon which the blockchain can rely.
The most promising development is the rollout of an alternative algorithm used in the information authentication process (in tech speak this is based on the change from the ‘Proof of Work’ process to ‘Proof of Stake’ which mitigates the need for such energy dense programs to verify the data provided. This discussion has been underway since at least 2018 but given that China unilaterally banned crypto mining in the summer of 2021 because of its enormous energy costs and increasingly negative global press, the discussion has been dialled up a notch. As with almost every other business, scrutiny of greenhouse emissions is becoming part of blockchain’s social license to operate.
As with many initiatives in the sustainability space, the use of blockchain is new, somewhat untested and based on hopeful speculation rather than concrete results to date. However, it will remain important and part of the discussion for years to come.
For more on what is set to shape 2022, see our round up of 10 trends to look out for this year. And if you’re looking to make a start on understanding the full implications of your supply chain, try our guide to auditing your supply chain.