Dock has been a pioneer in the blockchain space. Since 2017, our expert team has been building cutting-edge Verifiable Credentials (VC) technology. This article explains how Verifiable Credentials can be used to provide transparency, efficiency, and reduced costs across entire supply chains from production all the way to the customer.
TL;DR
- Supply chains are becoming increasingly complex with more players, interactions, and transactions involved. For a long time, the supply chain industry has been plagued with fraud including lies about the origin of goods, manipulation of financial and inventory records, and counterfeit products.
- Blockchain and Verifiable Credentials technology can help prevent supply chain fraud by securely recording transactions between parties in a verifiable and permanent way that makes it very difficult for bad actors to cheat or hack the system.
- The integration of blockchain in a supply chain provides complete visibility on the entire supply chain for all stakeholders, reduces the need for intermediaries, reduces operational costs, and provides transparent product data for customers.
- Dock’s blockchain and Verifiable Credential technology can be integrated to effectively reduce and prevent supply chain fraud.
Introduction
The global supply chain management market size was valued at USD 10.1 Billion in 2020 and is projected to reach USD 19.3 Billion by 2028. Supply chain is the path for any product such as food, clothes, or appliances to go from where it was a produced, to distributors, procurement officers (quality inspections), and the market.
A 2018 report from the Association of Certified Fraud Examiners said that more than $7 billion is lost globally due to fraud. Because the supply chain is becoming increasingly complex with many players involved including those requiring many contracts, tracking, logistics, and communication, the industry is plagued with many problems including:
- Lies about the origin of goods and product standards
- Financial fraud such as manipulating record systems resulting in deceptive billing
- Counterfeit goods
- Fragmented communication between parties
- Outdated technology and the use of paperwork that are difficult to track
- Difficulty in investigating supply chains for illegal or unethical practices like bribery
But blockchain technology is increasingly being adopted by organizations in the supply chain industry to solve many of these problems. Blockchain and Verifiable Credentials has the potential to effectively provide full transparency across the entire supply chain in a secure way and prevent fraud from producer to consumer at much lower costs.
Supply Chain Fraud and Its Consequences for Organizations and People
Shipping information often travels through many companies and contractors and there is little to no way to know the authenticity of the data that is exchanged between these parties. As an example, one shipment of refrigerated foods from East Africa to Europe can pass through 30 people and organizations and involve over 200 interactions. When there is a delay in a step, it can delay the whole chain.
How do we know if:
- a consumer can trust that the product was made to the quality it claims to be?
- the driver brought the product to the right destination?
- a party didn’t modify data in their own separate database to suit their own interests?
- we can trust that each party in the chain did their job properly?
Modern supply chain fraud predominantly involves collusion and collaboration between multiple employees to bypass business authorization protocols and checks. In one of Deloitte’s studies on supply chain fraud, their results state that internal employees pose the highest levels of risk (22.9%) compared to vendors (17.4%) and third parties (20.1%). Project managers, invoice approvers, and procurement professionals rank among the highest employees at risk for committing supply chain fraud. A colluding manager can sign off the fraud then makes the transaction disappear or ensures that the product never enters the permanent records.
FCB Group, a company that specializes in providing Australian businesses with employment law advice, wrote an article that said in their experience, “The largest fraud risks predominantly arise from high level managers within the business colluding with other key internal and external players.”
Inadequate Technology and Solutions to Address Supply Chain Fraud
The KPMG 2016 Global Fraud Survey reports that more than half of the frauds committed were enabled by the business’ own technology systems:
- 24% of frauds used the business' technology to create false or misleading information in accounting records
- 13% of frauds arose where an employee abused permissible access to the business' computer systems
Another problem in supply chains is a lack of consistency in technologies between parties where people connect with a mix of low-tech (e.g. emails, fax, and phone) and high-tech (e.g. artificial intelligence and IoT-enabled services) tools. This lack of uniformity in communication methods creates a risk of inconsistent reporting, data breaches, and payments.
There have been some suggestions to detect and prevent supply chain fraud including:
- Setting up a whistleblower hotline.
- Monitoring if colluding employees take their annual leaves in blocks. Employees involved in fraudulent schemes commonly don't take leave because they’re worried their activities will be discovered by their replacements.
- Seeing if inventory management records or financial records contain a number of messy adjustments, credits, transfers, errors, or corrections.
- Conducting management reviews at random times of the year.
The problem is that all of these ideas rely on manual processes and human monitoring that can easily miss many fraudulent activities. Why not use technology that will systematically detect these problems for you?
Consequences of Supply Chain Fraud on Organizations and People
Fortunately, blockchain and Verifiable Credentials technology can completely revamp the entire supply chain process and help prevent supply chain fraud.
What Is a Blockchain?
Before diving into how blockchain can help the supply chain industry, it’s important to have a basic understanding of what blockchain is and how it works.
A blockchain is a system of digitally recording information on a database that is shared among computers in the blockchain network in a way that is very difficult for someone to manipulate information or cheat the system.
Key features of blockchain technology:
- Highly secure system: Use of cryptography which is a method of protecting information and communications through the use of codes so only the intended recipient can read and process it.
- Shared source of truth: Everyone in the supply chain network is referring to the same data rather than each party using their own database that can be manipulated without other parties knowing. The blockchain efficiently records what entity issued a credential or certificate in a verifiable and permanent way. Everyone in the network has a copy of the ledger every time it is updated for complete transparency.
- Immutable: Once data is recorded on the blockchain, it is permanent and very difficult to change. If someone tries to tamper with the data, everyone in the network will know about it.
How blockchain helps supply chain management:
- Enables digital credentials and certificates to always be verifiable
- It’s important to have a single, time-stamped, open, and transparent version of the truth
- Provide traceability, real-time logistics tracking, low-cost electronic funds transfers, and smart contract management
- Processes such as negotiations support and procurement can also be connected through blockchain
- Only authenticated stakeholders can enter the supply chain network
Learn more about blockchain here.
How Blockchain Can Solve Supply Chain Problems
How Dock Can Prevent Supply Chain Fraud With Verifiable Credentials and Blockchain
We’ll use an example of a common supply chain scenario and how Dock’s technology can help prevent fraud and bring visibility across the entire supply chain.
Before the example it’s important to understand these two terms:
1) Decentralized Identifier (DID)
A decentralized identifier (DID) is a way to identify something or someone without relying on a central authority. It's like having a unique digital identification card that you control and can share with others. Think of a DID being comparable to someone or a party like a manufacturer, logistics company, or distributor having a unique ID similar to an employee ID number.
Here is an example of a Dock DID:
Products like batteries, clothes, or food can each be assigned their own DIDs in order for all relevant parties in the supply chain to track information about them at any time.
Important data can be associated with each DID as it goes through the supply chain such as the day a batch of coffee was received by a manufacturer, the number of units that were shipped, and Fair Trade certification to prove that farmers were paid a fair wage. This data can be packaged as Verifiable Credentials and shown to verifiers in a user-friendly format.
2) Verifiable Credential (VC)
A Verifiable Credential is a digital, cryptographically secured version of both paper and digital credentials that people can present to organizations that need them for verification.
For the supply chain, it can contain details like product quantities and certifications on standards. As many VCs can be attached to product and stakeholder DIDs as needed as data is added and recorded on the supply chain. Learn more about Verifiable Credentials.
Using the example of the organic food supply chain, we’ll go through a step-by-step flow of how blockchain can help prevent fraud in the supply chain.
Example of How Verifiable Credentials and Blockchain Can Prevent Supply Chain Fraud
Organizations and products with DIDs
- Government inspector that reviews and provides organic certification on food products
- Farmer
- Processor
- Distributor
- Retailer
- Customer
- Each batch of 200 organic apples is given a unique DID
- A government inspector in Chile issues a certificate as a Verifiable Credential confirming that a batch of apples meets organic standards. The inspector adds information on the VC about the quantity of apples (200) in the batch, the farming community, and the environmental conditions they were grown in. The VC is associated with the product’s DID and a QR code is provided on the box of apples for parties in the supply chain to scan and verify the authenticity of the data.
- When the apples are delivered to the processor, they scan a QR code with their phone to verify the credential to ensure that they received 200 organic apples. If they received 180 apples, then they will know that 20 somehow got lost or someone stole them and they can inquire about this discrepancy. If the processor receives 200 apples, they will then issue a VC that contains details about the date of receipt, quantity, and the date they sent it to the distributor.
- The distributor scans the VCs to check the quantity and organic certification. The distributor sees that there are 200 apples and adds a VC associated with the product DID stating the date of receipt, quantity, and date it was sent to the retailer. The Verifiable Credentials and blockchain help ensure that the product information is consistent throughout the entire supply chain. If anyone tried to tamper with the data, all of the stakeholders would know.
- The retailer wants to check the status of the next batch of apples, so they simply scan a QR code associated with the products’ DID to see its current location. The data shows that the apples are currently with the distributor.
- The apples arrive at the store in Canada and they scan a QR code to confirm that the products are organic and that they received 200 apples to match what the farmer sent at the beginning of the process. If there are any less than 200 apples, then the appropriate party can investigate where they could have gotten lost.
- The retailer adds a VC to confirm the date they received 200 apples.
- The retailer enables customers to check for themselves that the organic certification is authentic by scanning a QR code. The customer can also see the details about the farming community and product origin that is associated with the product’s DID.
- Throughout this process, all stakeholders can see which party issued the Verifiable Credentials based on their unique public DID that is stored on the blockchain. It’s important to know that the data on VCs is not stored on the blockchain. They are securely encrypted and only authorized parties can access this data.
Blockchain can replace manual and outdated processes in the supply chain
At Dock, we spoke with an organization that had most of their certifications on paper. They had to put multiple copies of important documents on a truck where the driver stored them in a box. The documents had to be delivered to each party on the supply chain, including the distributor all the way to the retailer. Along the way, the documents can get lost, ripped, or be easily forged.
This is an outdated way of managing, storing, and distributing important information to all parties in the supply chain. Blockchain and Verifiable Credentials allow organizations to efficiently and securely, store, manage, and share data at a significantly lower cost. Integrating blockchain in the entire supply chain creates an easily auditable trail of product certificates within and between parties.
How Is Blockchain Used in Supply Chain Management?
Supply chain management is being referred to as one of the most promising use cases of blockchain technology. More than half of the companies added to Forbes’ 2021 Blockchain 50 list were enterprises actively using distributed ledger technology to solve their supply chain and logistics issues.
There are a growing number of ways companies leverage Verifiable Credentials. Once one intermediary does their job, they issue a VC that can be checked and time stamped on the blockchain. Then the next intermediaries will follow the same process which makes products or assets traceable. If a consumer wants to know where their product is from, instead of trusting the label, they can check the Verifiable Credential by scanning a QR code to get the details about the product’s origin.
These are some of the most common blockchain use cases that are being explored in supply chains:
How blockchain is used in the food supply chain for safety
Cross contamination of food is hard to track and isolate because of the lack of traceable data on conventional supply chains. By the time the contamination is found, it is too late to track the origin and retailers and customers have to throw out the entire inventory of produce.
Verifiable Credentials enables product tracing from farm to consumer which can help reduce the time it takes to pinpoint and act on the contaminated food source in the supply chain. Frank Yiannas, VP of food safety for Walmart, said how blockchain makes it possible to get tracking information of a product in just 2.2 seconds. The process used to take almost seven days.
Bumble Bee Foods records its tuna operations to improve traceability and deter fraud. Their system tracks the movement of fish from the moment it’s caught to when it is sold in shops. Whenever the fish moves through the supply chain from the time is caught, a customers can view the information on where the tuna originated, the fishing community that caught it, and fair trade data that assures customers that their money isn’t used to fund unethical practices like child and slave labor. Verifiable Credentials enable this level of transparency from the moment fish are caught.
In addition to tracking food movements, laboratories that conduct tests on food products, a farm’s soil, and air to ensure quality can upload their results as Verifiable Credentials that verifiers can instantly check to ensure that the food meets safety standards.
Product tracking and tracing with blockchain
Knowing where products were made, the conditions they were made in, and other details about their origin is essential for companies to meet regulatory requirements as well as increasing demand from consumers to know the origin of their products. A growing number of customers want to ensure they buy products that were ethically produced by people working in good conditions or with less environmental damage. All of these details can be packaged as Verifiable Credentials and shown in a user-friendly format.
As an example, blood diamonds are diamonds that have been mined by people in violent or harsh conditions. The sale of these diamonds are often used to fund conflicts in a region. Diamond producers can use blockchain to track the diamond supply to reduce or eliminate the sale of blood diamonds on the market.
The world’s largest diamond producer, De Beers, is using blockchain as a collaborative network where partners are invited to access the entire route of processing a diamond. Each rough diamond is assigned a code and at every point in the process where it changes hands, or is cut, or polished, or set, a transaction is logged and the spreadsheet is automatically updated.
Blockchain solutions for delivery tracking
Products often get misplaced, lost, or very delayed in the delivery process. Verifiable Credentials can help delivery companies and freight forwarders to track their parcels in real-time to increase efficiency and reduce financial losses. As an example, when a truck driver delivers a product to a manufacturing facility, he can issue a VC with the product quantity and relevant details. The manufacturer can then verify the VC to ensure that the quantity matches their client’s order and meets product standards.
Fighting knock-off products
Counterfeiting is on the rise and is projected to exceed 3 trillion in 2022. A growing number of luxury brands in particular are using blockchain to effectively fight the sale of knock-off goods. Each product can be given a unique digital ID that tracks its status from production to market. Stakeholders will issue a VC as the products move through the supply chain creating an auditable trail.
In another example, almost 30,000 bottles of illegitimate wine are sold every hour in China and many of these wines are mixed with a variety of dangerous substances that can be detrimental to people’s health. With Verifiable Credential technology, a QR code can be placed on a wine bottle that enables companies to track the origin and movement of all of their wines and consumers can see all of the product details.
Examples of Stakeholder Benefits of Supply Chain Integrating Blockchain
Conclusion
Supply chains are becoming increasingly complex with many players, processes, and interactions involved. The supply chain industry has many problems with fraud including false accounting records, lying about product standards, and counterfeit products. The current processes make it difficult to track products and data to meet regulatory standards and customer demands because they use outdated technology in addition to being slow and inefficient.
Blockchain and Verifiable Credentials can help prevent fraud in the supply chain by providing a single source of truth for all stakeholders at every stage of the supply chain. Dock’s blockchain and Verifiable Credentials technology can be integrated in supply chains to help prevent fraud to enable more secure transactions and accurate data while reducing costs for organizations.
Learn More
- Blockchain and Health Care: BurstIQ Use Cases
- Verifiable Credentials
- Decentralized Identifiers (DIDs)
- Blockchain Identity Management
- Data Compliance
- Digital Credentials
- Decentralized Identity
About Dock
Dock is a Verifiable Credentials company that provides Dock Certs, a user-friendly, no-code platform, and developer solutions that enable organizations to issue, manage and verify fraud-proof credentials efficiently, securely, and at a lower cost. Dock enables organizations and individuals to create and share verified data.
