Many manufacturers are turning to blockchain to stop supply chain fraud and counterfeit materials – writes Lars Rensing, CEO of enterprise blockchain provider Protokol
For manufacturers, supply chain fraud can be a huge problem. From counterfeit materials to problems with third parties, fraud within the supply chain can be disastrous, wasting both time and money for businesses. In order to address the issue of supply chain fraud, many manufacturers are turning to blockchain. In fact, statistics revealed that global spending on blockchain by the manufacturing sector was valued at $313.08 million in 2019, and is expected to reach a value of $9,298.50 million by 2025. To understand the drivers behind this move, lets's look at some of the key challenges manufacturers face with supply chain fraud, and how blockchain can increase transparency and help combat fraudulent practices.
Monitoring materials in real-time
When it comes to manufacturing, it’s important to know where materials are coming from, and how they have been produced or gathered, to ensure they have been created legitimately. This is not only only crucial for manufacturers to continue producing quality products, but also for third-parties and customers, who want to ensure they are receiving authentic goods which are free from cruelty and come from sustainable sources. Failure to provide this verification can seriously damage a manufacturer's reputation. For example, when it emerged that clothing retailer Boohoo had been sourcing clothing from a factory in Leicester that was underpaying workers and providing unsafe working conditions, the company’s reputation was dragged through the mud. In order to correctly monitor goods in real-time, manufacturers are turning to blockchain to create a secure and immutable and shareable database of assets and materials. This means that manufacturers can verify where materials have come from and prevent fraudulent and counterfeit materials from entering the supply chain.
Goods aren’t the only thing that manufacturers can monitor in real time. Many factories now also use IoT-enabled devices to monitor conditions across the factory floor, however with blockchain, manufacturers can go further by creating a secure network for IoT-enabled machinery. This ensures that all of the cogs in the supply chain can continue to turn effectively, allowing them to deploy preventative maintenance based on fast, accurate and reliable data coming from both the machinery and maintenance records stored on chain. Manufacturers can also integrate smart contracts - digital contracts on the blockchain which execute automatically once their terms are completed - into the manufacturing process, allowing maintenance checks to be executed according to dynamic conditions, and rooting out inefficiencies or problems in real time.
Sharing records across parties
We’re increasingly seeing more and more parties involved in supply chains globally, this means that more entities need oversight of up to date information on the relevant materials. Sharing records between so many individuals is a challenge, as having multiple copies of the same record can open up a supply chain to forgery, or to records which don’t match up when the process has finished. With blockchain, manufacturers can create a database which is tamper-proof, updated in real time and which is shared by all selected parties, removing the need for multiple copies. This means manufacturers can provide materials’ records to auditors or regulators to prove the legitimacy of products, as well as to other members of the supply chain. The immutable audit trails provided by blockchain narrows the opportunity gap for fraudsters even further, removing the need for multiple parties involved in a supply chain to rely on trust.
Warranty fraud in manufacturing
Warranty fraud is estimated to cost the manufacturing industry billions; not only do organisations incur costs to replace products, but processing claims costs the business more and depletes resources. In the same way as in wider supply chains, blockchain allows manufacturers to combat warranty fraud by creating an immutable audit trail, which means manufacturers can verify everything from serial numbers, to ownership and if an item is actually under warranty. This means that manufacturers can have greater visibility in order to determine fraudulent activity, and consequently reduce the number of false claims processed, by making decisions based on irrefutable truth. As well as preventing fraud, this also means that saved time can instead go towards providing better customer service for those making genuine claims.
There are many different facets of supply chain fraud, but they can all be equally damaging for manufacturers. Blockchain technology is allowing manufacturers to take control of their supply chains and move closer to eradicating fraud completely. From monitoring goods and equipment in real time, to providing a single source of truth for multi-party supply chains and creating a tamper-proof audit trail, blockchain could allow manufacturers to take serious steps towards eradicating supply chain fraud, and make this type of fraud a thing of the past.
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