Blockchain Solutions for Supply Chain Sustainability

Read our article on the Bangkok Post.

Recent media attention surrounding the surge (and drop, and surge) of Bitcoin price, and the proliferation of non-fungible tokens (unique cryptographic tokens) highlight just two of numerous applications of blockchain. This distributed ledger technology has also attracted attention in the sustainability space – in negative terms owing to the enormous electricity consumption of certain uses, and at the same time, its potential in the reverse: to provide energy solutions, to increase energy and cost efficiencies by streamlining transactions, and to create purpose-driven tokens to incentivize sustainability-conscious behavior. One of the most promising applications of the technology for sustainability, currently piloted by a handful of multinationals working in partnerships, is to address supply chain challenges.

Why Blockchain?

Blockchain is a ledger of transactions (recorded in time-stamped ‘blocks’ that create a chronological chain of digital assets) distributed among a network of users. Once a block is added to the network and chain, the record is permanent, transparent, encrypted and immutable. No single user can control the ledger, and all members of the network can view the transactions. This architecture can be harnessed to demonstrate the provenance of products or raw materials. All aspects of the transaction can be recorded, from the identity of suppliers, and the date and location of the transaction, to the quality, price and other (agreed) properties of the product. The figure below provides a schematic of a blockchain supported supply-chain.

A smart contract with automated execution can be used to trigger payment or other subsequent step along the supply chain when prescribed terms and conditions relating to delivery have been met. This automated system reduces the likelihood of errors, and facilitates detection of suppliers that do not meet requirements.

More information for the sustainability-conscious consumer

Brands can thus substantiate sustainability claims to consumers who progressively choose products that reflect their own environmental and social values. Some companies are aiming to integrate all this information within QR codes that can be scanned to reveal product data, such as health and nutrition, ecological sustainability, human rights protection, fair trade, animal welfare and other factors that may be considered by the sustainability-conscious consumer.

Applications in Thai export sectors

Seen at macro-level, the use of blockchain technology can support Thailand’s expansion towards increased value-added manufacturing in the agri-food sector, particularly for export-bound commodities. For this sector, blockchain can be used to track food safety parameters in addition to regulatory compliance requirements. Blockchain can also be used to track agricultural production efficiency in the use of natural resources and inputs.

To demonstrate sustainability of raw materials, and for supply chain management generally, blockchain technology may also be deployed in other manufacturing sectors that enjoy large export volumes, such as the electronics and automotive industries. Some blockchain applications have been considered in the tourism and hospitality sector, for use in developing loyalty programs and for inventory management.

Technological, financial and sector-specific barriers

Notwithstanding the promising benefits, prevalent challenges include developing and adapting the nascent technology to suit the myriad needs of a target industry, inherent difficulties in making the technology scalable, and the complications of ensuring interoperability with other IT systems. Another obstacle is that consensus has to be achieved along the supply chain regarding data points and formats. Importantly, blockchain will not completely eliminate the risk of certain types of false statements being entered into the system in the first place. Finally, investment costs can be significant.

While technological and other barriers currently exist, the potential of blockchain towards contributing to sustainable development outcomes is promising, provided, like any other solution, the social and environmental externalities relating to its introduction and widespread adoption are carefully considered and mitigated.

Author: Ambra Gobena, Head of Business Sustainability, Mahanakorn Partners Group.

MPG provides advice to businesses on the ways in which sustainability practices can be incrementally adopted such that sustainability becomes the core of operating models and business strategies. For more details on corporate sustainability approaches, please contact us at [email protected].

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