By Yingli Wang and Imtiaz Khan*
International supply chains are long, complex and at risk of disruption. The public is also putting pressure on companies and governments to ensure that supply chains meet social and environmental standards. While supply chain resilience can be achieved by developing transparency and traceability capability, establishing end-to-end (E2E) supply chain visibility is the holy grail of management. of the supply chain – and this can be achieved through blockchain technology.
Cross-border supply chains are often loaded with paper documents. Although bills of lading are one of the most important documents issued by carriers to shippers, only 0.1% of original invoices are scanned. Processing and exchanging these paper documents is costly, error-prone, and time-consuming. Supply chain finance transactions share the same problem and usually involve a complicated paper trail that can take up to a month to complete.
Distributed ledger technologies (DLT) – or blockchain technology – could solve these legacy problems. DLT is a shared, distributed electronic ledger that can record transactions as they occur between parties in a tamper-proof manner. Based on access control and centralization, blockchains can be classified into three categories – public blockchain which allows anyone to participate in the network and consensus process, private or permissioned blockchain which allows a selected group with an existing trust or business relationship to participate and the hybrid blockchain which is a mix of the two. For supply chains, private or permissioned blockchains are usually used.
Dispersing trust from a centralized authority or dominant player to a decentralized peer-to-peer architecture replaces the traditional management of server-client data and trusted third parties that supply chains have traditionally depended on. Peer-to-peer systems also protect against any form of asymmetric coercion or unethical practice within the consortium.
The deployment of blockchain technology to resolve frictions in cross-border trade finance and increase supply chain efficiency has gained momentum recently. BHP Group and China Baowu completed their first iron ore trade on MineHub’s blockchain-based platform in April 2020. The transaction value was approximately RMB 1 billion (US$156 million) .
BHP also piloted the use of blockchain to track shipments of copper concentrates with China Minmetals Non-Ferrous Metals in the second half of 2021. TradeLens, a blockchain-powered supply chain platform, enabled tracking of copper concentrate shipments. save 10 days of document processing time by enabling paperless shipment of Agrochemicals from South Korea to Bangladesh.
Labor exploitation is another important but often overlooked issue in the cross-border supply chain. This is largely due to lack of supply chain transparency, lack of corporate accountability, social responsibility and governance, and poor government regulations.
Fishing industries in Asia-Pacific, for example, provide 60% of the world’s tuna catch, worth more than $22 billion. Yet the industry is so plagued by modern slavery that Australia’s parliament passed the Modern Slavery Act in 2018. Modern slavery is also rampant in the shrimp supply chain, where 90% of workers migrants are likely to be trafficked or ‘sold overboard’. ‘. In 2015, the European Union imposed a “yellow card” on Thailand for its framework of illegal, unreported and unregulated (IUU) fishing.
Modern slavery issues in global supply chains have been addressed using different blockchain-based solutions. London-based NGO Provenance works with stakeholders – from Indonesian tuna fishers to London restaurants – throughout the tuna supply chain. But its goal of capturing work-related information (identity, salaries, and employment contracts) in conjunction with product information faces several challenges.
First, it is difficult to find information in an environment where IUU activities are rampant, regulatory momentum is weak, and employment contracts are verbal or clandestine. Second, it remains difficult to integrate data management and legacy IT systems with different Internet of Things (IoT) devices. The third challenge is that once integrated, investigators must establish data interoperability to analyze information collected from existing systems and devices.
The increasing availability of wearable devices and the digitization of national identity will make it easier to identify labor inputs in supply chains. Clandestine contracts can now be coded into smart contracts – contracts written in computer code that execute transactions via the blockchain – and connected to payroll systems.
The World Food Building Blocks program allows refugees to receive assistance using their biometric signature. This blockchain-based humanitarian solution addresses concerns about IUU fishing, as supplier invoices are erased when time-stamped biometric signatures from all labor sources are appropriately recorded on the blockchain.
Despite these advances, blockchain should not be treated as a silver bullet. A systematic approach is needed to address social and economic challenges, including changing business processes and stakeholder collaboration, coupled with legal, policy and technological interventions.
Data security, confidentiality and integrity, as well as interoperability, are technical areas of concern. These integration and interoperability issues can be solved by implementing blockchain-based solutions as a separate layer, which can be integrated with existing legacy systems through an application programming interface.
Using blockchain technology, information, cash and material flows for cross-border supply chains can be streamlined. Exemplary blockchain-based projects show that this technology provides much-needed transparency, traceability and trust for all supply chain stakeholders. This helps organizations deal with growing disruptions by establishing resilient and agile supply chain practices that are goal-driven.
*About the authors:
- Yingli Wang is Professor of Logistics and Operations Management at Cardiff University.
- Imtiaz Khan is Associate Professor of Data Science at Cardiff Metropolitan University.
Source: This article was published by East Asia Forum