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Feb. 8, 2017

Blockchain Technology Increasingly Seen as Important Tool in Green Supply Chain, Social Responsibilty Practices


Walmart Hopes to Improve Foods Recall Processes, Identify Food Supply Chain Issues Sooner Using the Technology; Less Clear if Can Help Companies ID Suppliers Violating Rules for Vendors

By The Green Supply Chain Editorial Staff

Despite much progress in recent years, many supply chains, including the global food and apparel supply chains, reamin notoriously difficult to control and ensure sourcing across multiple tiers and complex relationships that are hard to shed light on.

However, the somwhat myserious technology called blockchain - which most know if at all as the foundation of the bitcoin curency - is increasingly seen as a new and exciting approach to increasing supply chain visibility and transparency in sourcing, and helping companies to meet standards they have set for supply management and to avoid embarrassing troubles in their extended supply chains.

The Green Supply Chain Says:
Applications such as the one Walmart is working on to improve recall processes and perhaps anticipate looming spoilage issues make sense, under the assumption that extended supply chain players will willingly partipate over time.

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For example, there is a lot of focus now on using blockchain for tracing sources of tuna across the globe in the hopes of reducing the level of slave labor used by some tuna sources, as well as unsustainable fishing practices.

There has also been news that Walmart is testing the technology to improve the process for product recalls and more in its food business.

What is a blockchain?

As simple as we can make it, a blockchain is a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of users. It uses cryptography to allow each participant on the network to manipulate the ledger in a secure way without the need for a central managing authority, even across say disparate companies.

Once a block of data is recorded on the blockchain ledger, it's extremely difficult to change or remove. When someone wants to add to it, participants in the network - all of which have copies of the existing blockchain - run special algorithms to evaluate and verify the proposed transaction. If a majority of nodes agree that the transaction looks valid - for example, that identifying information matches the blockchain's history - then the new transaction will be approved and a new block added to the chain.

This setup means the entire network, rather than a central authority, is responsible for ensuring the validity of each transaction.

Each computer or node in a particular network generally maintains a copy of the entire ledger, and works with other nodes to maintain the ledger's consistency. That creates fault tolerance, so if one node disappears or goes down, all is not lost. The network protocol governs how those nodes communicate with one another.

After a transaction is executed on a node, the result is a proposed modification of the ledger's data. Before committing the answers to a node's ledger, the answer is validated locally with other nodes in the network. Approved transactions are packaged into a block and re-distributed to all the nodes in the network, which re-validate to ensure their records match. Typical transactions can execute in milliseconds.

Walmart is testing blockchain-based tracking of two products currently: a packaged produce item in the US, and pork in China. The tests have involved thousands of packages shipped to multiple stores.

Of course, recalls are a big problem in the food and grocery sector, a challenge made even greater by the increasingly global nature of the food supply chain. Because of uncertainty around what products in what batches really came from where, manufacturers and retailers commonly take all of a given SKU - say a bag of lettuce - off the shelves when really only a portion of the total inventory needed to be recalled. That adds enormously to the total cost of the recall, both in financial terms as well in some cases relative to brand equity.

With the blockchain, Walmart may be able to obtain crucial data rolled up to a single source, including all the suppliers involved, details on how and where food was grown and who inspected it, with information relative to a pallet (which generally has a "license plate" bar code on it) down to the individual package.

The goal is also to improve food safety by acting more proactively if an item may have spoiled or the source of something is shown to be compromised.

Think of it as being in part like a shelf-life indicator that also can include information about the farm where the vegetable or pig originated, with data about their operating practices. Radio frequency identification tags, sensors and bar codesare among the methods used to capture the needed data.

"It gives [Walmart] an ability to have an accounting from origin to completion," Marshal Cohen, an analyst at researcher NPD Group, recently noted. "If there's an issue with an outbreak of E. coli, this gives them an ability to immediately find where it came from. That's the difference between days and minutes."

Frank Yiannas, vice president of food safety at Walmart, added last fall that "With blockchain, you can do strategic removals, and let consumers and companies have confidence. We believe that enhanced traceability is good for other aspects of the food systems. We hope you could capture other important attributes that would inform decisions around food flows, and even get more efficient at it."

In other words, the blockchain data may not only improve recall processes, it may allow analysis of when there are delays in the flow of goods across the supply chain to the store shelf that can be reduced or eliminated.

If the tests are successful, Walmart will expand the use of a blockchain to multiple food items in both the US and China, Yiannis has said.

For the test, Walmart is using blockchain technology co-developed with IBM. In October, the company opened the Walmart Food Safety Collaboration Center in Beijing. It also announced, with IBM and Tsinghua University, a collaboration using the blockchain to improve the way food is tracked, transported and sold to Chinese consumers.

As noted in a recent report by GreenBiz, blockchain also could make it easier to automate supply chain certification processes. For example, blockchain technology is central to a software application designed by start-up Everledger to verify the lineage of rough-cut diamonds. The system acts to digitize something called the Kimberley Process, a certification created to curb the sale of gemstones mined within conflict zones such as Sierra Leone.

The electronic certifications travel along with the flow of diamonds and can be combined with existing labeling methods, such as use of bar codes.

But is not going to be easy. Everledger CEO Leanne Kemp notes that participants in a given value chain need to agree on the terms of a transaction or a contract. "What I encourage companies to do is understand the problem they need to solve," Kemp says. "This requires the cooperation of multiple participants."

However, the upside, the GreenBiz report says is that: "Once the rules are in place, blockchain systems could automate many processes sustainability professionals struggle to manage manually, enabling them to run far more efficiently."

Applications such as the one Walmart is working on to improve recall processes and perhaps anticipate looming spoilage issues make sense, under the assumption that extended supply chain players will willingly partipate over time and accurately report their data.

More problematic are things such as labor and sustainability issues in the tuna supply chain. or murky subcontracting practices by suppliers in the apparel industy supply chain, where the bad guys have an incentive to provide innacurate information.

Can a blockchain somehow identify a retail apparel supplier that sub-contracts half the production order to a non-approved vendor, perhaps running a dangerous or sweatshop operation, which then ships that part of the order to the approved supplier for delivery to the retailer?

The answer would seem to be No, but we arein the early stages of blockchaining. Companies concerned about sourcing visibility might wan to start exploring the possibilities of blockchain technology, though expects current or emerging industry associations will try to lead the way here as well, which seems logical.


Have you investigated blocjchain technology? Can it play a role in responsibles sourcing, or recall processes? Let us know your thoughts at the Feedback button below.

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