A research report based on the analysis of 1,807 business interruption related insurance claims found out that supply chain disruptions are increasing the severity and frequency of business interruption claims. The average large business property insurance claim was more than $2.4 million. As a business grows, its supply chains get more complicated and even harder to manage. For example, a major automobile manufacturer may have to manage over 50,000 different suppliers. A disruption at a critical supplier’s supplement could potentially generate losses as high as $2bn in the automotive sector alone. Business interruption and supply chain risk have been ranked as the top hazard facing global businesses according to a survey of over 500 risk managers and corporate insurance experts from more than 40 countries.
The major factor that causes loss to the retail and food supply chain is supply chain frauds. Even though organizations are using analytics to prevent fraud, supply chain waste, and abuse, the level of supply chain fraud remain high. Since fraud can occur at any stage along the global value chain, it is an issue of particular importance to distributors and retailers. According to PwC, Food fraud costs about $40 billion every year for the global food industry. More than financial losses, food fraud can lead to public health risks and damage brand reputation. We have already seen a few such examples from Horsemeat scandal in the UK, Chipotle’s E.coli outbreaks etc.
It goes without saying that ensuring a fraud-free supply chain is the need of the hour, especially for food and retail industries. It requires close monitoring and easy traceability of products along the supply chain. But the involvement of many highly diverse elements along the supply chain, lack of effective communication among them and the archaic methods of maintaining records makes this a highly complicated and time-consuming task.
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Blockchain is a decentralized database that stores records of digital data or events in a manner that makes them tamper-proof. While many users may access, or add to the data, they can’t change or delete it. The original information stays intact, leaving a permanent and public information trail, or chain, of transactions (Investopedia). According to several industry leaders, Blockchain has the potential to boost the efficiency and profitability of many businesses including the supply chain industry.
Let’s consider the case of the salmonella outbreak in the U.S. during 2008-2009. Peanut Corporation of America—a Virginia-based peanut processing company was the antagonist here. The salmonella contamination in the peanut paste used in various products, led to the deaths of 9 people, with 714 people affected by it. This triggered one of the largest product recalls of the time in the country. With products ranging from granulated peanuts, crackers, granola bars, cookies, chocolate ice-cream, to pet food products, a total of 3,913 food products were recalled in a process that took around two months. This is a situation that Blockchain could have easily mitigated. One of the fundamental issues with conventional food quality assurance systems is the lack of a uniform recording system among producers, suppliers, and retailers across the food supply chain. Moreover, most of the records providing information about the origin of the food product, lot number, expiration date, and shipping details may not be maintained at every stage of the supply chain and are also easy to manipulate.
The diagram above depicts a high-level representation of a blockchain based supply chain for retail, food industries. Here, under each step in the supply chain of a food commodity, the relevant information and certification can be recorded in a blockchain network, making a permanent tamper-proof record which can be accessed by an end customer to see the quality details of the food commodity, ensuring that they are buying good quality products which have a genuine track record of the supply chain. Such an extensive system could have traced the origin of the contamination and narrowed it down to an exact lot of the contaminated product. This would have facilitated faster and more precise product recalls and maybe, fewer casualties. It would have also saved the company a lot of money.
A blockchain-based food quality assurance system which can help maintain a verifiable and tamperproof record of the food products along its journey from farm to fork would be the perfect solution. It would be beneficial in the following ways:Food fraud costs about $40 billion every year for the global food industry. More than financial losses, food fraud can lead to public health risks and damage brand reputation. Click To Tweet
By virtue of the system relying on a decentralized ledger, various participants across the food supply chain would be more accountable to ensure optimal food safety. Being integrated into one single platform would allow unparalleled levels of transparency of operations, providing participants with on-demand, real-time information pertaining to the food products. Blockchain reduces the time to required trace the source of food from days down to a few seconds. Food or product recalls, will be much smoother and this, in turn, will save time and resources, reduce food waste, and maybe most importantly, drive competitive advantage.
The blockchain system would allow for checks to be made at every level of the supply chain, ensuring the highest levels of food security. In the event of contamination being detected, the source of the problem can be easily traced and only the affect lot can be pulled off the shelf. Apart from drastically reducing food-related diseases, it would also reduce the healthcare burden associated with the same. For example, a 1% reduction in the number of foodborne diseases in the U.S., would result in saving of US$ 700 million.
From the consumer’s point of view, they would be able to verify all details about the food product including information about its origin and expiration date, before deciding to make the purchase. The incorruptible nature of the record would help improve consumer confidence in the products, wherein they can be assured that all information provided is a 100% accurate and reliable.
Effective communication among all participants would be possible if all the records are available to all across the supply chain. The food products can be maintained at optimal temperatures and storage conditions on the basis of various aspects such as the duration of transit and production date can be assessed accurately. This would ensure that the end consumer is offered the freshest produce and products. This would also help cut down on food wastage as currently, around one-third of the food worldwide goes to waste. Lesser food losses and optimal functioning of all elements in the supply chain would result in significant cost savings, which in turn can be passed on to the consumers.
The advent of blockchain promises to bring about a paradigm shift in the food sector, with major industry players working together towards improving food safety standards through implementation of the revolutionary technology. The end-to-end transparency provided by blockchain promise to make all food safety woes a thing of the past and bring safe and affordable food within the grasp of all.
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