The Supply Chain from farm to table continues to increase in complexity with pressures from changing customer interests, regulatory controls, and global competition. Governments have become more adept at identifying food-borne illnesses with electronic access to aggregate health trends and improved analytics. Recently, only 100 illnesses among approximately 100 million people triggered a recall – that is one in a million.
Impact on Revenue and Shareholder Value
The average recall has $10 million in direct costs for recalls, disposal, litigation and penalties. Also, outbreaks that harm people can be devastating for both brand protection and unexpected costs including brand damage and lost sales. According to a Harris Interactive Poll, consumers indicated the following after food product recall:
- 55 percent would switch brands temporarily
- 21 percent would avoid purchasing any brand made by the manufacturer
- 15 percent would never purchase the recalled product again
A recall leads to a significant reduction in a firm’s revenue with a negative impact on shareholder value that is long lasting.
Blockchain Assures Transparency and Security
With Blockchain, each step in the supply chain adds to the accumulated data in a “block” that all participants can view. Transactions for a particular segment of time are accumulated in an encrypted “block”, and then new blocks are added to make a “chain.” Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data.
Blockchain is a distributed system that runs on multiple nodes across multiple data centers. Copies of this block of transactions are stored in multiple nodes. These blocks are compared to determine if one has been tampered with, and only the consistent blocks continue to be used.
Each block provides a “single version of the truth” about transactions and activities occurring across complex supply chain ecosystems. Participants in a blockchain may access, inspect, and add to the data. But, encryption prevents them from altering or deleting existing data. The original information stays put, leaving a permanent and public information trail of transactions.
Liability Risk of Avoiding Blockchain
Blockchain technology can be applied and integrated into multiple types of applications. Proof of concept trials are now in progress to apply blockchain for authentication and security of a supply chain. Since these trials are proving to be successful, blockchain is expected to be used to assure the integrity of track and trace across the whole supply chain – from farm to table.
Those companies not participating become vulnerable to litigation as blockchain gains adoption. Blockchain participants will either limit exposure by quickly identifying issues in their operations or pass the liability to a supplier. Those not participating will be left “holding the hot potato” and unable to defend themselves from liability for substantial costs.
Governments’ growing interest in food safety for its constituencies has resulted in new regulatory requirements including the associated track and trace initiatives. To assure margins and quality, and mitigate risks, participants in the food and beverage supply chain should:
- Recognize that improving data acquisition and analytics by government and consumer advocacy groups increases the probability that a relatively small issue will be identified and drive a recall. Containing the risk and scope of these recalls will continue to be a growing business need.
- Engage in proof-of-concept (POC) projects with Blockchain for governance of food trust and supply chain integrity.
Ralph Rio is a Vice President of Enterprise Software at the ARC Advisory Group.