Technology to Advance Responsible Sourcing Blockchain in Supply Chains

By Wanda Lopuch

Summary

The challenges of implementing responsible sourcing are daunting, however, recently companies have begun pilot projects looking at one particular technology that may provide a useful tool – blockchain. A simple way to understand blockchain is to think of it as a digital ledger of transactions. It is like a spreadsheet, database or document that is duplicated thousands of times across a network (decentralized), regularly updated as changes occur anywhere (shared), and since it is decentralized, very difficult to hack or corrupt in any way. In this article we examine challenges of responsible sourcing and examples of organizations stepping up to the challenges.

 

Implementing Responsible Sourcing Is Everything but Simple.   

 

Companies across the world are making commitments to sustainable sourcing, either following consumer spending trends, or being pushed by investors, or driven by their internal value systems.  Whatever the motivation is, sustainability, along with automation and AI are those megatrends that are redefining business of the 21st century.  And these megatrends converge in an interesting way, bringing much needed innovation into supply chains.

 

The 2013 tragedy of a collapse of Rona Plaza in Bangladesh, which claimed 1100 lives, became a tipping point for the implementation of stronger social and labor policies in supply chains. Investigations conducted by global buyers uncovered numerous violations of the code of conduct of suppliers.  It became obvious that self-reporting or check-list based audits were proven to be highly ineffective and inadequate.

 

As the Rona Plaza tragedy unleashed significant change in consumers attitudes, especially European consumers who demanded transparency and accountability from global brands, companies such as H&M, Zara and Carrefour realized that they must assume responsibility for enforcing a code of conduct for suppliers. Operationally, this goal translated into changes in supplier management programs; changes such as in-person audits conducted by internal employees or third-party certification agencies, that replaced self-reporting.  Enforcing responsibility in supply chains became costly to monitor and manage.

 

Even if an enterprise has been fully and strategically committed to sustainable business strategy, executing on such commitments as fair-trade products, 100% sustainable sourcing, fair labor practices, elimination of child labor and forced labor, have proven to be neither straightforward, nor inexpensive.  

 

Supply chains are complex organizations vertically and horizontally. Horizontally, supply chains cross geo-political and cultural boundaries, are governed by local laws, customs and cultures.  Vertically, supply chains are multilayered organizations, with every layer carrying different risk profiles and management challenges – and opportunities.

 

Mars Co, the owner of global brands in food, chocolate and veterinary products, is committed to five principles, which guide the company’s sustainable growth strategies: quality, responsibility, mutuality, efficiency and freedom.  In an assessment of the company impact on its suppliers, Mars has mapped 7 layers of its global suppliers pool, reaching out to one million small farmers, whose lives were impacted by the company. Needless to say, 7 layers is not a typical depth for mapping a typical supply chain.  With existing tools to manage supply chains, implementing transparency and accountability carries a cost, or an investment, which, independently of financial classification, is not negligible.

 

Technology to the Rescue!

 

In just about every aspect of our lives, technology dazzles us with exponential growth in capabilities and change at the speed of light. Automation, robotics, cognitive learning and AI are the trends that define and redefine business, including the business of managing supply chains.  The cost of such tools, as predicted by Moore’s law, is decreasing rapidly. Fully automated fulfillment centers are managed by smart systems hosted on small laptops; inexpensive drones are delivering packages to our doorsteps and are surveying vast areas of the rainforest for illegal deforestations; other drones are sending aerial pictures of crops damaged by diseases, insects or natural disasters.  My friendly Alexa is re-ordering organic fair-trade tea while I am searching the internet for more organic products.

 

Wait, wait…. Is this tea really organic? Really fair-trade? How organic? How Fair-trade?

 

These are the questions that are asked not only by consumers, but by supply chain managers; questions about the origin of coffee, tea, about cotton, palm oil, minerals…  Today, as much as brand managers want to be responsible and accountable to customers and stakeholders, the answers are not simple.

 

Promises of the Blockchain

 

Imagine the cup of coffee in your hand – organic and fair-trade coffee, or at least this is what you requested and paid for. It is warm, fragrant, and as you are enjoying it, you can actually access the information about what exactly is in your cup: when the coffee was harvested, where exactly and by whom; were the coffee growers treated fairly, were they paid fairly, were the beans grown in organic soil, was the cultivation sustainable….

And imagine getting this information at a reasonable cost while you are sipping and enjoying your coffee.  Welcome to the world of blockchain in supply chains.

 

What Is Blockchain?  What It Is Not?

 

Perceived as transformational by some, or as a hype by others, blockchain technology brings much excitement and expectations into sourcing. From eliminating forced labor to reducing costs, to shorten delivery time.  By some accounts, it can do everything you ask for, except actually serving you your cup of coffee in the morning.

 

Technically, blockchain an open-ledger digital platform based on trust and transparency and guarded by sophisticated algorithms.  Although blockchain is the platform for the much discussed cryptocurrency, such as Bitcoin or Ethereum, blockchain is an open ledger methodology that can be adopted to a variety of applications that go beyond tokenization and cryptocurrency.

 

Flirting with the Blockchain in Supply Chains

 

Consumer product companies have been experimenting with blockchain applications for some time. These applications range from improving safety, security, transparency, verifying certifications and carbon accounting to implementing the principles of responsible sourcing such as eliminating slavery, human trafficking, and child labor, and the list is growing.

 

Governments and civic organizations have been considering and piloting blockchain for example, for safe and secure voting platforms, civic information platforms, tax collection and local exchanges.

 

Food Safety

 

In the Summer of 2017, a group of the10 largest food and retail companies including Nestle, Tyson Food and Unilever, joined an IBM project to study how blockchain can help track food supply chains and improve safety. IBM is active in looking into other segments including the green and renewable energy sector.  

 

Organic Certifications and Standards

 

In December 2017 Unilever announced that it was embarking on a one-year pilot program, which utilizes blockchain to track, monitor and incentivize suppliers of tea in Malawi to implement more sustainable tea farming. Up to 10,000 farmers in Malawi can join the pilot to demonstrate their fair and sustainable production. Their participation will result in their being rewarded with financial incentives such as access to credit, or preferential loans. The rewards are supported by the financial institutions participating in the projects:  BNP Paribas, Barclays’ and Standard Charter. These institutions are looking to expand their portfolio of offerings based on social and environmental outcomes and impacts. Blockchain will provide reliable information for the risk assessment.

 

Unilever’s sustainable growth strategy is driving its interest in the project. “Unilever has committed to sourcing 100 per cent of its raw agricultural materials sustainably – declared Unilever’s Head of Sustainable Business and Chief Marketing Officer. Blockchain “will help us to increase sustainable sourcing, enhance the livelihoods of the smallholder farmers we work with around the world, and help to make sustainable agriculture mainstream.  

 

Eliminating Slavery and Forced Labor

 

Coca Cola has been experimenting with multiple blockchain projects for over a year.  One such application is in the area of labor laws and contracts.

 

As a global food and beverage company, Coca Cola is well acquainted with the challenges of preventing forced labor and child labor, especially in their South East Asian supply/distribution chains.  According to ILOs (International Labor Organization) estimates, approximately 25 million people worldwide work in forced labor conditions. Coca Cola and other global food and beverage companies are being pressured to address the forced labor issues. As a result of a rather critical “Know The Chain” report, Coca Cola committed to study child labor, forced labor, and land rights for its sugar supply chains in 28 countries by 2020.

 

The US Department of State (DOS) Office to Monitor and Combat Trafficking of Persons, operates under the US Senate mandate to end human trafficking. The 2015 Trafficking in Persons Report has addressed, for the first time, eliminating various forms of human slavery from supply chains. Executive Order 13627 specifies that the US government, in its $500 billion/year procurement process, will begin to enforce these regulations.

 

In March 2018 Coca Cola and the U.S. State Department, along with three other entities announced launching a project using blockchain’s digital ledger technology to create a secure registry for workers that will help fight the use of forced labor worldwide.  

 

Brent Wilton, Coca Cola’s Global Head of Workplace Rights, said: “We are partnering with the pilot of this project to further increase transparency and efficiency of the verification process related to labor policies within our supply chain.”

 

The goal of this project is bold: eliminating forced labor worldwide from global supply chains.  The challenges are equally enormous, starting at the inception stage: even if blockchain offers a safe platform to enter contracts, not every person will have an access to the platform, as most workers in developing countries operate with simple cell phones, and not computers. So, the power is being shifted again to intermediaries; will the transparency suffer?  Another challenge relates to the execution phase of the contracts: even if the blockchain open ledger transparency can persuade companies and governments to respect contracts, it can’t make them respect those contracts.

 

Transparency has its unprecedented and transformational power – argue defenders of the utilizing blockchain methodology to combat human trafficking.

 

Blockchain in Supply Chains – Hype or Transformational?

 

As blockchain enters new territories, expectations are high and keep rising.  Will blockchain deliver on them? Or how much will it be able to deliver?

As we are still in the infancy stage, we have much to learn, about the technology itself, and how this technology can potentially advance the social and environmental impact of global supply chains.

 

In this high-stake pursuit for implementation of responsible sourcing using the blockchain platform, this author is confident with serving herself truly organic and truly fair-trade coffee.

 

It tastes … promising.