Blockchain for Track and Trace

3-minutes Read

Blockchain for Track and Trace

The current Logistics Industry is facing many challenges brought about by the antiquated paper-based procedures coupled with the very expansive, complex and fragmented nature of Supply Chains in today’s globalized world.

A typical supply chain has a complicated mix of processes, players and documentation that have made it challenging to bring it into the digital age. For example, in a usual product lifecycle, raw materials first need to be sourced from suppliers, from here goods are processed and manufactured, then distributed to wholesalers and retailers and finally, they reach the consumer. Companies also need to store the product and materials at each of these stages of the supply chain. This requires the involvement of many different players along the way and a lot time spent filling out paper documents. The companies also operate within many different geographies and it is becoming increasingly complex as supply chains continue to grow and diversify.

The various involved parties also use unique and disjointed data systems which leads to difficulties in information sharing. Access to accurate, timely data and system transparency is a big issue which leads to many problems like higher costs, delays and mistakes. There is a great need for a new system in trade logistics which allows for interoperability of data between parties and for greater data transparency across the whole industry. Blockchain can help to bring solutions to these challenges and meet the needs of businesses and consumers.

What is Track and Trace?

‘Track and trace’ is the ability to follow a product at every point along its journey, all the way from the sourced raw materials through to the sale of the finished good to the end consumer. Tools can allow businesses to ‘track’ a product’s location along the supply chain and to ‘trace’ its history and the source of all of the materials. This is very challenging to do with paper-based, non-standardised procedures which so many industries still use, but blockchain is starting to revolutionise this.

How does it work?

In a blockchain track and trace logistics system, the parties in the supply chain including manufacturers, suppliers, distributers, retailers, warehousing facilities and others, will operate as a node (network member) in a peer-to-peer blockchain network. These networks would usually be private, meaning that authorisation would be given to permissioned parties to join as members, rather than it being open to everyone from the public.

Each participant will have access to the shared ledger that captures and stores the logistics data. All information pertaining to a product is cryptographically added to the ledger in the form of new blocks added to the chain and self-executing smart contracts. In this way, all of the relevant stakeholders are able to interact with the same inoperable system and share standardised data with each other.

There is no need for a central party to govern the system and verify transactions because the full transparency and immutability of the blockchain mitigates trust issues and gives the whole community of network members the power to manage it in a decentralized, distributed manner. The self-executing smart contracts which are executed when pre-defined conditions are met, can also automate much of the process without the need for a trusted intermediary to do authentication, reconciliation or reporting.

However, before the data can be stored and shared on the network it must first be collected. For this to happen, the physical product initially needs to be assigned a unique identifier which is linked with information about the product. This information includes data such as its origin, materials and the batch number and as the product moves along the supply chain further data like transactions, locations and ownership changes are timestamped and added under the identifier. This can be done using a variety of technologies including electronic data interchange (EDI), bar codes, QR codes, radio-frequency identification (RFID) tags, near-field communication (NFC) and global positioning system (GPS) devices.

A blockchain-powered supply chain can also be combined with Internet of Things (IoT) technology for a truly real-time system. In this case, open standards-based, internet connected devices are placed on the products and these automatically record and digitise the data. These devices, or smart sensors, are also often set up to capture a wider set of information that can affect the quality of the product, for example temperatures. The sensors autonomously collect and transmit the data back to the blockchain in real-time, allowing for accurate, timely and specific track and trace capabilities.

What benefits does this bring to businesses?

  • Logistics Management

Companies have access to real-time location and transport information which allows them to better plan and coordinate the timing of orders from suppliers and deliveries to customers so that there are fewer delays. It would also help them to improve the management of transport fleets and logistics resources. In addition, analysing the data can identify patterns and highlight inefficiencies in the process.

  • Supply and Demand Management

Improved data transparency gives businesses the power to carefully monitor and control stock levels, storage needs and any waste. This will in turn help them in controlling their operating costs.

  • Security

The fully visible and irreversible nature of the distributed ledger makes it very difficult to tamper with, which helps to secure it against fraud. As companies can always track products’ locations and the transactions are always clearly dated, there is more protection against theft as well as counterfeits or contaminated goods finding their way onto the market. This enhanced security is valuable in all industries, but especially those in which product authenticity is vital, such as the pharmaceutical industry. Track and Trace also allows for more immediate action in case of emergency, for example if a product is contaminated then recalling it can be done much more efficiently.

  • Regulatory Compliance:

The distributed ledger technology provides a completely visible and accessible audit trail which companies can use to demonstrate regulatory compliance.

  • Transparency for Consumers:

Consumers are increasingly concerned with the sustainability, health, ethical and environmental factors of the products that they purchase and consume. They want to know where the product comes from, the provenance of the materials that went into making it and that the processes used meet ethical standards. Companies are therefore being pressurised to be able to provide them with this information and are realising that consumers are often willing to pay premiums for it. Through blockchain these details can be sourced for every material that has gone into the production of the product and for every service provided by the companies along the supply chain.

  • Cost Savings

Ultimately, smart track and trace systems should enable companies to reap financial rewards from the cost benefits. The reduction in errors, delays, waste, theft, spoilt and contaminated goods, compliance measures, stock shortages, excessive stock surpluses and manual processing should enable companies to save on operating costs in the long run.

AI Link Group Limited, through its affiliates, AI Link Finance Limited and DeepAuto Limited (collectively “ALG” or “AI Link”) operates TradeFi, a financial technology platform that provides trade finance to customers in Hong Kong and Mainland China.

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