How Blockchain Can Make Supply Chains More Humane

(Art by iStock/ismagilov)

Blockchain technologies— incorruptible digital ledgers that can record just about anything—are being deployed to address a growing number of humanitarian problems, namely those that relate to the concept of human rights due diligence. The capacity for blockchain to drive social innovation by facilitating the ethical production and sourcing of goods is just beginning to be recognized. It should be of interest to all supply chain decision makers, as they are increasingly called upon to answer for upstream activities that lie outside their control and expertise

In the absence of blockchain solutions, activities occurring within a supply chain can be difficult to trace beyond the first two levels of suppliers, rendering comprehensive monitoring impractical. In conflict mineral chains, for example, seven to eight layers can exist between the mine and the consumer, and the gap can reach 50 layers for electronic components. As a result, the companies themselves are often the last to know about illicit activities in their supply chains, such as the use of conflict minerals or child, forced, or indentured labor. Blockchains address these difficulties by making data easily verifiable, resistant to alteration, and instantly available to anyone within the network.

What Is Blockchain?

Blockchain is a decentralized database whose records are stored in “blocks” that are continuously maintained and validated by a computer network. Each computer in the network, or “node,” contains a copy of the blockchain and performs real-time validation of changes to the blockchain.

Blockchains are essentially tamperproof because they can only be modified through the addition of new blocks; pre-existing blocks cannot be edited, adjusted, or changed. This is because a unique hash code is calculated and stored in every new block, and this hash is also encoded in the next block of the chain, creating a shared link between the blocks. Any change to the contents of a block creates a new hash in that block and breaks the link. The chain can then only be recreated if the hash codes for all the blocks following the originally altered block are recalculated, a task that requires an enormous amount of computing power.

How Blockchain Can Improve Chain of Custody

If concerns arise about a commercial good, the vendor must trace the supply chain to identify possible issues with the chain of custody, which refers to the complete or unbroken path a finished good takes, from the first stage in the supply chain to delivery to the customer.

Blockchain technologies also work well with internet of things (IoT) applications, allowing companies to digitally track goods in real time anywhere in the supply chain.

Because each record created on the blockchain must be verified by every node in the network, unauthorized changes to a copy of the blockchain are identified in real-time by the rest of the network, providing a level of security not afforded by typical centralized databases. Any attempt to alter a record will immediately break the chain only at that specific node, alerting the entire blockchain to the aberrant version of the blockchain. And as soon as a transaction is accepted in the blockchain, an update is transmitted to all nodes in the network, allowing for the immediate tracking of goods and updates of records across multiple locations. Blockchains thus provide companies with an immutable, self-policing chain of custody for products passing through the supply chain, helping identify prohibited activities and create effective supply-chain governance.

Blockchain technologies also work well with internet of things (IoT) applications, allowing companies to digitally track goods in real time anywhere in the supply chain. A blockchain system that can trace products in this manner is able to produce a comprehensive report on the origin of any product in seconds, not days. Digital tags leverage the interoperability of blockchain technologies with the IoT. By combining digital networks with hardware such as radio-frequency identification tags, firms can authenticate data entered onto the blockchain and prevent corruption as a result of error or fraud. These solutions can expedite the auditing of information uploaded onto a blockchain to ensure that the “single truth” shared between blockchain participants is not, in fact, a shared falsification.

To illustrate the application of blockchain in a real-world context, consider how it can be used in the cobalt mining industry, which has been the subject of major human rights concerns. Ethically mined cobalt can be placed in a sealed bag after extraction, and each bag marked with a digital tag that the stakeholder uploads onto the blockchain with a mobile device. The blockchain records the date, time, location, and other relevant information to verify the origin of the cobalt, creating a link between the physical good and its digital identity. If every node of the network then validates the transaction as authentic (it satisfies all required criteria for storage on the blockchain), the record is stored to a block. The blockchain can repeat this process with every subsequent transaction: at the market where the cobalt is sold to a supplier, when the product reaches the smelter, and during each step of the manufacturing process until the cobalt is incorporated into a finished product. Each link in the supply chain thereby becomes part of an immutable record, viewable and certifiable by any party with access to the blockchain.

Who Is Using Blockchain?

Many organizations use blockchain to expedite the distribution of humanitarian aid and ensure that products are sustainably and responsibly sourced:

• The World Food Programme’s Building Blocks program, begun in 2017, was one of the first implementations of blockchain for humanitarian aid. It facilitates the distribution of cash-for-food aid to Syrian refugees in Jordan by allowing them to pay for groceries with an iris scan rather than cash or credit card.
• In 2017, De Beers announced its investment in a blockchain-driven "diamond traceability platform." It will be the first digital platform to track a diamond across the entire value chain.
• In 2017, Unilever, supermarket chain Sainsbury, and packaging company Sappi teamed up with several technology startups, as well as financial services companies BNP Paribas, Barclays, and Standard Chartered, to develop a blockchain system to track and verify contracts for up to 10,000 tea farmers in Malawi. The initiative aims to give preferential pricing to farmers who, by using sustainability-oriented methods, increase harvests without using more land.
• In 2018, Coca-Cola and the United States State Department announced a global project to combat forced labor by creating a secure registry for workers and their contracts using blockchain’s validation and digital notary capabilities.
• In 2018, Oxfam held the official launch for its blockchain project, BlocRice. It promotes the use of smart contracts to enhance the negotiating power of small-scale rice farmers in Cambodia and digitally connect everyone in the supply chain.

Blockchain's Limits

Implementation of blockchain technologies faces unique obstacles. One is technical capacity, such as the availability of knowledgeable personnel and decentralized record keeping. In addition, the widespread distribution of information through blockchain can in some instances have competitive implications for parties in a supply chain, so they may be reluctant to share some data. Moreover, lack of standardization in documentation among supply chains can lead to higher administrative and governance costs and increased risk of incorrect data entry.

Finally, the effectiveness of supply chain compliance audits often turns on the accuracy of certifications provided by suppliers and subcontractors, who may be unwilling to give a candid account of the provenance of raw materials or unaware that they should. They might also hesitate to estimate the likelihood that illicit activities have caused vulnerabilities in the supply chain. However, as long as a good’s initial point of entry into the blockchain is carefully vetted and authenticated—for example, the cobalt has been certified as non-conflict before being added to the blockchain—any later attempt to fraudulently alter the blockchain would be orders of magnitude more difficult than tampering with a traditional database.

Blockchain's Promise

The power of a properly designed, transparent, and immutable digital infrastructure based on blockchain shouldn't be underestimated. With it, supply chains can become more ethical, humane, and sustainable. Although the use of blockchain remains embryonic, its potential is becoming clearer as it plays an increasingly important role in correcting human rights abuses and furthering philanthropic objectives.

Read more stories by Dean Pinkert, James Ton-that & Ravi Soopramanien.