How Blockchain Enables Supply Chain Transparency

The technology behind Bitcoin could help avoid supply chain transparency issues


Earlier this year, an Amnesty International report accused major technology giants including Apple, Samsung SDI, and Sony of using cobalt in their products that had been sourced from mines in the Democratic Republic of Congo that used child labor. All companies involved denied any knowledge of the practice, the same way that, for example, Nike did when it was found that their factories in Japan used child labor back in 1998. Such an excuse did not go down fantastically then, and it did not go down any better today. However, blockchain could provide a solution.

Whether or not the organizations involved are aware of malfeasances in their supply chain, it’s a PR disaster. Child labor is not the only thing companies need to be aware of. Ensuring that products are made sustainably is also vital, as is making sure that payments are not funding civil wars, genocides, terrorism, and the like. In the UK, 30% of consumers are concerned about issues regarding the origin of products, and the market for products of proven origin is growing.

It is also not just a company’s reputation that’s at stake. In Europe and the US, a raft of regulations including the European directive on non-financial reporting, the UK Modern Slavery Act, and the 2010 California Transparency in Supply Chains Act mean companies have to transparently disclose reliable information about their business footprint. These have led to a series of civil litigation suits, with consumers or workers using the legislation to launch legal actions against companies they accuse of making misleading public statements on their anti-slavery effort.

It is easy to say that technological advances should mean full transparency in the supply chain, but as technology has developed, so too has supply chain complexity, and globalization has made keeping track of all our business dealings progressively more difficult.

Blockchain is, essentially, a universal ledger that operates using a global peer-to-peer network. It uses an algorithmic consensus established by verification through the network to approve entries to records, which it uses to manage transactions through a distributed database of computers. These entries keep getting added to the so-called ‘chain’ of computer code. When one report is closed, it is locked, and advanced cryptography and the consensus method of transaction approval mean that the files are as impenetrable to hackers as is currently possible. Its main use has been in finance, where trust is imperative. Larry Summers, president emeritus at Harvard University, has even noted that it is ‘overwhelmingly likely’ that ‘blockchain will change finance forever’. Supply chains are equally reliant on trust, and the benefits of such a system are clear.

The technology is already in use in a number of supply chains, and establishing provenance of products is its most exciting application. Provenance is concerned with making supply chains more transparent provides all physical products with a record authenticating that a it is what it is supposed to, and came from where it was supposed to come from, which means the whole business footprint is auditable. It also enables this to be done anonymously. Many larger producers do not want to reveal provenance of their goods for fear of losing a competitive advantage. Blockchain allows information to be transferred in a trustworthy and anonymous way, essentially providing a trust network that allows information to cascade down the chain from raw material onwards, without revealing who people are.

Efforts to use a centralized supply chain have failed, and this is a far more effective way of ensuring transparency. Relying on one party creates an inherent bias and weakness in the system, while blockchain ensures a far greater level of authenticity. 

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