Transforming Illicit Trade Blockchain for Manufacturing

Main visual : Transforming Illicit Trade Blockchain for Manufacturing

Blockchain’s basic definition as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way” has led to a strong association with the world of finance. Discussion of the technology is typically dominated by arguments for and against the adoption of cryptocurrencies.

But there’s a lot more to blockchain than bitcoin.

I’d go as far as to suggest that it has the potential to completely change how we think about manufacturing. In fact, this change is already afoot.

There’s not one industry I can think of that doesn’t involve some kind of manufacturing or assembly, which means there’s not one industry that doesn’t in some way involve the use of supply chains.

Blockchain has the potential to revolutionize the operational efficiency and transparency of these processes – a pressing challenge since globalization first began stretching supply networks over the earth’s surface. It’s my belief that, after finance, manufacturing presents the biggest opportunity for applications of blockchain technology.

This potential is something we recognize at Fujitsu. We’re investing in blockchain centers of excellence, with our Spanish base focusing on finance and a center in Belgium applying expertise to manufacturing and retail products.

The fact is, though, that many people view ‘change’ in terms of the disruption (or, more blankly, cost) it might incur. But to ignore the long-term benefits of implementing blockchain more widely across manufacturing is a mistake.

It has the potential to boost people and organizations on all sides, including governments, consumers, retailers, and (of course) manufacturers themselves.

Here’s how.

Tracking trade

The blockchain is a way to track the provenance of a product all the way back to its origin. By including the creation, distribution, and collection of any item in an incorruptible record, it’s possible to keep tabs on the lifecycle of products as they pass through the supply chain.

For governments administering import and export taxes, as well as other duties, the ability to do this swiftly and accurately is vital.

Take tobacco for example.

When you buy a pack of 20 cigarettes in the UK, duty is charged at 16.5% of the retail price plus an additional £4.34 (and VAT). It’s a considerable cost to pay and a healthy source of income for the national coffers.

This problem is even more pronounced across continents like South America, and between the US and Canadian borders, where countries speak the same or similar languages – so discrepancies between different packaging are less easy to spot.

When illicit traders choose to skirt these costs – by, for instance, smuggling large quantities of undeclared tobacco products across borders – the government and, by extension, the country loses out. And this kind of criminal activity is made possible by a lack of traceability of the products in question.

Using blockchain technology, it’s possible to record products through each stage of the manufacture and sales cycle – meaning that if a box of cigarettes goes missing or off route on its way to the final point of sale, avoiding duty payments, it can be declared illicit and removed from circulation.

Tracking and tracing tobacco products in the EU will, as of next year, be specified by an updated directive. To comply, tobacco manufacturers will have to absorb the cost of recording products into and out of their possession. Could blockchain technology help them recoup some of that cost?

Clamping down on counterfeits

It’s not just governments that lose out because of illicit trade. It costs global tobacco groups billions of pounds a year too.

Being able to check a product’s details, such as when and where it was made, is a straightforward way to clamp down on illicit trading, and secure supply chains from end to end.

It can also offer a greater degree of control over product quality, allowing companies to identify which tobacco farms, for instance, produce a crop that particularly suits a certain brand of cigarettes.

And this can, of course, be applied to all sorts of other industries too.

Fashion, for instance, is plagued by counterfeiters. But by tagging clothes and shoes, and tracking them from their origin to the point of sale, it’s possible to combat fakes and ensure quality.

There are more intricate cases in which blockchain-based tracing can be implemented too.

The lifespan of an airplane’s engine will vary, but any engine will undergo several refurbishments before it’s finally decommissioned. This typically involves breaking it down into its constituent parts, which can be repaired and redistributed for use in other engines.

Being able to track these individual parts – including key details such as how many times they’ve been repaired and reused – is not only vital for optimizing engineering efficiency, but it could prove life-saving in the case of identifying overused or consistently faulty parts.

Indeed, this point hints at how applying blockchain to manufacturing and supply chain can provide a direct consumer benefit.

Protecting consumers

Because the records produced by blockchain can be viewed by anyone, it opens up a greater degree of transparency for consumers and end users.

Being able to view the provenance and supply chain progress of a particular product allows consumers to make more informed purchase decisions – and to know that what they’re buying is indeed what they think it is.

Sometimes this benefit – or, more starkly, the lack of it – can have serious consequences.

In the case of vaccines, for example, knowing that what you have in your hand can be a matter of life death.

Earlier this year, widespread outrage in China prompted an investigation into the sale of a quarter of a million faulty rabies vaccines. In 2017, the World Health Organisation published estimates indicating that as many as one in 10 medicines in poor countries are counterfeit – and at the root of tens of thousands of deaths every year.

The stakes in these cases clearly couldn’t be higher. Blockchain could well be the answer to minimizing cases of vaccine counterfeit, as records will track and confirm genuine samples.

Knowing what you’re delivering to a patient or customer offers more than peace of mind to suppliers and retailers.

Building a brand reputation

Penalties for pedaling counterfeit goods can be hefty for retailers, but for most honest traders who want to build their brand along with consumer trust, it’s a reputation that weighs more heavily in these cases.

Just as consumers want to know they’re receiving exactly what they’ve paid for, retailers don’t want to be left vulnerable to accusations of ripping off the very people that are most important to the success of their business. That requires faith in your supply chain – faith that an incorruptible distributed ledger can easily provide.

Stores can use blockchain to protect themselves from fraudsters in other ways too.

A common confidence trick involves goods being stolen from one outlet, then returned for a cash refund at another. But of course, blockchain tagging would show that the item was never purchased in the first place – and had been marked as missing – allowing store managers to catch the con artist in the act.

To find out more about the work Fujitsu is doing in blockchain visit our Blockchain Innovation Center.