Blockchain is a digital, decentralized, distributed ledger that provides a way for information to be recorded, shared and maintained by a community. Below we review the impact blockchain can have on increasing product safety, reducing recall expense, combatting counterfeits and otherwise assisting retailers in managing risk and protecting customers. By allowing for near real time, immutable tracking that is easily accessible to suppliers, manufacturers and government entities, blockchain technology has the capacity to revolutionize the retail industry.
Key features of the blockchain include:
- Near real time – enables almost instant settlement of recorded transactions, removing friction and reducing risk.
- Reliable and available – as multiple participants share a blockchain, it has no single point of failure and is resilient in the face of outages and attacks.
- Transparent – transactions are visible to all participants, with identical copies maintained on multiple computer systems, increasing the ability to audit and trust the information held.
- Irreversible – it is possible to make transactions irreversible, which can increase the accuracy of records and simplify back-office processes.
- Immutable – it is nearly impossible to make changes to a blockchain without detection, increasing confidence in the information it carries and reducing the opportunities for fraud.
Helping Product Safety, Reducing Recall Costs and Protecting Brands
Increasing traceability in the supply chain to increase the safety of products has long been a goal of federal regulators. In a 2011 law, the FDA Food Safety Modernization Act (FSMA), Congress directed the agency to establish product traceability requirements for businesses that would protect public health and to designate high-risk foods that warrant additional record keeping. Congress weighed in as well in the Consumer Product Safety Improvement Act (“CPSIA”) where it ordered tracking labels for children’s products to ensure the traceability of a children’s product down to the batch and lot in an effort to respond to the flood of toys on the market with lead paint.
Demanding traceability provided the CPSC with some visibility into overseas manufacture to identify when and how lead paint might be introduced inadvertently due to material level changes on production lines. Section 103 of the CPSIA amended section 14(c) of the Consumer Product Safety Act (“CPSA”) (15 U.S.C. 2063(c)), which authorizes the Commission to require, by rule, the use of traceability labels (including permanent labels) where practicable, on any consumer product. CPSC guidance goes even further stating that to prevent inadvertent use of prohibited materials, clear identification and labeling of raw, finished and semi-finished material is essential to ensuring compliance. CPSC Handbook for Manufacturing Safer Products at 29, July 2006.
The traceability demanded by regulators aligns directly with the benefits blockchain offers. Yet blockchain can go farther to provide visibility into the component parts and raw materials introduced through the supply chain. Using blockchain technology for supply chains increases the end-to-end visibility of the products by bringing suppliers and manufacturers together on a single platform. Through blockchain:
- Manufacturers can issue purchase orders and goods received notes, split goods in lots, and assign them to products.
- Suppliers can process purchase orders received, share logistics information, and process invoices.
- Since both share the same ledger, they can remain informed at each step without explicit information being sent out.
In the case of a defective product that needs to be recalled, the faulty product can be identified and marked on the ledger by the manufacturer. The ledger helps the manufacturer identify affected batch(es) of products, identify the exact supplier, and thus plan the replacement of the part if needed and initiate recall.
Since the supplier has a near real-time copy of the ledger, he also gets notified of the defect and then can initiate an investigation into the cause, take the necessary corrective action, and plan to provide replacement of the faulty part. In turn, this minimizes the impact and cost of the recall by isolating only the affected products immediately and allowing for swift action to take place.
The CPSC, FDA and other government regulators would greatly benefit from the specificity of such traceability in announcing recalls and blockchain could help to end the over-expansive, blanket recalls that occur because there is no reliable way to pinpoint exactly which products to recall. Blockchain allows companies to isolate specific products containing a contaminated ingredient, raw material or component part, which can and will translate to less waste and reduced costs. Brand reputations are protected and the adverse consequences of a recall are minimized.
Reducing the Impact of Counterfeiting
Companies have limited visibility because of fragmented data, networks, and sourcing arrangements, which make it difficult to trace and authenticate goods. Fraudulent parts and goods affect every stage of the product life cycle—from the manufacturing floor to the point of sale, to the servicing function and beyond—driving up costs, eroding revenues, and damaging company reputations and brands. Companies invest significant time and money into tracking parts, validating provenance, communicating with partners, and filling out copious documentation to ensure the authenticity of their products, protect customers, and satisfy regulatory and compliance demands.
Advances in blockchain-with-IoT counterfeit detection provide at-a-glance visibility, tracing, and recording of provenance data from source to sale and beyond. IoT provides unique identification and traceability while blockchain provides a tamperproof chain of custody information. Together, they can create a shared, distributed ledger capable of recording the origin, location, and ownership of raw materials and products at each stage of the value chain. This provides manufacturers, partners, and customers the transparency and authentication they need.
Blockchain and IoT can inhibit counterfeiting in ways that traditional technologies cannot through the ability to immutably track and share genealogy across multiple stakeholders. To thwart counterfeiting, suppliers and manufacturers join a single blockchain platform and use “smart tags” (unique cryptographic identifiers) to track and confirm the provenance and location of each item:
- Only genuine, verified tags and products are entered onto the blockchain.
- Each tagged item or batch is tracked at every stage along the manufacturing, shipping, distribution, and sales journey
- Relevant data is logged at each step.
Smart tags capture the complete genealogy of a product and are hard to replicate:
- Counterfeit tags won’t show up on the blockchain.
- If a smart tag is duplicated, a quick scan of the blockchain will indicate when and where the genuine item was manufactured and sold, thus revealing the duplicate item as a fake.
- Improved tracing and authentication combined with a tamperproof chain of custody can reduce counterfeiting and associated losses.
- End-to-end oversight of raw materials reduces product defects.
- Reduced likelihood of fraudulent sales.
- Better tracing helps support centers prevent unnecessary servicing and repair.
Barriers to Blockchain Adoption
Despite the numerous advantages to using blockchain for supply chain management, various barriers still exist. These include:
- Knowledge of blockchain
- Implementation – Trouble replacing or adapting existing legacy systems.
- Regulatory and legal concerns – Data privacy issues, intellectual property, and enforceability of contracts.
- Uncertain ROI
- Lack of trust – Many companies are skeptical about blockchain.
Blockchain tokens can be used for optimization and enhanced fraud protection in loyalty programs. Retailers sometimes use infrastructure to track loyalty rewards for customers that is less secure than that of “real” payments, which has led to a substantial increase in loyalty-fraud crime in recent years. Due to this lack of security, personal data is subject to theft. Additionally, many reward programs fall short of providing enough value to customers because ways of spending what the consumer feels are hard-earned points are limited.
Blockchain can help retailers address both issues. With blockchain, hackers and fraudsters will have a much harder time penetrating a system that relies on a distributed ledger than one that stores all the data in a centralized database. In terms of consumer value, creating a token-based rewards ecosystem open to third-party businesses is a means of giving customers a wealth of diverse ways to spend their points.
Retailers Accepting Crypto
Cryptocurrency payment gateways allow businesses to accept transactions of cryptocurrencies as payment from customers in exchange for goods. When the customer makes a purchase using a cryptocurrency as payment, the transaction goes through the payment gateway at a fixed exchange rate and automatically converts to traditionally recognized fiat currency so the merchant can avoid the volatility of the cryptocurrency markets. This benefits the consumer by allowing them to use cryptocurrency, which offers lower fees than traditional credit card payment systems.
The implementation of blockchain technology into the retail space provides unique opportunities to increase product safety, reduce recall expense, combat counterfeits and otherwise manage risk and protect customers.