Refashioning Supply Chain Transparency: Will Blockchain Deliver?
A supply chain that is not transparent can lead to continued implementation of unsustainable and unethical business practices, which can undermine a company’s reputation and bottom line.
There are several traditional methods to ensure supply chain transparency. These methods include third-party certifications, testing, audits, chemical and product management systems, and entrusting a single organization. Each method offers its own set of benefits.
Third-party certifications, testing and audits are usually awarded or carried out by an independent third party. Organizations also conduct their own testing and audits, which give companies and consumers assurance that the company’s supply chains are transparent.
Chemical and product management systems help make the process of ensuring supply chain transparency faster and more convenient. A chemical supplier, for example, can register its business and products in a chemical and product management system, which can provide full transparency about the sustainability information of its products. To access this information, customers need simply to use the same chemical and product management system, rather than request written copies of their products’ sustainability information from the chemical supplier.
These methods also present some challenges. Third-party certifications, testing and audits are time- and resource-intensive. They are conducted at least once a year, which means companies have to regularly spend huge sums of money for independent third-party certifiers, as well as long periods of time preparing for tests and audits. In some instances, organizations may be persuaded to report false or misleading results. Chemical and product management systems can be costly and may require formal training before use.
What is the blockchain?
Some consider the blockchain a good alternative. Blockchain records information on a shared ledger or “block.” The “blocks” are then linked to each other with a cryptographic signature or "hash." All transactions that take place in a blockchain are recorded in complete detail, making it very easy for a blockchain’s users to maintain the integrity of a shared ledger. They can immediately identify any attempt to alter the information present in a blockchain.
Blockchain for a more transparent supply chain
Given the blockchain’s ability to store data and maintain data integrity, startups are now experimenting with blockchain to address the growing demand for supply chain transparency, creating blockchain-based solutions that help companies monitor the sustainability of their products and giving them the ability to easily identify and correct unsustainable practices in their supply chains.
Blockchain offers additional benefits as well:
Sensitive and confidential business information is protected – Blockchain allows users to anonymously post sensitive and confidential business information. It also gives users the option to turn a ledger into a public (permissionless) or a private (permissioned) one, allowing companies to post supply chain information in blockchain without exposing it to their competitors.
Stakeholders are asssured that data is fully auditable and immutable – In addition to providing complete information about every transaction that takes place in it, permissioned ledgers do not immediately allow the alteration of the information stored in them. Before new data can be added to a permissioned ledger, the ledger’s users must first come to a consensus, which will then allow the ledger to be altered. This procedure ensures the accuracy of the data posted in the blockchain, promoting stakeholder trust in the process.
Despite these benefits, startups are still encountering challenges in commercializing blockchain:
Decentralized technology – Blockchain is a decentralized form of technology, eliminating many forms of middlemen and allowing direct transactions between people or organizations. As a result, blockchain can be faster and more cost-effective compared with some third-party certifications, testing, audits and audit systems that rely on entrusting a single organization. Users may prefer blockchain to remain decentralized and open source and turn down paid versions of the blockchain as a result. For enterprise software, the dichotomy between the decentralized ownership and successful commercialization of blockchain data is innate and this has been creating some obvious barriers to investment for many startups in the field.
Impact to NGOs – Blockchain is not well-suited for some non-governmental organizations (NGOs). Small NGOs, for example, may encounter difficulty finding tech-savvy individuals who can train them in using blockchain. In addition, blockchain is still considered an emerging, unestablished technology. Most organizations still consider it a high-risk endeavor, and are opting to hold and wait, rather than trying to make short-term gains and take first mover advantage. As a result, some NGOs may wait for it to become more established before they adopt it.
It is too early to determine the extent to which blockchain will transform supply chain transparency, which will depend largely on the future demand for greater transparency. If more consumers call for better transparency in the future, the need for a tool to help accomplish this goal more efficiently, such as the blockchain, is imperative.
Ben Wilde is director for the UK at ADEC Innovations, an impact investing company that designs and develops a diverse technology portfolio of Environmental, Social and Governance (ESG) solutions. A business and economics graduate with close to a decade of experience in the data and document management industry, Wilde leads the design and delivery of technology solutions aimed towards managing large volumes of corporate responsibility and operations data.