When blockchain meets IoT and the food and pharmaceutical cold chains

Technology   23 Mar 2018

Most people who have heard of blockchain associate it with the cryptocurrencies like Bitcoin and Ethereum. While blockchain provides the underlying technology that drives cryptocurrency exchanges, the potential uses for blockchain are far broader than digital currencies. Blockchain use cases for the supply chain — and particularly the food and pharmaceutical supply and cold chains — are quickly becoming evident. The question remains: what will happen to them?

Businesses operating in the supply chain often know most about two points along the route: where a product starts and where it ends up. But everything that happens in between is a mystery. Who handled the product? Was it intercepted and changed out for a counterfeit product? What environmental conditions were the products subjected to?

With blockchain, the entire supply chain becomes transparent. All kinds of data — when, where, and to whom a shipment was handed off to, shipment conditions, and so on — can be stored in the blockchain.

Many businesses are in the early stages of understanding and experimenting with potential blockchain applications in their cold chain networks, evaluating the potential value, and determining whether it is a truly viable long-term investment.

What is Blockchain?

By definition, blockchain is a shared, trusted, digital transaction ledger of cryptographically secured time-stamped records that everyone can inspect, but no single user controls. In basic parlance, blockchain consists of a timeline chain of “blocks,” where each block is a transaction record and linked to one another via timestamps and other attributes.

Although there are private blockchains, the system is generally public and doesn’t reside on a central database. Instead, it runs on computers by individuals around the world — in other words, it’s decentralized and distributed. Participants in a blockchain collectively keep the ledger up to date; it can be amended only according to strict rules and by general agreement.

Importantly, and perhaps its most significant attribute, blockchain uses heavy-duty encryption to ensure virtual security so that each time-stamped record is immutable, and cannot be hacked or modified. For this reason, blockchains are resistant to data modification, since the alteration of one block requires consensus across the recorded chain or ledger.

For industries where data or physical goods have to change hands, blockchain could have a significant role to play. The food, pharmaceutical, and global logistics sectors are three areas where interest in blockchain is high.

Food safety is becoming increasingly important, where a failure to implement rigorous monitoring and traceability processes can lead to illness and severe reputational damage. If consumers cannot be certain that the food they are eating is safe and has been authentically sourced, they’re likely to shop elsewhere, which can profoundly impact a business’s bottom line.

Similarly, pharmaceutical enterprises are under regulatory pressure to trace assets throughout the entire supply chain to ensure product quality and safety, and to prevent counterfeit medicines and vaccines from reaching patients and end consumers.

Blockchain enables physical items to have a digital record that includes unique attributes of the physical item. This is an important feature that allows for the ability to verify the authenticity of goods in transit.

How it works

Let’s say a pharmaceutical company is sending a product across dispersed locations and through multiple stakeholders, including wholesalers, carriers, and distributors that are connected in a blockchain network. The transaction would start in one of the manufacturers’ computers; nodes will get together to look at consensus on key criteria, which could cover product, environmental, or quality specifications, for instance.

If the transaction is validated, the block is added to the blockchain and the blockchain itself will be located on multiple computers, so there are distributed, identical copies of the ledger.

As each block is created, a cryptographic hash is created, which is encrypted with everything that was in the previous blockchain before the hash.

Through this technology, it becomes impossible to go in and change an earlier block because it will make everything on top of it invalid. Since transactions are not stored in a single location, information is almost impossible for external parties to tamper with any central data.

Key concepts of Blockchain

  • A data set is defined and entered as a transaction
  • When a portion of the data set changes, a new transaction is created, linking the new entry to the past entry
  • Transactions are randomly assembled into blocks
  • Transactions can be replicated in multiple blocks
  • Each block is encrypted and has a unique hash code
  • It’s virtually impossible to hack
  • Smart contracts can be triggered when data conditions are met
  • Enterprise blockchain allows management of data privacy

Three elements of blockchain — consensus, distributed ledger, and encryption — enable the technology to come together to provide robust data, security, and transparency for all stakeholders. The long-term vision of blockchain is to help reinforce trust between parties, because it generates a digital paper trail where every transaction is locked, giving visibility of who the parties are and what transacted. As the technology allows users to look at all transactions simultaneously and in real-time, large organizations such as Walmart are considering blockchain as a viable long-term solution.

Food and pharmaceutical applications

Proactive safety, traceability, transparency, and trust are key themes for applying the blockchain to the supply chain, generally. IBM recently unveiled a partnership with the global transport and shipping company, Maersk, to develop supply chain solutions more specifically to the shipping and logistics industry. The solution will assist in managing the traditional “paper trail” of millions of shipping containers globally by digitalizing the supply chain process, minimizing manual entry, and reducing human error. At scale, blockchain can potentially solve pharmaceutical, food, transportation, and logistics sectors billions of dollars every year.

Food

According to the World Health Organization, every year, 400,000 people around the world die from foodborne illness, with 1 in every 10 people falling ill every year from food contamination. In the United States, an estimated 1 in 6 fall ill from food-related illness, with 128,000 being hospitalized and 3,000 dying every year.

For organizations that find themselves caught up in a food scandal, the consequences for their reputation, brand loyalty, and bottom line can be dire and long-lasting. According to a PwC study, the cost of a single adulteration verdict resulting from foodborne illness can be up to 15% of an annual revenue.

Blockchain brings huge advantages for every stakeholder in the food cold chain, as it makes a supply chain more transparent at an all new level, empowering the entire chain to be more responsive to any food safety disasters.

Visibility and traceability

The distributed ledger technology that blockchain offers, enabling product traceability, can be used to quickly pinpoint a source of contamination, reduce the impact of food recalls, and limit the number of people who get sick or die from foodborne illness every year.

For food producers, blockchain means that attempts to tamper with a food item as it moves through the cold chain can be immediately identified and prevented before the contaminated food reaches a restaurant or retailer.

For food retailers, the technology means that sourced food reaches a store in a safe, fresh condition, and, if a potentially hazardous food product somehow does make it onto store shelves, it can quickly and easily be identified so that only the affected items are eliminated, alleviating the need for costly batch recalls.

Walmart, which sells 20% of all food in the US, recently completed a series of blockchain pilot projects. Prior to its pilot, Walmart conducted a traceback test on mangoes in one of its store locations. It took nearly seven days to trace the fruit back to the originating farm. During its blockchain pilot, the retail chain realized it can provide all traceable information a consumer needs in 2.2 seconds. For a food outbreak, seven days may mean the difference between life and death, so not only does blockchain technology have the ability to help save lives, it can also impact consumer loyalty.

Fraud prevention

Current practices in the food industry are prone to human error, with much of any compliance data currently being stored on paper or in a fragmented digital state, making it prone to error and vulnerable to intentional mistakes motivated by fraudulent behavior.

Whether they know it or not, many retailers have sold fraudulent food products. Blockchain could put an end to that. Since blockchain operates anonymously, mistakes or bad faith actions can be traceable to individual actors, which would be stored permanently and transparently. Given recent food fraud scandals, this feature is not trivial. The technology provides valuable, permanent records and data sharing between disparate actors in a complex food chain.

Safety and consumer loyalty

For food consumers, blockchain offers transparency that can help reassure them that the food they eat is what the label says it is. This technology has the potential to redistribute information from Big Food and place it into the hands of consumers. For instance, customers could scan a QR code on a package at a store and retrieve a complete history of their food, from farm to fork.

This information is particularly useful, given that an increasing amount of food is imported, and country of origin labelling may differ. For instance, meat claiming to be from the UK might actually originate from another country and have been processed in the UK.

The new generation of consumers are savvy enough to seek reassurances regarding ingredients and origin. Blockchain provides a method of substantiating claims, increasing trust and brand loyalty for companies that can guarantee quality.

Reduce shrink and waste

As the Walmart example demonstrates, blockchain also means that specific products can be quickly traced at any time, helping to enhance shelf life while reducing food waste. Contaminated products can be easily and quickly traced, while safe foods can remain on the shelf and not be thrown away.

Smart payments and faster financing

Blockchain technology enables food chain stakeholders to be paid more quickly. For instance, farmers could sell more quickly and be properly compensated, since market data would be readily available and validated, and payments could be made more efficiently across geographies due to the automated functionality that blockchain offers, which effectively would eliminate the middleman.

Pharmaceuticals

The market for counterfeit drugs is rapidly becoming a global epidemic, now making up a multi-billion-dollar industry. It’s estimated that 1 percent of all drugs being circulated in Western markets — and around 10 percent globally — are counterfeit. The World Health Organization (WHO) estimates that 10 percent of medicines in low-and middle-income countries are counterfeit (estimating that counterfeit malaria drugs contributed to the deaths of 100,000 children in Africa in one year). With increasing globalization, demand, and complex supply chains, fraud and patient safety are increasingly becoming a top concern for regulators.

The US market accounts for around 45% of the global pharmaceutical market ($446 billion worth), and the supply chain is made up of manufacturers distributing medicines to wholesalers, who then move product to dispensaries. In the future, these dispensaries are likely to deliver directly to end consumers. Needless to say, the system is large and complex, with many moving parts and few solutions that provide end-to-end visibility.

While both the US and EU have recently introduced legislation that requires an electronic system that can trace and authenticate pharmaceutical products as they move through the distribution network, lingering concerns remain as to whether these will do much to prevent counterfeits and sufficiently protect patients.

In a recent survey conducted by the Pistoia Alliance of 120 life sciences executives, 83 percent anticipate that blockchain will be adopted by the pharmaceutical industry within the next five years. As pharmaceutical supply chains become more globally integrated and data flows are distributed, blockchain can help reconcile the complexities and provide an added level of security to the digitized document workflow, further improving the efficiency of the global cold chain.

Drug traceability

Many pharmaceutical companies view blockchain as a means to achieve compliance with the FDA’s Drug Supply Chain Security Act (DSCSA). That legislation, like the European Union version under the Falsified Medicines Directive, seeks to secure the supply chain through an electronic tracking system to prevent counterfeit and contaminated drugs from reaching patients and end consumers. For businesses that are subject to these regulatory requirements, blockchain offers a solution, providing serialization authentication and chain-of-custody tracking capabilities. This can also help to ensure the continued flow of vital drugs so patients can receive the proper dosages and treatments they need.

Streamlining processes

Blockchain generally allows for greater efficiency of improvements, transactions, and interactions. Smart contracts, which aren’t a new concept (they were originally coined in the 1990’s, and refer to contracts that are self-executing) are a central tenet of blockchain. Blockchain makes smart contracts secure and accessible to stakeholders worldwide, effectively removing the middleman in payment and other transactions, as well as a lot of the back-and-forth.

Greater inventory management

Simply put, blockchain offers an efficient way for wholesalers and dispensaries to optimize their inventory management and control, anticipate supply shortages, and improve data integrity as well as the distribution of data that has not previously existed.

Improved collaboration among trusted partners

Given the complex nature of the pharmaceutical supply chain, adopters of the technology gain the added advantage of adopting an end-to-end solution to provides data visibility to all stakeholders, including internal partners and through industry consortia. This provides an added layer of automation, transparency, and trust that can help prevent counterfeit goods from reaching consumers. Success depends on all parties working together to replace legacy processes and jointly adopting new ways to create value.

Blockchain and IoT

The Internet of Things (IoT)  is a powerful technology that enables us to build a bridge between the digital and physical worlds. Blockchain can help take IoT technologies to the next level, confront scalability and peer-to-peer challenges, and serve as a foundation for building digital trust and security for interactions.

Combined with AI, blockchain and IoT serve as a missing link that enables peer-to-peer contractual behavior without requiring a third party to certify an IoT transaction, thereby providing a consistent answer to the challenges related to time stamping, records, privacy, trust, and reliability.

Many are investigating ways to ready the blockchain for enterprise use with IoT technology. Blockchain and IoT are growing up together, and in many ways, they are dependent on one another: IoT needs blockchain’s features, while blockchain is angling for the big data opportunities that IoT presents. Together, they present the possibility of something special: The Internet of Trusted Things, which can:

  • Bring in more data that can be trusted, is automated, and secure
  • Provide quality data, directly from the source
  • Provide comprehensive data throughout the cold chain
  • Enhance predictive and prescriptive analytics to enable better action taking
  • Provide further automation opportunities by looking at trends over time
  • Ensure provenance, telling us when things happened and where

Hope or hype?

While a number of industry leaders are promoting the benefits of blockchain, many in the industry don’t understand the technology, just yet. According to an SCM World Future of Supply Chain 2017 survey, 25% found it disruptive and important; 61% found it interesting, but unclear about its usefulness. Likewise, in a recent Deloitte survey, 40% of senior executives of large companies said they know little to nothing about blockchain, yet many view the technology as a top priority. This data suggests that one of the first barriers to promoting widespread adoption of the technology in the food industry is basic education about how the industry can benefit from blockchain.

Gartner estimates that through 2020, 90% of supply chain blockchain initiatives will remain proof of concept. This represents a huge opportunity for those companies who see the advantage of early adoption of blockchain infused traceability systems.

What is clear is that a full understanding of what the technology can and cannot do is needed. It may not suitable for any supply chain, and may not always be a viable answer to driving business value. To avoid misunderstanding and misalignment, it’s important to not look at blockchain in a tech vacuum:

  • Establish an ecosystem - Get the right stakeholders talking about potential use cases, standardization, and value.
  • Use case definition - As blockchain ecosystems begin to develop, this will likely set the wheels in motion to outline new opportunities.
  • Digital maturity - Blockchains require companies to connect and share data electronically, which is far from a reality in many organizations, where the shift to digitalization in itself is new.
  • Connect networks -Networks of stakeholders that can connect and share info digitally will be essential for blockchain participants to fully identify risks and gaps.
  • Physical assets versus digital assets - Determining how to link these assets and at what point they will be tracked and converted into digital assets is essential, as it impacts relationships with stakeholders, who may not want to share data back.
  • Scalability - For food and drug safety and counterfeit prevention to succeed at scale, consensus, collaboration, and preliminary governance across a large number of stakeholders will be necessary.

A new chain on the block

In highly regulated sectors, innovation tends to be desirable until it becomes real. Once it manifests itself, guards go up. Some organizations move ahead while others wait to see what happens.

Determining whether blockchain provides a true business case will be a gradual process that expands as more organizations and stakeholders get involved. It is clear that the tide is turning towards traceability, patient and consumer empowerment, and trust. Blockchain may offer an additional level of security, instilling greater transparency into the supply chain and reducing friction. However, one of the most important challenges for the technology is participation; success depends on stakeholders seeing the value, if any, and adopting it.

Industry leaders should move to digitize their supply chain processes to achieve new levels of visibility, and incorporate those digital strategies across the industry, with an openness to what blockchain has to offer. This will enable them to enhance their agility and long-term sustainability in the face of growing demand, competition, uncertainty, and change.

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