Using blockchain to drive supply chain transparency

As discussed earlier, one challenge facing blockchain is its lack of maturity in processing a large volume of transactions. At times, that results in delayed transaction processing and fees. Fortunately, there are various solutions and workarounds available to help address these shortcomings. They include:

• Technical improvements in Layer 1 blockchains, such as novel consensus mechanisms, sharding (which separates large data sets into smaller, faster, more easily managed parts), etc. that can enable higher transaction throughput on the Layer 1 chain. (“Throughput” refers to the rate/speed at which a blockchain processes transactions, often expressed in transactions per second, or TPS.)
• High-performant Layer 1s that prioritize the handling of higher transaction volumes while relinquishing on decentralization to some measure to facilitate that goal.
• Scaling solutions, such as sidechains and Layer 2s, that are built on top of current Layer 1 chains and that bundle transactions to enable higher transaction volumes.

Each of these solutions provides different value and requires certain trade-offs. But these protocols are mature enough for many projects that require speed and scale.

The blockchain ecosystem has seemed to learn from security breaches. There is evidence that industry-wide standards and security frameworks are emerging. Companies such as OpenZeppelin, Waves, CertiK and others provide standardized smart contracts for implementing common logic. Various technology foundations that developed Layer 1 blockchains have released industry-accepted guidelines, such as those for Ethereum Request for Comment (ERC), to help standardize on-chain applications. Others have created “bug bounty” programs to encourage researchers and white hat hackers to find and report critical bugs. Finally, multiple firms that audit smart contracts are helping enterprises vet their code before deploying their contracts on the chain. These efforts have progressively reduced security risks, and they help advance the adoption of Web3.

Web3 developer tools have made immense strides in short order. Various infrastructure providers, including all the major cloud providers, now offer blockchain infrastructure as a service. That can help make it easier for enterprises to spin up their Web3 applications. In addition, there are now several libraries, frameworks, and SDKs available to speed up the development of both Web3 applications and blockchain use cases—everything from financial applications and the adoption of digital assets to enterprise transformation through blockchains. Tools like code editors and integrated development environments (IDEs) have matured and become easier to use. These advancements are contributing to a pathway for enterprises to adopt Web3.

Consumers and institutions in many countries can now enjoy the ability to buy, sell, and hold cryptocurrencies. For their part, traditional financial firms are further exploring investment in digital assets thanks to improved institutional-grade custody solutions. Beyond that, Web3 has helped to improve traditional financial applications by providing access to retail investors and helping them to use digital assets to reduce settlement times and simplify global and cross-border transactions. Finally, decentralized finance (DeFi), which facilitates peer-to-peer financial transactions, has emerged as an alternative to traditional financial industry functions, especially among under- and unbanked populations.

The adoption of digital assets, such as NFTs and other types of crypto tokens, can open new avenues to the tokenized economy. Traditional assets like art, real estate, precious metals, and even intellectual property can be tokenized and traded more readily and cheaply than the more expensive underlying assets. This can enable token creators and their owners to extend market reach by introducing features such as fractional ownership. Although tokenization precedes blockchain as a concept, blockchain technology can improve the security and transparency of ownership while also allowing for the integration of additional features into the tokens through smart contracts. That potentially includes automatic access to specific services or communities. Digital assets are also providing enterprises with incentives to attract new customers through such programs as customized rewards while also engaging with current customers through loyalty and ticketing programs powered by NFTs.

A promising use of blockchain technology takes the form of enterprise blockchains. A type of private blockchain, it operates in an ecosystem in which participants are independent actors and no one participant controls the network. Such an ecosystem provides controlled access to the network while retaining vital dimensions such as security, immutability, and the absence of any implicit trust structures. Enterprise blockchains can help resolve otherwise challenging problems such as data governance, while making it easier to identify and neutralize malicious actors who compromise data; and they can prevent parties from modifying records while creating the requisite visibility for transactions among participants. For example, enterprise blockchain solutions can help streamline supply chains by enhancing security and trust, can facilitate the protection of personal data (such as medical records), and can help governments, among others, better protect and more effectively use citizen data.

Overview: As blockchain technology continues to mature, its networks will require universal interoperability standards.¹⁵ Those will help ensure compatibility across different types of blockchain platforms and decentralized applications, as well as existing legacy technological ecosystems. These measures will enable cross-communications and verification of end-to-end transactions throughout the supply chain networks.

Potential mitigation: Currently, “bridges” help achieve cross-chain interoperability. They are typically a combination of on-chain smart contracts and off-chain “relayers” that work in tandem to transmit information from one chain to another. While this facilitates interoperability, it may present certain trade-offs depending on the nature of the bridges. Ideally, the off-chain relayers should be decentralized. And on-chain smart contracts should auto-validate all the transferred information to eliminate the need to trust any intermediaries. However, this on-chain validation can be resource-intensive and prohibitively expensive. To offset that, certain trusted entities can be permitted to transfer information (instead of utilizing a decentralized network of relayers). While this can help mitigate the resource issues, it does require that all the participants trust the bridge relayers. Ecosystem participants need to assess these matters collectively to arrive at common standards based on acceptable levels of risk, performance, and trust among the participants.

Overview: Scalability considerations—notably, processing power, high-speed internet connectivity, energy consumption, and proficient storage space—are the key factors affecting public blockchains.¹⁶ Given the size and growth potential of public networks compared to the more exclusive private blockchain networks, enterprises are more likely to leverage the latter for their business needs. However, given the increasing globalization and interconnectivity of end-to-end supply chains across sectors,¹⁷ enterprises may need to evaluate the scalability of their private blockchains so they can maximize the inclusion of supply chain partners and help mitigate the common supply chain risks noted above.

Potential mitigation: Currently, supply chain enterprises, and their internal IT functions, can explore a variety of possible scaling solutions. For public chains, popular solutions include high-capacity layer 1 blockchains and scaling solutions such as layer 2 blockchains. High-capacity layer 1s are chains that allow high throughput of transactions; however, they may make compromises on decentralization. Layer 2s are scaling solutions that build on top of existing layer 1s to bundle transactions before posting them back to layer 1. That way, they retain decentralization as they still rely on the base layer’s security.

For private chains, scalability is less of a concern. That’s because the permissioned participants can choose to rely on high-performing hardware and lighter-weight consensus mechanisms to support transactions throughout the network. Each industry needs to decide on what best suits its needs based on the nature of its supply chain network. If it needs to rely on a public chain, however, then it can use various layer 1 and layer 2 protocols depending on their ability to scale appropriately. If it needs to deploy a permissioned chain, then it should forecast network usage as accurately as possible to determine hardware requirements and the appropriate consensus mechanism.

Overview: Every technological solution presents a set of potential security and privacy risks. Enterprises should bear these in mind across the exploration, design, adoption, and implementation phases of the solution life cycle. For blockchain technology, these security and privacy risks exist across four high-level categories: confidentiality, integrity, consensus mechanism, and smart contracts.¹⁸

Potential mitigation: Supply chain and enterprise leaders should be sure to incorporate their IT and cybersecurity partners into strategic discussions early and often throughout the entire solution exploration, adoption, and implementation life cycle. By doing so, they can help educate supply chain network participants on the best practices, key technological risks, and potential workarounds. Additionally, this collaboration facilitates the development of comprehensive IT strategic plans that can help mitigate potential risks as early as possible. Figure 1 provides an overview of security and privacy risks along with an example of a risk evaluation matrix across different types of blockchain.¹⁹

Figure 1. Risk evaluation matrix: Security and privacy risks

Source: Adrien Ogée et al., Inclusive deployment of blockchain for supply chains: Part 5 – A framework for blockchain cybersecurity, World Economic Forum, December 2019.

Overview: For global supply chain networks, the adoption of blockchain is still in its infancy. To spark further investment and encourage organizational buy-in, supply chain leaders should clarify the direct business value of blockchain technology to the C-suite of their enterprises. Leaders must also support further discussion on industry standardization of blockchain as well as the allocation of resources to develop critical internal blockchain expertise. Only then will leaders be in a position to advise on potential solutions, implementation, and integration with existing ERP systems and frameworks²⁰ so they can minimize operational disruption.

Potential mitigation: Supply chain leaders should facilitate discussions with internal and external stakeholders within the organization and across supply chain networks. That way, they can collectively explore the potential value-add of blockchain technology and conduct cost-benefit analyses that can inform future investment decisions.²¹

OVERVIEW
Tracking parcels or shipments in real time is possible with modern delivery services; however, data is often tied to a specific company that manages the delivery chain. Valuable insights from collected data often end up in a centralized repository. But that limits their availability for analysis by multiple parties and represents a lost opportunity to optimize the management of the supply chain.

APPROACH
Deloitte worked with a client to develop real-time shipment tracking. To do that, Deloitte teams brought together a common blockchain platform—Hyperledger Fabric—which underpins Deloitte’s supply chain prototype “Track and Trace,” together with Thingstream, a real-time positioning tracker, and AWS technology. Strapped on to a pallet, a sensor records the location of a shipment over any GSM network, internationally. By tracking all data on a single ledger, the sender, shipper, and receiver can build a trusted and immutable history of the shipment’s life cycle.

IMPACT
The prototype allows real-time tracking of any object as it is shipped across borders and without the need for human intervention to update its location. Data is recorded immutably on a distributed ledger. And in a network at scale, that prevents a single actor from tampering with any data. This process is the first step in the creation of integrated end-to-end blockchain solutions for supply chains—solutions that can enable greater collaboration between parties and increased transparency throughout the value chain.

OVERVIEW
The complexity of biological sample (biosample) collection and management raises many challenges for clinicians who lead trials and who need to guarantee patients’ consent throughout the process.

APPROACH
To demonstrate the value of blockchain in solving these pain points, Deloitte teams developed a proof of concept (PoC) called BioTrack & Trace. The PoC brings consent, biosample collection, biosample storage, biosample sharing, and analysis processes all on to the blockchain. This brings together the too often isolated processes as they are managed by doctors, clinical trial sites, biobank managers, and researchers. By tracking these processes on a single blockchain, operations teams and scientists can track a sample’s location, understand how it was collected and used, and verify the level of consent the trial participant provided. Similarly, it allows trial participants to have greater control over their biosamples and gain insights into the results of their participation in the study. BioTrack & Trace ultimately improves tracking mechanisms, traceability, and consent management across the clinical trial’s value chain.

IMPACT
BioTrack & Trace allows for any actor on the blockchain to track and trace biosamples and the consent provided by each trial participant. This is the first step in the development of a broader, industrywide blockchain ecosystem that enables greater collaboration and alignment between the needs and demands of pharmaceutical companies, data standardization, analytics, patient-centricity and retention, process simplification, and cost reduction.

OVERVIEW
A large pharmaceutical and biotechnology corporation had relied on paper-based manual processes, disparate systems, and external organizations to transport drugs being developed in clinical trials. These disjointed processes and systems lacked real-time transparency and end-to-end auditability of data.

APPROACH
Deloitte created a PoC to track drugs across different stages and among different actors in the clinical supply chain. That facilitated the traceability of individual samples that were dispensed to participants in clinical trials. The solution leveraged AWS Blockchain services, iOS and Android mobile technology, and Hyperledger blockchain fabric landscape. The mobile application, with Android and iOS versions, enabled barcode scanning functionality, status filters and counts, and blockchain connectivity.

IMPACT
This supply chain tracking application improved transparency for all users in the supply chain. Digitization of key processes also reduced the number of manual steps while streamlining the tracking of various data sources. Most importantly, it helped the company reduce the costs of regulatory reporting thanks to new data audit capabilities.