Sunday 21st Jan, 2018

SPECIAL REPORT: Information Technology

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TODAY’S challenge is how to make supply chains thinner, leaner and faster whilst maintaining integrity and sustainability.

Supply chains are global networked streams of data, money and goods. Data is the oil in the supply engine and facilitate (i) transfers of risks and title on goods and (ii) money.

The cost of operating supply chains makes up two-thirds of the final cost of traded goods. Seven percent of the global value of trade is absorbed in documentation costs alone, according to the Global Alliance for Trade Facilitation.

Experts have called for trade facilitation measures, including a simplification in the movement of goods along global supply chains, in order to reduce companies’ governance costs, increase speed and reduce uncertainty.

Supply chains are also compromised by falsified or fake goods both on the upstream (raw materials) and downstream side (finished goods).

One million people die every year from fake drugs. The loss to pharmaceutical companies is estimated at $18 billion annually. U.S. Department of Commerce estimates that counterfeit drugs provide approximately $75-$200 billion in annual revenue to illegal operators.

WHO estimated that 50% of falsified medicines come from internet purchases where the physical location of the internet pharmacy is concealed.

The global top four pharmaceutical production clusters outside China are US, Japan, West-Europe and India – the latter has the highest number of USFDA approved plants (+100 plants) outside the US.

The largest pharmaceutical exporters globally are Germany, Switzerland, Belgium, France, closely followed by India and US. Australia exported approximately USD$4bn, compared to let’s say Belgium with approximately USD$40bn USD.

Tackling the problem

Disregarding semantics for the sake of conciseness, a global supply chain network involves many freight forwarders, stevedores, ports, shippers, 3PL’s, last-mile distributors and so on. Supply chain is the perfect example of group game theory based on three rules:

  1. None of the participants trust the other;
  2. Each participant aims at maximizing personal interest;
  3. In order to maximize gain they must cooperate.

Cooperation is currently in the form of reciprocal data flows between ringfenced databases.

A blockchain approach solves the problem of trust more efficiently compared to connecting separate databases or even using distributed databases.

A genuine blockchain provides decentralized control, where “no one” owns or controls the network; immutability, where written data is tamper-resistant, and the ability to create & transfer tokenized assets without reliance on a central entity. Most importantly in the context of anti-counterfeit measures is that a blockchain application avoids the key problem of ‘double spending’ of serialized items.

Blockchain also facilitates a range of additional benefits such a full digitisation – a container “file” in the maritime and shipping industry can contain over 50 sheets of paper.

Blockchain efficiencies will also question the role of banks as intermediary trust-component, for instance in documentary credits or LC’s.

But even perfect blockchain technology does not suffice to fully solve the problem. There is always a physical, tangible element involved. All kinds of tamper-proof (geo-) tagging and labelling technologies (IoT, RFID, NFC,…) intertwined with standards (GS1, GDS, etc…) aim to solidify the link between the digital universe and the physical units (e.g. container, pallet, serialized item).
TBSx3 works with a number of innovative partners in that area and as such any digital data can be appended to the TBSx3 blockchain platform.

The pharmaceutical industry specifically developed regulations to address the problem of falsified medicines.

The DSCSA (Drug Supply Chain Security Act) regulations in the US is a system where each sale of a specific package of pharmaceuticals can be traced back to the point of origin.

The EU Falsified Medicines Directive (FMD) also seeks to establish a secure supply chain for the distribution of prescribed medicines will require the serialisation of patient packs, as well as tamper evident labelling to enable the authentication of medicines prior to being dispensed to patients (e.g. by pharmacists). There is no reason why similar approach couldn’t work for the food industry.

The focus of these regulations lies on change of ownership (which usually excludes logistic companies) and the serialized traceability of the individual packaging.

Some logistic service providers do have regulatory reporting obligations. DSCSA requires wholesale distributors and third-party logistics providers to report licensure and other information to FDA annually and there is a similar reporting framework in Europe.

Throwing down the gauntlet for the shipping industry, the question is how it can contribute to integrity in the supply chains. In general terms, the volumes are huge.

Container ships account for approx. 13% of world fleet in dead-weight tonnage and the global container shipping fleet’s total capacity is around 20 million TEU’s.

The global top 20 container ports account for approx. 50% of global TEU volume, at more than 300 mio TUE and Australia processes (import and export) approx. 5 mio TEU annually.

Therefore the only satisfactory holistic solution to maintain the integrity of supply chains is to make sure that every custodian who touches a supply chain is authenticated, authorised and verifiable through encrypted keys. Full transparency is required on every granularity level.

The “Russian doll” concept means that every custodian understands what’s inside the container, the pallet and the carton to warrant full traceability and transparency. That is the only way to protect supply chains.

It an ambitious goal but that is ultimately what TBSx3 wants to create: a global alliance of freight forwarders, stevedores, ports, shippers and 3PL’s on a true blockchain platform that provides 100% transparency and traceability.

The TBSx3 blockchain platform currently covers 50% of the top 15 container ports globally and a number of successful trials were done with global supply chain companies.

The ultimate beneficiaries are the consumers who can use that technology to maximize protection against fake products or compromised supply chains. Ultimately lives will be saved.

* Pieter Vandevelde is chief revenue officer at TBSx3, a specialist in the field of blockchain technology

From the print edition December 14, 2017

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