Blockchain: Unlocking Potential for Supply Chains
By: Nicolas Heath
Tags: Sustainability, Technology, Supply Chain, Blockchain, Transparency

Originally published in SustainAbility’s Issue 22 of Radar.

As a system that can track products from source to shelf, blockchain can be used to improve supply chain transparency. Over the past five years, numerous uses have begun to emerge. As a means of tackling conflict diamonds, IBM’s TrustChain collaboration has united actors across the value chain to track and authenticate diamonds, precious metals and jewellery to guarantee their origin. In the automotive sector, Volkswagen and Minespider recently announced a pilot project to achieve end-to-end transparency in the global lead supply chain. Meanwhile, Bext360 has been working to ensure that coffee farmers get a fair price, paid instantly, for their beans. Across the numerous pilot projects of the past decade, blockchain is showing enormous potential for securing high-risk commodities like conflict minerals, wood, cotton and coffee.

Across the numerous pilot projects of the past decade, blockchain is showing enormous potential for securing high-risk commodities like conflict minerals, wood, cotton and coffee.

Yet companies are still failing to rollout scalable blockchain solutions. Michael Casey, co-author of The Truth Machine, notes that “[a]cross the board, actual productive use of blockchain for day-to-day business operations is still extremely thin.” Although it is widely acknowledged that blockchain could be transformative for supply chains, it is clear that there are critical barriers facing its meaningful deployment. Our analysis of over 30 pilot projects revealed three core themes that need to be addressed before we can see blockchain’s potential unlocked.

Putting the cart before the horse

Provided that it has some sort of digital or physical identifier, most products passing through a supply chain can be registered on a blockchain. However, in order to set up a blockchain, companies need to have clear visibility and control over all tiers of their suppliers. Every farmer, distributor, packager, and other supply chain actor must be known by the company and willing to participate. It is unsurprising that companies like Starbucks or Walmart, who have both the purchasing power and sophistication of supply chain management to fully engage their supply chains, have been the first to pilot blockchain solutions.

For most companies, the reality is that supply chains remain murky. For many companies in the coffee sector for example, coffee is bought indirectly from intermediaries who create economies of scale but give buyers little visibility and control over from where products are sourced. Deploying a technology like blockchain will require companies to begin engaging more deeply and directly with their suppliers.

Creating pathways to access

Even with a clear view of the supply chain, implementation will still be impeded by financial barriers. Especially for commodity suppliers like those in coffee supply chains, technological solutions are prohibitively costly. Twenty-five million smallholder farmers produce 80% of the world’s coffee, yet on average they make less than $2 per day. Companies will need to play a key role in helping their suppliers access the technology, internet connections and digital literacy required for adoption. Some companies are already beginning to tackle this issue. For example GrainChain, a blockchain powered commodities trading platform, has helped farmers access their tools through microloans that can be issued by banks to online digital wallets held by the growers.

Companies will need to play a key role in helping their suppliers access the technology, internet connections and digital literacy required for adoption.

Supporting suppliers through this process will require long-term and engaged relationships from both parties. The benefits of this will be felt by both the business and their suppliers, as security of demand will help suppliers achieve the financial stability needed to improve their livelihoods.

From competitive to collaborative advantage

Inevitably, the burden of equipping entire supply chains with blockchain-ready technologies is prohibitively expensive for any one company. Yet most companies continue to take a siloed approach that aims at building competitive advantage as much as transparency.

Given that many businesses share significant numbers of suppliers with their competitors, there is a strong case for collaboration in blockchain deployment. The IBM-Maersk shipping consortium has already established the TradeLens platform to harness these synergies in the logistics sector. However, there is a need for greater cooperation between companies in other sectors to equip their mutual supply chains with the right tools for transparency.The results could be transformative for the uptake of blockchain systems given that, as in all networks, the utility of the system is directly proportional to its scale.

There is a need for greater cooperation between companies in other sectors to equip their mutual supply chains with the right tools for transparency.

These three themes underpin the gap between the buzz that blockchain has created and its effective real-world applications. As we explored in issue 16 of Radar (Blockchain, Foundational not Disruptive), blockchain is a tool rather than a solution. Speaking recently with the World Economic Forum, Catherine Mulligan of GovTech Lab and UCL’s DataNet emphasised the importance of blockchain not being viewed as an end in itself but instead “engaging with other problems around the edges before we turn to digital technologies.” In supply chains where defining provenance is a critical issue, the irrefutable transparency that blockchain offers appears to be a genuinely effective use case. High-risk commodities will be a natural place to focus efforts as blockchain continues to develop. Companies that are faced with these issues now need to take a more considered approach to its implementation to unlock its potential. They will need to work harder to understand their supply chains and collaboratively support them in transitioning to the digital economy. If they can do this, we will begin to unlock the sustainability benefits that blockchain can offer.