Why blockchain is vital to managing risk in the supply chain

Blockchain technology is becoming an ever-more powerful tool in the field of supply chain risk management, bringing resilience and robustness to organisations.

Blockchain works so well in this regard because it enables the peer-to-peer transfer of value – be it be assets, identity or information – without the need for a central intermediary. 

One of the leading exponents of blockchain solutions in supply chain is  

Paul Brody, who is Global Blockchain Leader at EY. Brody oversees EY’s blockchain strategy and solutions, and is a prominent advocate for public blockchains and privacy technology.

He has also recently published a book on the subject. Ethereum for Business. (Ethereum is a decentralised blockchain with smart contract functionality.) The book is a plain-English guide to the world's largest blockchain. Topics covered include data quality, efficiency, smart contracts, privacy, scalability and supply chain management. It is aimed at executives who want to understand the potential of blockchain for solving real-world business problems.

Brody says of the book that he “takes aim at the idea that blockchains are mostly about cryptocurrencies and finance”. He firmly believes Ethereum public blockchain “is the digital glue binding together business ecosystems”. 

“No firm is an island,” he points out, “and increasingly, the biggest challenge faced by enterprises is synchronising all their business partners and relationships”.

Few areas of business are more intricate and extensive in nature than supply chain. Managing supply risk boils down to one thing: Visibility. You cannot manage, measure nor protect against that which you cannot see.

Brody’s book contains compelling case studies and examples of blockchain at work in the supply chain. One of these case studies involves an issue of pressing importance for organisations today: tracking carbon in the supply chains.

“Regulators are working globally to start tracking and managing carbon footprints,” says Brody. “The starting points are often cap-and-trade rules that require enterprises to manage their total carbon output with the aim that they adopt more efficient processes.”

Brody points out that although the industrial world is generally driving down carbon emissions there remain significant challenges and gaps. Some of the biggest, he says include:

• Migration of carbon-intensive industries, because governments fear that getting tough on large GHG emitters will cause them to move offshore.
• Falsified emissions and credits. (Without global standards and inspection services companies can conceal outputs or falsify carbon offsets.) 
• Double-counted offsets and credits. 
• Variable tracking methodologies and definitions, which make it hard to compare total emissions for a particular product across geographic or industry lines.
• Siloed national and industry tracking systems

Brody says that in terms of managing greenhouse gas (GHG) emissions,  Ethereum has key features that can help – notably, tokenisation. Tokenisation in blockchain is the issuing of a blockchain token, which are digital representations of real-world assets. 

“Not only is tokenisation a useful way of quantifying and moving around assets or liabilities, the smart contracts that are used to define tokens can be established to control which entities can mint new tokens and how they can be moved around,” says Brody.

As a result, he says, it’s possible to set up standardised models of emissions and allow only compliant organisations to mint tokens. 

“Every token for either emissions or offsets can be traced back to an original emitter,” he says. “This ensures definitions are standardised and that only firms with inspected and verified processes can issue either emissions or offset tokens.

Brody points out that other features of blockchain that can help with GHG issues are: 

• Product and service tokenisation related to emissions and offsets. 
• Integration of external emissions data for products into the blockchain, allowing them to be tracked around the world.
• Data permanence, so that carbon-output reporting by suppliers, when written to the blockchain, will be stored forever, even after the supplying company has come and gone.

In the book, Brody also looks at product traceability in the supply chain. Brody says product traceability is one of the first and best use cases with Ethereum because it is simple to implement.

“For most consumer products the value proposition around traceability is in the prevention of fraud and the verification of sources,” he says. “For many other markets traceability provides additional authenticity and an ability for consumers to trace the history of a product.” 

He adds: “The case for traceability gets firmer as you delve into products like pharmaceuticals, for which counterfeiting are potentially life-and-death issues. 

“In these cases, the ability to trace bad batches of ingredients down through the supply chain quickly is invaluable.”

One of Brody’s case studies is Peroni Nastro Azzurro, the Italian brewery, which is one of the world’s biggest users of blockchain traceability technology. 

Nearly every bottle of beer it makes and sells worldwide now features a QR code for product traceability, located near the neck of the bottle.

“Scanning the QR code with your smartphone will take you to a customised web page showing the history of the product and its agricultural origins,” says Brody.