The UK Government's Office for Product Safety and Standards (OPSS) recently published a report on using distributed ledger technology for authenticating products in supply chains.
The report provides useful insights to product manufacturers and other stakeholders faced with the unprecedented complexity of global supply chains. It assesses whether blockchain could help overcome disruptions, delays, inefficiencies and fraud that can undermine the efficient management of supply chains.
What is distributed ledger technology?
Distributed ledger technologies are digital databases for storing and sharing information such as records of transactions, documents, identities and assets. Two key features of the technology are its decentralised architecture (information is stored and shared with all authorised entities) and cryptography (information can only be viewed by the intended recipient). Distributed ledger technologies are based on various platforms, blockchain being the best-known.
Verification of product provenance
Blockchain's main potential is its ability to bring disparate entities within a supply chain to a common, trusted network that facilitates information sharing and data accuracy. It could also:
- Enable smart contracts – automated transactions which reduce the need for establishing trust before entering into commercial relationships.
- Be combined with the Internet-of-Things (IoT) and radio-frequency identification (RFID) tags – sensor technologies can bring increased visibility into complex supply chains, including real-time tracking of product location and environmental conditions (e.g. temperature, humidity).
- Generate cryptographic audit trails – any attempt to tamper with the data will leave a record in the cryptographic audit trail and reduce the trust tax associated with traditional methods for managing shared processes.
Challenges with adoption
The report flags that industrial applications of blockchain in supply chain management are in proof-of-concept, prototype, or pilot stage. Further, the sector is not generating significant revenues yet. Some technology specialists expect a wider commercialisation and mass market reach from around 2022 onward, others fear it may never have commercial viability.
Other challenges raised include:
- Lack of understanding. The technology not being well understood by businesses, there are also reputation issues and misconceptions. The report findings suggest however there is increasing motivation and interest.
- Cost v benefit analysis. Unless companies already have a high-degree of technical competence, the costs of implementing the technology could be high and interfere with existing processes.
- Legal uncertainty. Regulatory regimes and legislation often lag behind technological progress and businesses could be exposed to ambiguity or legal vacuums. For example, it is unclear whether smart contracts – formulated in computer code rather than legal language – will also be legally enforceable. The transparency and immutability of data stored on blockchains can also give rise to data privacy concerns.
- Technical issues and security threats. These technology could be vulnerable to hacks from quantum computers and there are problems with different distributed ledger technology implementations working together.
- Resistance. Steps to improve the transparency of supply chains may face resistance from parties who benefit from the current opacity.
- Data inputs. The technology on its own does not overcome the problem of inputting incorrect or fraudulent data.
Blockchain has the potential to solve problems for tracking consumer products, including:
- Counterfeit prevention. Blockchain can track and authenticate products as well as immutably store records of asset ownership and authenticity to reduce transaction costs and build trust. Combining blockchain with secure tags, seals or sensors can provide a secure link between physical products and its digital identity for ensuring authenticity.
- Ethical & ecological sourcing. Increasingly, consumers want to know the production and distribution of products is ethical and sustainable. Blockchain can help track and verify the provenance of commodities and also address payment issues in developing countries.
- Intellectual property protection. With the emergence of new digital technologies, creators face disruption to their ownership rights, opaque compensation structures and multiple intermediaries. The ownership and functioning of digital identities for property can be controlled through smart contracts on the blockchain.
- Food and pharmaceutical safety and standards. Blockchain can help track a product downstream from farm to store as each network participant adds time-stamped transactions to a shared ledger whenever the product changes hands. The data could also include environmental and quality specifications recorded by sensors. Similarly, an end-to-end traceability system for pharmaceuticals can help ensure safety and quality of medicinal products.
The OPSS highlights the attractiveness of blockchain as a potential tool for overcoming supply chain management challenges by:
- Enabling more transparent and tamper-proof authentication of the provenance of consumer products;
- Enhancing trust and security of information; and
- Generating efficiency and innovation gains through faster and lower cost transactions.
The greatest potential appears to where blockchain is combined with IoT and other technology solutions such as electronic chips (e.g. RFID tags) to establish a secure link between the physical product and its digital identity and reduce the risk of incorrect user input or the substitution of an authentic product with a fake.
However, the OPSS tampers enthusiasm by noting there is a long way to go before the majority of industries can adopt blockchain as a tool for authenticating the provenance of goods in their supply chains.
The report can be found here.
While contributors to the report were cautious about the timescale for the adoption of the technology, and the challenges that must be overcome, the OPSS report underlines what an exciting prospect blockchain is for the products supply chain. The promise of a reliable secure audit trail for components could be revolutionary, not least when a product safety issue requires the identification of specific components. We'll be keeping a close eye on developments in this space and will post any updates on Productwise.
Originally published by Cooley, October 2020
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