SUPPLY CHAIN PROVENANCE

“lighted brown concrete buildings near body of water at nighttime” by Dominik Vanyi on Unsplash

The world depends on the productive capabilities of industry, despite its questionable impact on the planet. All manner of goods and materials are needed as feedstock for the productive process, whether it is stuff that is dug up out of the ground or stuff that is grown in it.

In the global economy, the source of that feedstock is rarely transparent. As a result, the industry is often reliant on obtaining feedstock from suppliers that breach fundamental human rights (eg it involves slavery and child labor), cause lasting environmental damage, exploit the poor and powerless and risk the poor quality of supplies.

This is not sustainable.

To create sustainable sourcing, what is needed is transparency, traceability, and tamper-proof data. Only if each link in the supply chain is able to trust those who went before it and delivers what can be trusted by those to who come after it can the whole chain be trusted. This requires coordination of data from all the stages in the productive process: extraction, processing, transport, storage, production, and consumption.

Distributed ledgers (blockchains) are the perfect tool for achieving these outcomes. Blockchain technology is designed to be secure. The data it carries is effectively immutable but can be made accessible to all. It is capable of creating a chain of provenance that is fully reliable.

And indeed there are many blockchain-based projects in the pipeline to improve existing provenance processes. Stakeholders with a financial interest and deep pockets were the first to jump on this bandwagon: art buyers. The issue of provenance in art involves millions of dollars. Proving that a small pencil drawing by Monet is actually by Monet can make the difference between a few dollars and nice retirement package! The motivation for fraud, forgery, and corruption is obvious.

So moving the whole provenance process on to the blockchain where all can see the ownership lineage eliminates massive costs and risks. In the process, it is happily destroying various parasite industries such as fraud and forgery. Existing provenance processes can involve art historians, scientists, and technicians, art experts, and many other expensive professionals. No wonder art owners have invested in blockchain solutions for provenance.

A much larger topic is applying blockchain solutions to matters of provenance in supply chain management. As with the world of art, it holds the promise of eliminating issues such as quality of supplies, questionable sources of supplies, and the adulteration/substitution of supplies.

Individual industries have already started to examine their supply chain in order to ensure that minimum standards are met. “Blood” diamonds have led the way in bringing human rights issues into the supply chain. The solution to that problem was made easy by the fact that all diamonds are uniquely identifiable. And the blockchain is the ledger of choice for this solution.

Other mining industries are following suit although significant problems remain to be resolved. Bulk minerals are hard to track. Evidence that human rights abuses such as the use of slaves or child labor are eliminated can be difficult to obtain and verify. Assessments that environmental degradation has been addressed are subject to many opinions and endless debate.

But recent developments in the cobalt industry have already shown that the issues are real and involve large amounts of money. When Volkswagen failed to agree with Glencore (the largest miner in the world) on new supply contracts for cobalt (a mineral that is essential for electric batteries) because of supply chain issues, the world sat up and took notice (1).

As with “smart contracts” on the blockchain, we may need trusted “oracles” to support the provenance process. We may need certification from “competent persons” (a bit like the experts that now vouch for the attainment of JORC (2) or NI143–101 (3) standards in mining) to verify that the sourcing process has met appropriate standards. And we may need to develop those standards in the first place. In mining, the Equator Principles (4) are moving us in the right direction in this regard, although these standards currently relate more to industry financing issues.

Our company (Intraverse Technologies) has started to explore some of the theoretical and technical issues involved in building supply chains that are based on provenance ideas. We are looking at how to use the blockchain for this, how to make smart contracts the basis for the provenance process and how to use token economy principles to reward the participants for doing the right thing. It’s early days but our “Provenant Sourcing” project is gathering pace.

By adding provenance to the supply chain process, we have opened up the possibility of creating a sustainable future for mining. The blockchain enables market forces to drive out “worst practice” and reward “best practice”. While it will take an enormous effort to realize the full benefits of these possibilities, the confluence of improving human rights, fixing the environment and guaranteeing the quality of supply to manufacturers may just create a persuasive case for change.

Notes:

  1. See https://www.metalbulletin.com/Article/3526043/AMNESTY-REPORT-Volkswagen-responds-to-NGO-cobalt-claims.htm
  2. See http://www.jorc.org/
  3. See http://cim.org/standards/documents/block484_doc111.pdf
  4. See http://equator-principles.com


SUPPLY CHAIN PROVENANCE was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.