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Blockchain, Featured, Supply Chain

Traceability: Blockchain and its Importance in Supply Chain

Worldwide concerns have arisen regarding the mining practices and procurement of industry-specific minerals from various corners of the world, particularly in the African continent. In addition to blood diamonds, the capital obtained from selling crucial minerals to the electronics industry also financed rebels and insurgents for the purpose of causing conflicts and civil unrest. Addressing these issues, developed countries have prioritized ethical mining in a bid to reduce capital inflow into the hands of resurgents. Blockchain traceability and provenance are important steps in the right direction promising to address these issues. Let us dive further and see how blockchain implementation can make a positive contribution to the world through its intrinsic traits.

The Background: Why Traceability is Needed?

Electronic and automotive manufacturers require large quantities of tin, tantalum, tungsten, and gold, collectively known as 3TG for different processes. A significant quantity of these minerals is procured from Africa. The continent also contains large cobalt and lithium deposits- essential for battery manufacturing. 

Civil unrest and periods of instability are common in several African nations- particularly in the region surrounding the Great Lakes of Africa. These situations lead to widespread corruption, unethical mining practices, and human rights violations. A 2017 UN reported more than 40 thousand children were forced to work in cobalt mines in the Democratic Republic of Congo. There are environmental concerns as well. The practices are not only relegated to Africa. A notable example would be the incident of water pollution and contamination in South America’s lithium triangle.  

With increased global pressure, large-scale mineral and metal buyers are nowadays pressured to prove that raw mineral procurement is not sourced from conflict regions. Supply chains in the US and the European Union are subject to regular scrutiny and verification to ensure that their business contributions do not fund wars. Renowned organizations that have committed to the cause include Volvo, Ford, IBM, Tradewind Markets, Huayou Cobalt, and more.     

Blockchain-powered CoC system

Setbacks and challenges of Existing Mineral Supply Chains

The International Council of Mining and Metals (ICMM) had conducted a study on mining practices and laid an outline highlighting the challenges and difficulties of traceability of metals and mineral supply chains. The report also mentions how several of these obstacles can be solved using blockchain technology.

There are significant setbacks, and some of the notable ones are mentioned below:

  • Obtaining accurate Chain of Custody(CoC) data
  • Attaining proper production standards within enterprises at different supply chain positions and risk exposure.
  • Technical challenges with obtained input- “Garbage In and Garbage Out”.
  • Intricate aggregate points of mix and processing lead to difficult material flow control.
  • Steep costing due to computing requirements, along with huge operations costs(may range from US$100 each GB to as high as US$50,000 to US$100,000 each year). 

The Methodology behind Blockchain Implementation

As a technology, the decentralized ledger sharing traits of blockchain work as a database for recording supply chain transactions. Parameters recorded may include digital tags, bar codes, serial numbers labeled on physical materials/goods on the supply chain. Other recorded data attributes may include product properties, location transfer information, companies involved in the supply chain, adherence to standard responsible production practices, and more. 

In general, blockchain implementation in the metal and mineral supply chain often records:

  • Weight.
  • Quantity.
  • Grade.
  • 3D image material.
  • Fingerprints of the minerals.
  • Material ownership at each step of the supply chain.
  • Life Cycle Estimation.
  • BOL(Bill of Lading).
  • Shipment Locations.

Traceability and Provenance

Traceability allows companies to oversee each and every aspect from manufacturing to distribution. It consists of tracking each product component from suppliers to the manufacturing process and finally to the consumer. Other than ensuring quality, it is also necessary to remove poor/unethical production practices or techniques. 

Provenance on the other hand is identifying the earliest place of origin of a product component. Non-ethically mined diamonds and minerals from several African countries are unacceptable for manufacturers/jewelers.

Applications in Different Supply Chains

Owing to its advantages, the usage of blockchain is widespread across several supply chains. Successful implementation of blockchain has been done in:

  • Mineral Supply Chain

Blockchains optimize traceability in the mineral supply chain, which has been under the scanner for unethical mining practices, human rights violations, and forced child labor for quite some time. Through blockchain, the entire supply chain agrees to a consensus and ensures that the mineral shipments are not mined unethically. 

  • Retail Supply 

Walmart and other retail majors have started using blockchain as a means to ensure quality products at the end store. The suppliers authenticate the source through blockchain forging transparency and trust through the retail ecosystem. Otherwise, it would have taken a long time just to trace a product’s origin.

  • Healthcare

The global battle against the coronavirus pandemic saw the most efficient use of supply chain management to date. COVID vaccines require very low temperatures and have a short shelf life. Governments around the world ran successful vaccination campaigns with extensive use of supply chain and blockchain technology.

  • Diamond Supply chain

As explained before, insurgents use conflict diamonds to fund wars in Africa. The Kimberley Process is a great step forward, but not foolproof. To ensure proper traceability and provenance, the diamond industry is quickly implementing blockchain technology all over the world. 

Also Read: Blockchain is Bringing a Revolution in the Global Diamond Industry

Why are Enterprises Preferring Blockchain all over the world?

The inherent traits of a decentralized blockchain are useful not only in the supply chain but in other implementations as well. The following list summarizes the edges that blockchain has over existing traceability technologies:

  • Consensus Mechanism

A blockchain network requires all members to reach a consensus. The database records a piece of information only on reaching a consensus. For metal and mineral mining, this would mean an agreement of downstream and upstream enterprises on existing production standards and manufacturing audits. Global watchdog associations like the ICMM, the Cobalt Institute(CI), RMI are already shaking hands, agreeing on the standards and frameworks of ethical and responsible mining. 

  • Non-Corruptible, Tamper-Proof Records

Verified transaction data, or blocks, cannot be erased once they are added to the blockchain. They are time-stamped, authenticated, and connected to the preceding and succeeding blocks. Removing a single transaction would again require consensus from all. Thus blockchain minimizes the chances of fraud. 

  • Decentralization promotes Equality

The node members share the entire blockchain network among themselves. It does not have a central figure- there is no chance of a corrupt authoritative head. The server-stored data is ultimately self-executing- improving the shared “trust” element among the blockchain members. 

  • High security encrypted shareable data

The data ledger can be made accessible at any time to any 3rd party. Supply chain models often require sharing of crucial information with parties such as downstream purchasers, auditors, investors, traders, logistics providers, and more. The decentralized nature of blockchain helps in the easy transfer of relevant data. Certain blockchain developers can also customize the network for the protection of confidential data. Using information as proof rather than fact increases responsibility within the network. In fact, companies can forward these as evidence to external persons/firms. 

  • Scalability

On completion of consensus, the system established a proper framework. Other than financial backing, there are no technical constraints in the number of members within the network. Thus, blockchain-powered data platforms allow rapid scalability options for pilot projects.

  • Reduction of Costs

Blockchain increases efficiency- which inherently lowers the overall operational costs. In addition, it is a paperless system and lowers the necessary time for logging CoC data. With Smart Contracts and consensus, users easily receive the audit information, saving more time and effort. 

Also Read: Role of Blockchain in Providing Efficiency and Transparency in Supply Chain Management

Final Thoughts

At present, blockchain technology is one of the best options for increasing the efficiency of supply chain systems. The network’s decentralized consensus mechanism boosts transparency-helping both upstream and downstream players to reach agreements ensuring fair and ethical procurement practices from the areas of provenance. Blockchain traceability also eliminates war financing in the conflict regions of Africa.

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