Addressing the issue of transparency and traceability in complex, global and multi-connected supply chains is not an easy feat. The nature of global supply chains requires that any transparency and traceability solutions must leverage technology, such as Blockchain.
Not only Blockchain helps address this issue, it also brings more traditional benefits for Procurement.
According to the Oxford College of Procurement and Supply, Blockchain Technology can help increase supply chain transparency, enable the execution of smart-contracts and even deliver cost reductions due to the increase in transparency and reduced need for third-party verification systems.
So, what exactly is blockchain and how does it help drive ESG goals in supply chains?
Blockchain is a data system that allows for multiple stakeholders to share information across a network of stakeholders (for example, a supply chain) while still upholding confidentiality and privacy where needed.
To put it into context, picture the following traditional supply chain:
- Material extraction
- Raw material suppliers
- Finished goods manufacturers
Extraction companies compete amongst themselves to sell to raw material suppliers, who in turn are in competition to supply to finished good manufacturers who then compete to access retailers and ultimately sell to consumers.
Within this context, let’s imagine that consumers, investors, and regulators are pushing for greater transparency and want to make sure that the goods being produced in “C” are not relying on slave labor or deforestation happening in “A” or “B”. This would require greater transparency and traceability across the entire supply chain:
- Manufacturers “C” would need to disclose who their Raw Material Suppliers “B” are and what / how much they are purchasing
- Raw material suppliers “B” would need to disclose where they get their materials from, who the extraction company “A” is and what / how much they purchase.
- Extraction companies “A” would need to disclose the geographies and sites they’re operating in, so that deforestation and slave labor claims can be verified.
How could one go about solving this problem, that requires multiple competing parties to disclose confidential information among themselves?
That is what Blockchain technology allows for, and why it is a powerful tool in enabling supply chain transparency.
For a bit more color on how Blockchain helps drive ESG goals through transparency and traceability in supply chain, please watch the following video:
In our next and final article of this series, we’ll explore applications and uses cases of Blockchain within different supply chains.