With the buzz around blockchain, many important supply chain concepts are being used interchangeably and create confusion.
Are companies using blockchain to create visibility in their supply chain, or to trace products downstream and upstream in the supply chain? Or is it to achieve more transparency in the supply chain?
Started in the Fintech industry, the blockchain technology behind Bitcoin and other cryptocurrencies, has the potential to fundamentally transform the supply chain and logistics industry. With blockchain, a permanent and shared record of every transaction associated with an asset is created and constantly updated to a commonly shared ledger. The Blockchain protocol allows for multi-party tracking of proof of ownership and transfer of ownership in real-time.
Big players in the food industry, like Nestlé, Unilever, Walmart, and Dole, use blockchain to trace their products downstream to the original source but also upstream through the distribution network. Besides traceability, blockchain also increases visibility and transparency in the supply chain.
Yet, according to a Gartner 2018 survey, only one percent of CIOs indicated any kind of blockchain adoption within their organizations, and only eight percent of CIOs were in short-term planning or active experimentation with blockchain. Furthermore, 77 percent of CIOs surveyed said their organization has no interest in the technology and/or no action planned to investigate or develop it.
So, what is supply chain visibility, traceability and transparency and how are companies dealing with these challenges if not by blockchain?
Supply chain visibility
With the increase of global trade and companies outsourcing more and more production steps, supply chains have become bigger and more complex. Companies often lack visibility in their downstream and upstream supply chain beyond their tier 1 supplier or direct customers. Global operating companies often deal with thousands of suppliers, sub-suppliers, and service providers, managing thousands of products and components.
Supply chain visibility refers to these five main areas (The Power of Resilience by Yossi Sheffi):
“what”: parts that go into a company’s products,
“who”: identities of the network of suppliers who make those parts,
“where”: locations where parts and products are made, assembled and distributed,
“how things move”: the flows of parts and products (including transportation), as well as the flow of information and cash, and
“where products sit”: the inventories of materials, parts, and finished goods stored and being handled in various stages of the supply chain
The goal of supply chain visibility is to reduce business and supply chain risks, improve lead times and performance, and identify shortages and quality problems.
A Geodis 2017 Supply Chain Worldwide Survey revealed that only six percent of the respondents have full visibility to their entire supply chain. Many companies still operate in silos and only have visibility to what happens in their own four walls.
In recent years, supply chain visibility systems have become very advanced. These cloud-based platforms combine internal data with modern technologies like AI, machine learning, and data science. There are many supply chain visibility systems on the market, but the foundation is critical. Processes need to become more collaborative and information needs to be shared across the supply chain to connect all network partners.
With visibility comes knowledge. However, all this data must be transformed into usable information to create action.
Supply chain traceability
Traceability in supply chain refers to the ability to identify and follow raw materials, components and products through all stages of an end-to-end supply network.
According to recent data from the Centers for Disease Control and Prevention, about 48 million people in the United States (1 in 6) get sick, 128,000 are hospitalized, and 3,000 die each year from foodborne diseases. Although most of these cases go unreported, some incidents made headlines in the last few years, like the E. coli outbreak at Chipotle in 2015 or the E. coli outbreaks of romaine lettuce in 2017 and 2018. In the case of the second E. coli romaine lettuce outbreak, it took federal officials more than three months after the first illnesses were recorded to identify the source of the contamination.
With all the available modern technology, why is it that so many companies struggle to track and trace their products along their supply chain? Many supply chain processes are still paper based and disconnected and involve multi-tier suppliers and service providers, which makes traceability from raw materials to the end user a big challenge.
Traceability systems aggregate data from the end-to-end supply chain and help record, track and trace products, parts, and materials. These systems maintain records from sourcing, manufacturing, processing, to distribution and use unique identifier like part number, lot code, batch code, production line, time frame, or supplier.
While traceability has traditionally focused on product safety, consumers, NGOs, governments, suppliers, and buyers are increasingly demanding more information about the origins of products and materials, and the conditions under which they were produced and transported.
Supply chain transparency
Supply chain transparency provides information to consumers and other stakeholders about the nature and origin of products and is the cornerstone for social responsibility and sustainability.
The Rana Plaza building collapse in Bangladesh on April 24, 2013 killed over 1,100 garment workers and injured more than 2,000. In the year before the collapse, a fire at the Tazreen Fashions factory in Bangladesh killed several hundred workers. Until these tragedies occurred, virtually no public information was available concerning apparel companies that were sourcing from the factories involved.
As per a 2017 report by Human Rights Watch, global apparel companies have started adopting supply chain transparency policies by publishing the names, addresses, and other important information about factories manufacturing their branded products.
Under pressure from customers and other stakeholders, food and technology companies have also started to be more transparent about the origin of their products and address topics like quality, safety, ethics, and environmental impacts. More and more companies have implemented supplier codes of conduct with their first-tier suppliers, outlining labor and environmental standards. However, companies also need to ensure that their first-tier suppliers promote responsible sourcing policies and principles in their own supply chains. Other tools for transparency include publishing sustainability reports, disclosing performance data against goals, to show impacts and progress of all sustainability activities.
When consumers are making purchasing decisions in a store, they are, more than ever, seeking information about the entire life cycle of a product. Since traditional labels on a product are limited in space, some companies have started using SmartLabels and QR codes. This provides consumers with quick and easy access to all the information they want to know about a product, using a cell phone.
To summarize, supply chain visibility is the ability to see activities and identify involved parties in the entire supply chain network of a company; supply chain traceability is the ability to track and trace a product and its parts and components across the end-to-end supply chain; and supply chain transparency is the process by which a company acts on the insights gained through greater visibility and shares this information with all stakeholders.
In the absence of well-established blockchain applications for supply chain processes, there are many tools and technologies available today to address both large and smaller companies’ needs in delivering supply chain visibility, traceability, and transparency.
About the Author
Rene Jacquat is the principal of LogiChain Solutions, LLC, based in San Francisco, United States. His experience includes operations, supply chain management and logistics in the consumer goods industry. Rene supports food & beverage companies in supply chain strategy, supply chain & distribution network design, supply chain diagnostics & risk management, sustainability and outsourcing logistics services.