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The Fast Track: Using Blockchain To Trace Products Through The Supply Chain – Technology – United States – Mondaq News Alerts

Blockchain in Supply Chain: Article 4

Many companies need strong supply chain
traceability
.  For the most prevalent tracing challenges,
blockchain may
provide a formidable solution.

Real-World Applications

Using blockchain to trace products is especially promising for
certain industries, including the food, fashion and regulated
products industries.

Food Industry

Supply chain traceability is crucial in many industries, but
arguably none more so than the food industry, where concerns about
contamination, intentional adulteration, and bioterrorism are
ever-present.

The most promising applications in the food industry involve
conducting product recalls and ensuring consumer satisfaction for
perishable products.

1. Food Recalls and Market
Withdrawals

Some of the keys to successfully stopping outbreaks of foodborne
illnesses through food traceability protocols include the accuracy
and speed of obtaining tracking information and the inability of
third parties to manipulate that tracking information.
 Companies that attain top recall accuracy and speed by
implementing investigation improvements can reduce recall costs,
loss of profits, and reputational damage, and in the case of food
recalls, save lives.  Enter blockchain.

In response to a series of devastating E.coli outbreaks
in romaine lettuce as well as salmonella-laced eggs and breakfast
cereal in 2018, Walmart decided to leverage blockchain to increase
the safety of its food supply.1 
Walmart describes the food supply industry as one that frequently
employs a paper-based tracking system for supply chain, which can
lead to delays and dead-ends in tracking contaminated food.2  Walmart invited its suppliers to
ditch the paper trail and join Walmart’s blockchain
program.

Today, Walmart can track a head of lettuce from a store all the
way back to the farm where the lettuce was cultivated by the farmer
in just seconds.3  In fact,
Walmart tracks over 500 food items using blockchain, and, in 2020,
was able to provide FDA investigators with detailed information on
the original source of a potential contamination within an hour, a
stunning reduction from the seven days that this process used to
take.4  This year, Walmart
arranged with U.S. Customs and Border Protection to pilot a program
to track imported foods.5

As the use of blockchain becomes more prevalent, retailers will
increase their ability to determine exactly which batch of products
to recall when an issue arises.  As a result, in its supply
agreements with retailers and distributors, a manufacturer may want
to address the scope of recall expenses and chargebacks
differently, as opposed to recalls without the use of blockchain
where the parties anticipate a lack of clarity around which batches
of products to recall.   

2. Perishable Products

The journey of a perishable product from the country of origin
to the final destination can be long and difficult to track. 
As a result, some companies turn to blockchain to trace products in
order to ensure end users receive a responsibly-sourced product
with an ample shelf life. 

IBM Food Trust is an example of a hybrid blockchain
solution that allows supply chain partners to securely share
tracking information related to perishable food supplies. IBM Food Trust aims to improve
food safety and freshness, identify supply chain inefficiencies,
minimize waste, improve brand reputation, and ultimately add value
to a company’s bottom line.  European grocery chain,
Carrefour, uses IBM Food Trust to trace chickens from farm to
grocery store. In 2019, Carrefour reported that its
blockchain-tracked chicken outperformed other chicken in sales
growth.7

Carrefour credits blockchain with sales increases because
blockchain reassures customers of the quality of items they buy and
assists them with avoiding products with genetically modified
organisms, antibiotics or pesticides.8  In fact, Carrefour tags
certain products, such as tomatoes, oranges, fresh micro-filtered
milk, and Rocamadour cheese, with QR codes that allow consumers to
learn where their food originated by taking a picture of the QR
code with their smartphones.9
 

1110270a.jpg

Fashion Industry

The end-to-end tracking that blockchain provides could be
particularly beneficial for the clothing supply chain. 
Clothing supply chains often look less like a straight line and
more like a web, because these supply chains typically span many
countries across the globe and contain multiple raw material
sources, multiple factories that process the raw materials,
multiple subcontracted clothing manufacturers, and a complex
distribution network.  As a result, clothing manufacturers
have difficulties determining where each part of their product
originates.  Determining responsibility for a batch of
defective buttons in a line of dress shirts could be a Sisyphean
task without blockchain technology.

Complete oversight over production of fashion products via a
blockchain solution can assist companies in determining exactly
where along the supply chain a product was damaged by allowing
companies to track components back to the original supplier. In the
event of a recall, blockchain technology can assist by pinpointing
which defective components were incorporated into which final
products so that manufacturers can issue recalls quickly and
precisely.

Another benefit of using blockchain for global supply chain
management is the ability to manage and track timing of raw
materials and sub-components in the production process. Supply
chain management systems may be configured to monitor and generate
notifications and scheduling updates based on updates to the
blockchain to help manufacturers and distributors with production
and distribution timing and cost projections.

Regulated Industries

Tracing products through the supply chain can help companies
comply with applicable laws.  For instance, in November 2013,
Congress enacted the Drug Quality and Security Act, which requires
members of a drug supply chain to track and trace certain
prescription drugs.10  On May 4,
2020, Merck reported that it, IBM, KPMG, and Walmart had completed
an FDA pilot program designed to evaluate a consortium
blockchain
‘s usefulness in protecting pharmaceutical
product integrity.  According to Merck, the pilot was a
success, and pharmaceutical supply chains can use blockchain to
help meet the FDA’s tracking and tracing requirements.11

In addition, the Bioterrorism Act of 2002 and the Food Safety
Modernization Act of 2011 require the traceability of food. 
Manufacturers may find blockchain solutions helpful to meet these
traceability requirements as well.

Tracing Challenges and Blockchain Solutions

Unintegrated Legacy Digital Systems.  
Even if a company already uses a digital system for tracking
products, that system may not integrate with different digital
systems used by other members of the applicable supply chain. 
Helpfully, blockchain can lie on top of these enterprise
applications and provide the connection between them. 
Blockchain can integrate enterprise resource planning systems,
customer relationship management systems, warehouse management
systems, and manufacturing execution systems to increase
transparency of the supply chain and reduce the cost of tracking
products and running reports.12

Inconsistent and Duplicative Records
Because companies in a supply chain tend to keep their own records
using centralized
databases
, these companies frequently have duplicate copies of,
or inconsistent records relating to,1110270b.jpg the same
transaction.  In contrast, blockchain stores information on an
immutable, decentralized ledger
accessible by all members of the supply chain.  This structure
allows all members of the supply chain to have eyes on the same
data and to have confidence that the data is accurate. 
Ultimately, companies can use blockchain to reduce costs associated
with reconciling records across the supply chain.

Root Cause Determinations.  In order to
identify product shortages and defects, companies typically audit
supply chain partners.  However, while auditing helps
determine if a problem exists, it is less adept at determining the
root cause of that problem.  For instance, an audit of
inventory held by a warehouse could reveal missing product, but the
audit may not reveal the reason the product went missing.  Did
a stocker misplace the product after it arrived at the
warehouse?  Did a warehouse employee make an error in tracking
product quantities? 

Having all members of a supply chain participate in a blockchain
solution would assist in the determination of root cause because
the blockchain process affixes a timestamp to every transaction
entered onto the blockchain, and the transaction history is
immutable.  Blockchain technology can automatically provide
visibility into all stages of the supply chain, allowing for
decreases in the costs of labor-intensive in-person auditing.

Using IoT to Overcome Human Error and Misconduct

One of the limitations of blockchain
is that, while the data on the blockchain is secure, such data is
not necessarily free of human error or misconduct.  That is,
when a human inputs data onto the blockchain, he or she may
accidentally or maliciously enter incorrect information. Using the
internet of things
(“IoT”)
to link the data derived from the physical
world directly to the digital world reduces the risk of incorrect
data caused by human intervention because no human inputs data on
to the blockchain. 

IoT refers to the network of real
world physical objects connected to the internet via sensors,
software, and other technologies embedded or otherwise connected to
those physical objects.  IoT transfers data related to the
physical objects over the internet, and therefore perfectly
complements blockchain when it comes to tracing products. 

One potential use of IoT for tracing
is to attach smart tags to
materials as they travel along the supply chain to ensure
traceability of such materials after processing or after
combination with other materials.  

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Footnotes

1 Smith, Matt, In Wake of Romaine E.
coli Scare, Walmart Deploys Blockchain to Track Leafy
Greens
, Walmart.

2
Id.

3
Smith, Matt and Kane Webb, A Valentine Meal with
Food Safety and Sustainability at its Heart
, Walmart
(February 9, 2021).

4
Blockchain 50
2021
, Forbes (February 2, 2021).

5 Supra note 4.

6IBM Food Trust
eBook
, IBM, (last retrieved July 18, 2021); IBM Food Trust: A new era in
the world’s food supply
, IBM, (last retrieved
July 18, 2021)/

7
The Food on Your Holiday
Table May Have Been Verified by Blockchain
, Forbes
(December 23, 2019).

8
Thomasson, Emma, Carrefour says
Blockchain Tracking Boosting Sales of Some Products
,
Reuters (June 3, 2019).

9 Carrefour Applies
Blockchain Technology to its Eight Product – Rocamadour, the
First Carrefour Quality Line Cheese to Use It
, Carrefour
(April 26, 2019).

10 Drug Supply Chain
Security Act (DSCSA)
, U. S. Food & Drug
Administration.

11 Merck, IBM, KPMG, and
Walmart Successfully Complete FDA Pilot Program to Evaluate the Use
of Blockchain to Help protect Pharmaceutical Product
Integrity
, Merck (May 4, 2020).

12 Banerjee, Arnab, Integrating Blockchain
with ERP for a Transparent Supply Chain
, Infosys
(2018).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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