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The Corona Portal

How blockchain technology will empower supply chains to come out stronger on the other side of COVID-19

The COVID-19 pandemic has tested the adaptability and resilience of both individuals and businesses around the globe. It has revealed deep fissures in our healthcare systems and the inequalities in access that we can normally ignore — laying them bare as the impacts from the virus continue to ripple through every corner of our lives. However, while governmental regulations and restrictions have forced a near-total shut down of life as we knew it, facing these changes presents us with new opportunities for transformation.

As a “new normal” develops in the wake of the virus, nearly every individual and company has been forced to confront the need to change and adapt. Technology has provided a momentous medium through which emergent social and economic revolutions are taking hold, creating new portals where doors have been shut by COVID-19, both for individuals and for businesses alike.

This critical moment of forced transformation has pushed more and more companies to look toward technological solutions to confront the mounting challenges facing global value chains (GVCs), which have been sharply upended by the impacts of COVID-19 on production and transportation. Over the last forty years, GVCs — encompassing the full journey of a product from conception, sourcing of raw materials, production, to distribution across a diversity of geographic spaces — have become more entrenched as the world has become more globalized. Together, China, the European Union, and the United States, the regions hit hardest by COVID-19, form the backbone of most GVCs. In these countries, strict governmental restrictions have resulted in the widespread closure of production sites and drastically impacted exportation.

Businesses around the world have felt the impacts of this, forcing them to question the resilience of systems that have remained largely unchanged for decades. Across the board, this disruption has revealed three, intertwined areas of improvement required to make supply chains more resilient against future shocks: visibility, diversification, and the digitalization of records.

  • End-to-end visibility of supply chains allows for production pipelines to be both efficient and agile, enabling businesses to receive real-time status updates from supply chain actors, which allows them to coordinate a quick response to disruption.
  • Over the decades, global production has become highly concentrated in an effort to save money, producing an over-reliance on certain countries in GVCs, like China. Diversification of the source of both raw material and labour enables companies to be more shock-resistant to any number of global fluctuations and crises.
  • While many businesses have transitioned from paper to digital, trade has remained a sector stubbornly reliant on paper-based processes. The stay-at-home measures enacted worldwide to combat the spread of COVID-19 revealed that physical records cannot be maintained when physical presence is not an option. In a world that was already moving away from office-based work, this pandemic has served to speed-up the realization that new processes, including the digitalization of records, will be required for tomorrow’s world.

The thread that runs through all three of these areas of improvement in GVCs is information. Data production and sharing are required from supply chain actors in order to boost visibility. This type of information is absolutely critical to businesses shifting away from centralized production and toward diversification, both for a company’s internal coordination and external marketing needs. Finally, the digitalization of records entails the digital capture and storage of information along GVCs.

This signifies that at the heart of the issue there is a fundamental need for digital data production, capture, storage, and distribution.

That need is widespread. According to PwC’s Covid-19 CFO Pulse Survey, thirty-one percent (31%) of finance leaders in the U.S. and Mexico indicated supply chain issues as one of their top three concerns related to the COVID-19 outbreak, and thirty-nine percent (39%) stated they are evaluating their supply chains to improve resistance to future disruptions. It is clear that this moment of forced transformation presents businesses with an opportunity to not only adjust, but to revolutionize their supply chains. The only question is — what is to be done?

The World Economic Forum, in chorus with many resounding voices from the tech community, is pushing blockchain technology as a potent answer to this question. Though blockchain technology has been making waves in the world of finance and economics for years, its influence has yet to reach maturity across the broader use-cases for which its potential is routinely touted.

Blockchains function as an immutable, digital ledger, recording the transparent and traceable history of any asset. This essential capacity can support a global transition from shattered to resilient supply chains by addressing all three areas of concern for GVCs prompted by COVID-19.

Visibility

A key aspect of blockchain technology that has pushed it to the fore of this pandemic as a path forward for making GVCs more resilient is that it offers a single source of truth for businesses. When visibility is low across supply chains data is either not offered or not trusted. What is lacking is a succinct architecture that functions from a place of transparency at its very core.

Having said that, it is important to consider that every supply chain actors is a distinct business, each with their own discrete system of information capture and storage. The challenge is that these disparate systems are simply not built to provide a seamless digital infrastructure that stretches across geographical spaces and links all actors of a supply chain. Blockchain technology, however, was created specifically to offer integration across global systems while providing verifiability of claims without revealing sensitive information.

The COVID-19 pandemic has at once demonstrated the interconnectedness and the fragility of our supply chains. In order to strengthen the bonds between global links, a seamless digital infrastructure that enables tactical visibility of the movement of assets and money across the globe is not optional but required. The interoperability offered by blockchain infrastructures uniquely provides for this. The application of blockchain technology in this context can transform the currently fragmented approach of most supply chains into an end-to-end integrative experience.

Diversification

When we look at the source point of most GVCs, we find China: the world’s largest exporter of intermediary goods used to make final products. Since 2001 with its acceptance as a member of the World Trade Organisation, China has become known as “the world’s factory”. However, the country is unlikely to hold on to this title as it emerges from the trauma induced by COVID-19.

As with all areas of supply chain improvement that have now taken on a tone of immediacy, this transformation has actually been well under-way since the Trump administration’s trade war with China began in 2018. This pandemic has likely served as the last nail in the coffin, pushing China to concentrate on thrusting its way up value chains through science and technology development and manufacturing, and forcing companies to focus on supply chain diversification.

It is predicted that many companies will soon begin to engage in new supply and production partnerships. This is expected to produce an opportunity for businesses to either shorten supply chains and renew focus on localized production or to shift production sites to other countries that can provide bountiful labour and adequate logistical capabilities, such as Mexico, Turkey, and Eastern European nations. Either way, maintaining visibility across the diversification transition will be vital to both a company’s supply chain coordination and marketing needs.

On one hand, communication between supply chain actors becomes ever-more important as supply chains grow more complex. Blockchain technology provides a high level of visibility across peer-to-peer interactions, which is required in order to keep all parts of a supply chain moving in synchronicity.

Alternatively, localizing production will come at a significant cost to businesses who depend on China for cheap material and production. In order to offset the cost of domestic production, businesses will likely have to charge a higher price for their product and compete with other companies advertising local production as a claim to a certain ethos. The ability to prove ethical and sustainable sourcing and fair work practices can help companies to gain an edge in this market.

The transparent traceability offered by blockchain technology thus holds tripartite value in the process of diversification for supply chains. It (1.) allows businesses to gain oversight of a product’s journey and exchange of money along GVCs, (2.) enables communication between supply chain actors, and (3.) facilitates the ability to demonstrate an ecological and social ethos through the provable provenance of goods and payment of fair wages.

Digitalization of records

Similar to the move to diversify source and production across GVCs, the digitalization of supply chain records has likely received a resolute push due to the impacts of COVID-19. The digitalization of supply chain records is required to increase visibility across GVCs. However, this transformation will require a facilitating infrastructure.

Blockchains are often defined as a digital ledger, making the argument for applying this technology to supply chain records a bit of a no-brainer. Blockchains offer a secure way to immutably capture information with history. The data collected can be shared selectively or be made public. It is both verifiable and tamper-proof.

The ability to securely collect, capture, and share verifiable supply chain information across a diversity of actors is of great value in this context. Employing digitalized record-keeping processes on a blockchain can promote trust, efficacy and communication in a way that is not possible using dated, paper-based systems. Information cannot be stolen, fabricated or lost as it can with paper.

Unlike paper records, which cannot inspire trust along a supply chain without sharing the entirety of contextual information, blockchain technology enables users to selectively unveil information without context by capturing not the data itself but the proof of that data, which any claim can be checked against.

As such, the digitalization of records via a blockchain-enabled system facilitates the building of trust and collaboration amongst key stakeholders across supply chains. This is of great value, especially when considering the pressing need for trust and coordination among newly formed relationships as businesses begin to diversify sources of material and labor.

Blockchain: Creating infrastructure for tomorrow, today

As author Arundhati Roy has poignantly written about this moment of forced transformation produced by COVID-19: “Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next.” While Roy points to the large-scale social and environmental baggage we can choose to carry through the portal with us or not, her argument applies to our discussion as well.

This moment in history marks an opportunity to revolutionize our systems across both civil society and business — the two are, of course, not separate but inherently connected; both a product of the ways in which we interact with each other and the world around us, from a local to a global scale.

Technology presents us with tools that can be used to travel through that portal and build a world that is better than the one we leave behind. Blockchain technology is one such enabling tool. It holds immense promise for revolutionizing supply chains, injecting transparency, accountability, and trust into systems that are no longer working for us. The problems manifest in today’s GVCs have been brought to the surface by the impacts of COVID-19, but they are clearly not ills caused by the virus itself.

A lack of visibility, along with the needs to diversify and digitalize are three serious challenges plaguing supply chains today. These areas of concern that have been simmering just below the surface for years have now broken through with devastating force, due to disruptions caused by COVID-19. Luckily, blockchain technology is well-placed to not only fortify broken infrastructures but also to usher in a new era of trust, accountability and transparency across GVCs. As we step through the corona portal we will have the chance to not just place a band-aide over persistent problems but to seize the opportunity for transformation. On the other side awaits a better world, we just have to build it.

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Image via Science Magazine

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