Blockchain in Supply Chain: Article 4
Using blockchain to trace products is especially promising for certain industries, including the food, fashion and regulated products industries.
Supply chain traceability is crucial in many industries, but arguably none more so than the food industry, where concerns about contamination, intentional adulteration, and bioterrorism are ever-present.
The most promising applications in the food industry involve conducting product recalls and ensuring consumer satisfaction for perishable products.
1. Food Recalls and Market Withdrawals
Some of the keys to successfully stopping outbreaks of foodborne illnesses through food traceability protocols include the accuracy and speed of obtaining tracking information and the inability of third parties to manipulate that tracking information. Companies that attain top recall accuracy and speed by implementing investigation improvements can reduce recall costs, loss of profits, and reputational damage, and in the case of food recalls, save lives. Enter blockchain.
In response to a series of devastating E.coli outbreaks in romaine lettuce as well as salmonella-laced eggs and breakfast cereal in 2018, Walmart decided to leverage blockchain to increase the safety of its food supply.1 Walmart describes the food supply industry as one that frequently employs a paper-based tracking system for supply chain, which can lead to delays and dead-ends in tracking contaminated food.2 Walmart invited its suppliers to ditch the paper trail and join Walmart's blockchain program.
Today, Walmart can track a head of lettuce from a store all the way back to the farm where the lettuce was cultivated by the farmer in just seconds.3 In fact, Walmart tracks over 500 food items using blockchain, and, in 2020, was able to provide FDA investigators with detailed information on the original source of a potential contamination within an hour, a stunning reduction from the seven days that this process used to take.4 This year, Walmart arranged with U.S. Customs and Border Protection to pilot a program to track imported foods.5
As the use of blockchain becomes more prevalent, retailers will increase their ability to determine exactly which batch of products to recall when an issue arises. As a result, in its supply agreements with retailers and distributors, a manufacturer may want to address the scope of recall expenses and chargebacks differently, as opposed to recalls without the use of blockchain where the parties anticipate a lack of clarity around which batches of products to recall.
2. Perishable Products
The journey of a perishable product from the country of origin to the final destination can be long and difficult to track. As a result, some companies turn to blockchain to trace products in order to ensure end users receive a responsibly-sourced product with an ample shelf life.
IBM Food Trust is an example of a hybrid blockchain solution that allows supply chain partners to securely share tracking information related to perishable food supplies.6 IBM Food Trust aims to improve food safety and freshness, identify supply chain inefficiencies, minimize waste, improve brand reputation, and ultimately add value to a company's bottom line. European grocery chain, Carrefour, uses IBM Food Trust to trace chickens from farm to grocery store. In 2019, Carrefour reported that its blockchain-tracked chicken outperformed other chicken in sales growth.7
Carrefour credits blockchain with sales increases because blockchain reassures customers of the quality of items they buy and assists them with avoiding products with genetically modified organisms, antibiotics or pesticides.8 In fact, Carrefour tags certain products, such as tomatoes, oranges, fresh micro-filtered milk, and Rocamadour cheese, with QR codes that allow consumers to learn where their food originated by taking a picture of the QR code with their smartphones.9
The end-to-end tracking that blockchain provides could be particularly beneficial for the clothing supply chain. Clothing supply chains often look less like a straight line and more like a web, because these supply chains typically span many countries across the globe and contain multiple raw material sources, multiple factories that process the raw materials, multiple subcontracted clothing manufacturers, and a complex distribution network. As a result, clothing manufacturers have difficulties determining where each part of their product originates. Determining responsibility for a batch of defective buttons in a line of dress shirts could be a Sisyphean task without blockchain technology.
Complete oversight over production of fashion products via a blockchain solution can assist companies in determining exactly where along the supply chain a product was damaged by allowing companies to track components back to the original supplier. In the event of a recall, blockchain technology can assist by pinpointing which defective components were incorporated into which final products so that manufacturers can issue recalls quickly and precisely.
Another benefit of using blockchain for global supply chain management is the ability to manage and track timing of raw materials and sub-components in the production process. Supply chain management systems may be configured to monitor and generate notifications and scheduling updates based on updates to the blockchain to help manufacturers and distributors with production and distribution timing and cost projections.
Tracing products through the supply chain can help companies comply with applicable laws. For instance, in November 2013, Congress enacted the Drug Quality and Security Act, which requires members of a drug supply chain to track and trace certain prescription drugs.10 On May 4, 2020, Merck reported that it, IBM, KPMG, and Walmart had completed an FDA pilot program designed to evaluate a consortium blockchain's usefulness in protecting pharmaceutical product integrity. According to Merck, the pilot was a success, and pharmaceutical supply chains can use blockchain to help meet the FDA's tracking and tracing requirements.11
In addition, the Bioterrorism Act of 2002 and the Food Safety Modernization Act of 2011 require the traceability of food. Manufacturers may find blockchain solutions helpful to meet these traceability requirements as well.
Tracing Challenges and Blockchain Solutions
Unintegrated Legacy Digital Systems. Even if a company already uses a digital system for tracking products, that system may not integrate with different digital systems used by other members of the applicable supply chain. Helpfully, blockchain can lie on top of these enterprise applications and provide the connection between them. Blockchain can integrate enterprise resource planning systems, customer relationship management systems, warehouse management systems, and manufacturing execution systems to increase transparency of the supply chain and reduce the cost of tracking products and running reports.12
Inconsistent and Duplicative Records. Because companies in a supply chain tend to keep their own records using centralized databases, these companies frequently have duplicate copies of, or inconsistent records relating to, the same transaction. In contrast, blockchain stores information on an immutable, decentralized ledger accessible by all members of the supply chain. This structure allows all members of the supply chain to have eyes on the same data and to have confidence that the data is accurate. Ultimately, companies can use blockchain to reduce costs associated with reconciling records across the supply chain.
Root Cause Determinations. In order to identify product shortages and defects, companies typically audit supply chain partners. However, while auditing helps determine if a problem exists, it is less adept at determining the root cause of that problem. For instance, an audit of inventory held by a warehouse could reveal missing product, but the audit may not reveal the reason the product went missing. Did a stocker misplace the product after it arrived at the warehouse? Did a warehouse employee make an error in tracking product quantities?
Having all members of a supply chain participate in a blockchain solution would assist in the determination of root cause because the blockchain process affixes a timestamp to every transaction entered onto the blockchain, and the transaction history is immutable. Blockchain technology can automatically provide visibility into all stages of the supply chain, allowing for decreases in the costs of labor-intensive in-person auditing.
Using IoT to Overcome Human Error and Misconduct
One of the limitations of blockchain is that, while the data on the blockchain is secure, such data is not necessarily free of human error or misconduct. That is, when a human inputs data onto the blockchain, he or she may accidentally or maliciously enter incorrect information. Using the internet of things ("IoT") to link the data derived from the physical world directly to the digital world reduces the risk of incorrect data caused by human intervention because no human inputs data on to the blockchain.
IoT refers to the network of real world physical objects connected to the internet via sensors, software, and other technologies embedded or otherwise connected to those physical objects. IoT transfers data related to the physical objects over the internet, and therefore perfectly complements blockchain when it comes to tracing products.
One potential use of IoT for tracing is to attach smart tags to materials as they travel along the supply chain to ensure traceability of such materials after processing or after combination with other materials.
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1 Smith, Matt, In Wake of Romaine E. coli Scare, Walmart Deploys Blockchain to Track Leafy Greens, Walmart.
3 Smith, Matt and Kane Webb, A Valentine Meal with Food Safety and Sustainability at its Heart, Walmart (February 9, 2021).
4 Blockchain 50 2021, Forbes (February 2, 2021).
5 Supra note 4.
7 The Food on Your Holiday Table May Have Been Verified by Blockchain, Forbes (December 23, 2019).
8 Thomasson, Emma, Carrefour says Blockchain Tracking Boosting Sales of Some Products, Reuters (June 3, 2019).
9 Carrefour Applies Blockchain Technology to its Eight Product – Rocamadour, the First Carrefour Quality Line Cheese to Use It, Carrefour (April 26, 2019).
10 Drug Supply Chain Security Act (DSCSA), U. S. Food & Drug Administration.
12 Banerjee, Arnab, Integrating Blockchain with ERP for a Transparent Supply Chain, Infosys (2018).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.