Fighting Fraud in Supply Chain using Blockchain

Jan 19, 2022
3 min read

According to a recent report by the Organization for Economic Cooperation and Development and the European Union Intellectual Property Office, imports of counterfeit goods reached $ 509 billion in 2016, accounting for about 3.3 percent of total global purchases that year. To combat the wave of counterfeit goods that threaten their products, companies are turning to blockchain technology to make supply chains more transparent.

Blockchain is a widely distributed, decentralized technology that is controlled by smart contracts and governed by contractual agreements. The ledger automatically records everything that is done, and every old record is immutable. Depending on how the ledger is used, it can be classified as needing permission, public, or fit for purpose.

In a product supply chain, a blockchain ledger can manage tasks ranging from automatic contract compliance between companies through smart contracts to tracking product travel from production to distribution. The ledger removes the ambiguity of the supply chain and creates transparency so that companies and customers get the quality they pay for.

Blockchain Value in Existing Supply Chains

The value of using a blockchain to create modern supply chains is beyond theory. Major brands have begun working with technology companies and other stakeholders in response to the growing demand for product protection. For example, LVMH (Louis Vuitton SE), working closely with Microsoft and ConsenSys, created Aura Ledger to provide authentic evidence of luxury goods and to track their availability from raw materials to marketable consumer goods.

Throughout the retail sector, companies such as eBay are now offering product certification as a value-added service. Currently, the company guarantees bags only due to growing customer concerns about their authenticity. However, eBay plans to extend the certification to other luxury goods that may be counterfeit.

In agriculture, the blockchain-based Grain Discovery streamlines transactions between farmers and consumers, making it easier for them to form new relationships. In the pharmaceutical industry, distributors have built a MediLedger consortium to trace the origins of drugs and curb the illicit drug
the market of more than $ 75 billion a year.

In almost every industry, suppliers and distributors are turning to blockchain technology to reduce the risk of fraud. A location-based, unmodified track record of each product can help verify authenticity – or lack thereof.

Blockchain as a Force to Fight Fraud

Companies involved in fraudulent versions of their products have options to fix this problem. When used together, the following steps can help reduce risk and promote confidence in companies and consumers:

1. Build a secure supply chain network

In order for the blockchain to successfully transform the company’s supply chain, every business organization in the chain must agree to participate. This makes building a network of trusted partners a very important step in protecting your product.

In view of the increase in counterfeit purchases, many companies with strong brands are looking to partner with suppliers to avoid fraud. The momentum of such efforts is heightened when all stakeholders in the supply chain recognize the importance and sign up to participate fully in these efforts.

2. Choose the tags that best suits your brand and product

Only with the right tagging technology can you track the progress of each product. With a variety of IoT devices, tags can detect diversions, liquid leaks, vibrations, package openness, tilt, high power, and more.

3. Encourage customers to participate in the solution

When customers clearly and directly benefit from the company’s use of a blockchain-enabled supply chain, it becomes easier to find more partners to join the consortium. However, brands cannot expect all end users to log in automatically.

4. Unlock IoT, AI and machine learning to fight fraud

Protection against counterfeiting and fraud is not always a viable option. With blockchain, companies can unlock IoT capabilities, artificial intelligence and machine learning to actively prevent fraudulent transactions.

Can Blockchain Eliminate all Fraud?

No, blockchain does not eliminate all forms of fraud. Even with blockchain, crimes can still occur. However, these crimes are largely due to attempts to put services at the top of the blockchain, not the core technologies. While blockchain networks are built on the concept of decentralized controls, infrastructure may leave doors vulnerable to interruptions that allow unauthorized access and tampering. This is why it is so important for businesses to use a blockchain designed for the right business and infrastructure as well as the right services.