Globalization has made the world a much smaller place over the last 30 to 40 years, yet trading partners are still so disconnected from each other and from their extended supply chains. For those involved in the trade of cotton, diamonds, minerals, fine art, food, wine, and other commodities and goods, there are many opportunities along the way for unethical actors to subvert and corrupt the trading process. Even with quality assurance/control, supplier management, and supply risk management processes and tools in place, it can be very difficult to ensure the integrity, legality, and provenance (point of origin) of a commodity or product. Blockchain distributed digital ledgers may be the next best hope for Chief Procurement Officers (CPOs) and Chief Supply Chain Officers. But first, let’s set the table.
Supply Chain Ignorance: Neither Bliss nor an Excuse
In 2018, there are reportedly 40 million-plus slaves, and an estimated 130 million children forced into labor around the world. Unsafe working conditions, like the infamous sweat shops of Bangladesh and China, remain a major problem in manufacturing and retail. Illegal and/or over-fishing threatens the sustainability of fisheries that have survived for thousands of years. Meanwhile, consumers increasingly care about where their products are made, and whether the people that make them or harvest and process the raw materials are forced to do so against their will. They also care about whether the diamonds in their jewelry or the metals in homes and appliances are mined from conflict zones and are funding civil wars.
Governments care, too. Laws and regulations in the United States, United Kingdom, and European Union have been enacted to shine light on these dark practices by driving greater transparency into sourcing methods and supply chains, and by mandating annual reporting. Laws like the California Transparency in Supply Chains Act, the Conflict Minerals Provision of the Dodd-Frank Act, and the UK Modern Slavery Act are fighting the scourge of modern slavery, the proliferation of conflict jewels and minerals, and the sourcing of unsustainable foods and products. These laws are widely considered the start of ethical, sustainable sourcing, and are by no means the end. There is considerable work left to do. And organizations are having a harder time beating the rap for noncompliance or worse, complacency. Plausible deniability is no longer so plausible.
With the proliferation of smart phones, video recording, and social media, it has become increasingly hard to feign ignorance when a retailer, supplier, or other entity in an organization’s supply chain ends up in the news for the wrong reasons. Someone somewhere had to know; or perhaps they suspected something was wrong but, rather than turn over the proverbial stone to reveal what was crawling beneath, they made like Sergeant Schultz in Hogan’s Heroes and repeated, “I know nothing!” If anything, willful ignorance reflects worse upon an organization, which could draw the attention of regulatory bodies and attorneys general, and relentless social media trolling by Millennials, who will tweet #DoBetter at these organizations, because snark.
Blockchain: Procurement’s Next Best Chance to be a Hero
As many procurement leaders and practitioners know, supply management is not all dollars and cents. Beyond achieving high performance measures, like spend under management and identified/realized savings, there are numerous ways that CPOs and their teams can be forces for good. The sourcing and purchasing decisions they make and the influence they wield in the process enable them to source more sustainable materials and products, pollute less, support ethical businesses, and improve the lives of workers across the supply chain. These were regular themes at SAP Ariba’s annual user conference, AribaLive, held earlier this week at Caesar’s Palace in Las Vegas, where “Procurement with purpose” was more than just a slogan; it was a business model. But the opportunities to make positive impacts are hindered without the right tools to gain visibility, make more informed decisions, and ensure compliance. Enter the Blockchain.
Blockchain in Brief
Blockchain is a distributed, or decentralized digital ledger that serves as the trading platform for crypto/digital currencies, like Bitcoin; but it has found new life as a means to facilitate business processes that involve multiple parties. It is an open, internet-based, user-driven database that, for every new transaction or update that occurs, it creates a new “block” and adds it to the “chain” as a permanent and unalterable record. Each block becomes a living, breathing artifact for every widget at rest, in transit, or in use. As a result, Blockchains have the potential to increase the efficiency, fidelity, and security of transactional and logistical data exchanged between B2B trading partners.
Trading partners operating on a Blockchain develop reputations after so many transactions. Ratings and reviews, like those on Amazon, as well as fully transparent transactional histories help parties understand how ethical and reliable trading partners are (or are not). But there is little incentive to be unethical or unreliable on a Blockchain because they literally stake their reputation on their next transaction. For these reasons, Blockchains have the potential to build trusted business networks where like-minded buyers and suppliers can collaborate to make supply chains more ethical, lawful, and sustainable — to drive Procurement with Purpose.
Stay tuned for Part Two of this series, which will examine use cases for Blockchain distributed digital ledgers when integrated with other technologies, like connected devices and data management hubs.
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