How Blockchain Can Prevent Supply Chain Fraud
Fraud in the supply chain industry is costing companies millions and ruining reputations. In today’s global market, bribery and corruption are becoming more common and more difficult to detect among employees and external parties. Yet, while measures are being taken to stamp it out, more needs to be done.
According to research by KPMG, the Association of Certified Fraud Examiners found 83.5% of fraud cases in 2016 featured asset-misappropriation schemes, including fraudulent billing and disbursement plans. It ascertained that modern supply chains are more susceptible to fraud, owing to their global reach and the number of transactions and supplier networks, concluding that every link in the supply chain therefore presents the opportunity for fraud or misconduct.
According to Jessi Baker, CEO of Provenance, “Today, supply chain information is stored in centralised databases, meaning that key data sits in silos. Nobody has access to this information apart from the company that owns the data and whomever they choose to share it with.”
“The blockchain market in the global supply chain industry… [is] projected to grow at a compound annual growth rate of 78.39% [between 2019 and 2023].”
For many, the solution lies in blockchain. Indeed, such is the importance of the blockchain market in the global supply-chain industry that, during the 2019 to 2023 period, it’s projected to grow at a compound annual growth rate of 78.39%, according to data from Research and Markets.
Citing information from the Boston Consulting Group, Baker highlights the fact that $22 million worth of sales in North America between 2011 and 2016 transferred from large to smaller companies. Those smaller companies win consumer trust through transparency, she says. This might be achieved through, for example, garnering positive reviews on third-party customer-satisfaction services such as TrustPilot or personalising the purchasing experience by sharing photos of their team on Instagram.
“These are all examples of the transparency movement gaining momentum, often powered by digital services,” Baker says. “And tech will continue to power this movement.”
Tackling Food Safety
In recent years, reports have surfaced that have shone a light on improper practice in the global supply chain industry, some involving food standards, others inhumane practices. China is one region that has been dogged by food safety scandals. In 2008, for instance, six babies died and some 300,000 were made ill by infant formula contaminated by the chemical melamine. Understandably, Chinese parents are still wary of trusting milk powder products.
In Europe, meanwhile, the 2013 horse meat scandal saw equine flesh passed off as beef and entering the supply chain across the continent in the form of ready meals and other processed foods. Although no health risk was posed to the public, the scandal did highlight security concerns within the supply chain, severely denting consumer confidence.
“Blockchains can be used to quickly and easily find the source of the food-borne bacteria of viruses… [or] help reduce the instances of counterfeit medication.”
For Anne Connelly of Singularity University, which is empowering people to leverage technology to solve the challenges of the age, the use of the blockchain is a no-brainer, particularly with regard to consumer health.
“Blockchains can be used to quickly and easily find the source of the food-borne bacteria or viruses, so the remaining products can be pulled off shelves and the farm can stop shipping the product,” she explains. “Blockchains can also be used to help reduce the instances of counterfeit medication to ensure patients are receiving the highest quality of care.”
Restoring Confidence in Charity
According to statistics from the United Nations, in 2011, 30% of all development assistance failed to reach its final destination because of corruption, while 2015 data from international development network Bond shows that 59% of people polled in the UK believe there is no point in donating to poor countries because of corruption.
We spoke to Davide Menegaldo, COO of Helperbit. “Traceability is the most important feature, and donors are becoming more and more aware of this,” he says. “Blockchain empowers donors to have more control over their donation.”
Menegaldo is of the view that using the blockchain could bestow a number of benefits on the charity and humanitarian sectors. For example, it enables donors to send money all over the world in real time using a borderless and uncensored tool, and provide aid quickly during an emergency situation, all while negating the need for a banking infrastructure to operate.
Transparency in the Art World
Jessi Baker believes we are at the beginning of an era in which consumers are making more data-driven decisions than ever when it comes to purchasing a product – and that includes art.
There is an estimated $3 trillion worth of fine art in safe storage, of which around $65 billion worth is traded yearly through auction houses and art dealers. When you’re buying art as an investment, it’s key to look closely at the certification and provenance, says Marc Garriga, head of product and marketing at Maecenas.
Speaking to Binary District Journal, Garriga says: “Art provenance can help settle doubts and give you the peace of mind to enjoy your purchase, with the assurance of its promised value and validity.”
Many investors consider art a reliable, safe store of value; however, the fine art industry needs to change how it functions, leaving behind its current archaic practices to become a transparent and liquid sector.
“Moving all the artwork-provenance documentation and proof to the blockchain requires the same processes we have been using in the past,” he explains. “The difference is that, once the documentation is on the blockchain, it remains safe and secure in digital format. That means that, over time, as more artwork provenance is uploaded on to the blockchain, there will be less reliance on redoing the whole process.”
A Look to the Future
While blockchain technology is still in its nascent stages, the fact it is already being applied across sectors as diverse as the supply-chain industry and art investment arena shows the potential it holds for the future.
Once the rules and applications have become fully established, they will be available to everyone, delivering much needed confidence and transparency, not to mention positive impact.
The democratisation of investment into art has powerful implications for other high-value investments. One other area in which blockchain could be revolutionary is real estate, with shared ownership one possible solution to the housing crisis plaguing countries like the UK. Public ledger technology could allow home buyers the opportunity to take whatever stake in a property they can afford, renting the rest.
With an established stake, that owner can then increase their equity stake when they are in a position to afford it. This process, ‘staircasing’, is potentially a way for younger people to get on the property ladder despite the huge disparity between earnings and property prices. Like everything, trailblazing cases will lead to increased interest and the development of the idea. It is time, one feels, that the property market got a shake-up.
llustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]