When choosing your evening meal, do you think about the ingredients in your food products and how they were sourced? Or whether the farmers who produced them were adequately paid? Or are you more likely to focus on your taste preferences? If you were planning to buy an electric car, would you be more likely to ask the sales rep about its price, battery life, or how the cobalt used in the battery has been mined?
Consumers are becoming increasingly environmentally and socially aware, and governments, investors, and other vital stakeholders are pushing industries to work more sustainably and responsibly. Companies are under pressure to find solutions that ensure that the integrity of their supply chains is maintained and that products of the highest quality are delivered to customers in an environmentally and socially responsible manner, as well as maintaining value for money.
It is a tricky balance to tread, especially as global supply chains face increasing challenges of unethical practices, counterfeit products, child labour, and risks of low quality in a relentless pursuit to meet demand and secure a low cost to pass onto customers. For example, estimates are that about 25% of the cobalt from Congo uses child labour and is mixed with cobalt from other countries. As a result of this adulteration, a car manufacturer cannot confirm that the cobalt used in their products has been responsibly sourced. Greater transparency is needed to pass along such assurances to the customer and their stakeholders.
How can blockchain tackle challenges in the supply chain?
The ability to trace products across a supply chain can ensure that fair practices are followed and help minimise risk. However, such mass visibility has been challenging to secure until now. The advancements of new technologies, such as blockchain, have allowed companies to shine a light on previously opaque areas of their processes, identify risk areas, and ensure these can be eradicated.
Blockchain is a Distributed Ledger Technology in which everyone who has access to it (in this instance, each contributor to the supply chain) is responsible for maintaining it. Blockchain is characterised by immutability, transparency, and decentralisation. Its immutability implies the information inputted into it cannot be changed, and its transparency allows all users read-only access to previous transactions. Immutability and transparency are highly effective for tracking products across a supply chain. Its decentralisation means there is no need for a central authority to validate transactions between peers, enabling trust distribution. Hence, Blockchain is an attractive tool for companies seeking transparency and traceability across their supply chains.
The food industry provides an excellent example of how susceptible supply chains can be to risk, as many food products face daily recalls, but also how technology has become a vital factor in reducing error, boosting visibility, and maintaining responsible standards. For example, as leafy vegetables may suffer from salmonella outbreaks, Walmart announced a policy requiring suppliers to implement blockchain technology to ensure farm-to-fork traceability. However, there is no silver bullet in the attempt to adopt Blockchain across supply chains, which requires the involvement of multiple partners.
Challenges in implementing blockchain
Many companies have attempted, or are in the process of, adopting blockchain, but, as with any technological intervention, many pilot projects have been unsuccessful.
All too often, if the pilot project is completed, the full-scale implementation has not been effectively carried out due to implementation challenges faced on the ground. Such hurdles include a lack of clarity about the value generated by Blockchain, the perception of additional work that may be needed to get new processes up and running, and a lack of agreement about data sharing.
To address this, research I conducted alongside colleagues from the Universities of Sussex, Brunel, Sheffield Hallam and Thapar University in India highlights the crucial need for companies to boost clarity and understanding in the business applications of Blockchain. The study calls for companies to precisely identify the problems they aim to solve, detail the necessary tasks to overcome them, and then carefully assess whether Blockchain’s unique features can effectively perform those tasks. This clear-minded approach ensures that technology like Blockchain is applied effectively to generate value in the right areas and that every stakeholder understands and appreciates its use.
Looking beyond the technology
Once clarity has been achieved, companies should focus on identifying any social and technical characteristics needed to implement the technology effectively.
Companies are always looking for ways to reduce delays and waiting times for customers, improve process efficiency, and, as a result, reduce transaction costs associated with the transfer of goods, services, or funds. Operations powered by such technologies can help achieve these objectives. However, the service provider implementing the technological solution must empathise with customers’ problems and needs at the project initiation stage and communicate with customers and managing stakeholders at the project execution stage.
It is just as important to communicate to customers how the system works and provides benefits to secure acceptance, buy-in and long-term commitment. The technical characteristics that need to be emphasised during project execution include developing tracking and data logging systems to suit the needs, streamlining business processes, developing automated quality assurance systems and adopting appropriate system design, which prioritises user-friendliness.
Laying the groundwork
For example, many companies have unique communication channels for transferring data, which results in a longer, drawn-out decision-making process. Such systems are difficult to integrate onto blockchain platforms. Therefore, blockchain implementation must consider streamlined communication and data sharing imperative.
An excellent example of ensuring effective implementation can be found in an agricultural commodity trading company, which realised that the system had to be user-friendly for its traders. To ensure a smooth transition, feedback from traders was obtained during the pilot, the difficulties they faced were noted, and the learnings from the pilot were incorporated into the next stage of development to ensure user-friendliness. Traders could then easily observe and understand how the system worked and actively contribute to it.
Further research by our team identified that developing user-friendly applications, secure digital payment systems, providing support for suppliers and farmers and adapting to local conditions are the key outcome-based mechanisms of any blockchain implementation. Still, their effectiveness can only go so far. Educating and engaging with customers, building local relationships, and educating and engaging customers are the critical behavioural mechanisms vital in improving social sustainability and, as a result, for minimising the risks using blockchain. Suppliers must also be supported to encourage them to join the platform and obtain the desired benefits.
It all comes back to ethics
Companies planning to implement Blockchain should not be carried away by hype, expect technology to fix all their problems, nor should they be overly sceptical of its potential benefits. With all technological implementation, for any function and in any sector, the human impact must remain close to heart as without it, such systems will fail.
Similarly, with greater power comes a greater responsibility to ensure systems are maintained, are not misused or mistreated and the technology is continually used for the right reasons. Companies should conduct necessary due diligence, work with service providers by understanding the ground-level challenges and focus on social and technical capabilities along with outcome and behaviour-based approaches to reap the benefits.
The discussion comes full circle, back to the question of ethical practice. It is inevitable that the relentless progression of technology, teamed with growing global pressures for both industry and society to do better and act better, means that companies can no longer avoid implementing tools such as blockchain into their practices to ensure they can continue to act in the best interests of people and the planet. It will soon become law that companies must adopt more transparent practices or ensure the sustainability of their sources, so getting to grips with such requirements early on makes sense.
However, such implementation cannot be embedded effectively without having human focus and steering. Companies should be focused on implementing the right tools for the right reasons, focus on the ever-changing nature of such technologies and keep investing in both people and skills to ensure they can be used correctly.
Chaudhuri, A., Bhatia, M. S., Subramanian, N., Kayikci, Y., & Dora, M. (2022). Socio-technical capabilities for blockchain implementation by service providers: multiple case study of projects with transaction time reduction and quality improvement objectives. Production Planning & Control, 1-14. https://doi.org/10.1080/01402390.2022.2104253