Blockchain: The solution for sustainable supply chain management?

Supply chains pose social and ecological challenges for companies - How the blockchain should change that

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Author: House of Eden

While the political and social pressure on the textile industry to act more sustainably and ethically, in many cases supply chains still remain a blind spot. A lack of control and transparency enables environmentally harmful and human rights-violating practices that are only designed to increase profits. However, forecasts point to a way out: digitization and innovation to provide solutions to some of the supply chain's environmental and social challenges. But can new technologies like blockchain really ensure that supply chains finally get a sustainable image?

Technology as a motor of responsibility and transparency

This development would be important for the textile industry. After all, the particular calls for aspiring Generation Z Responsibility and transparency of clothing brands. In connection with digital proof: Due to their technical sophistication, more and more young consumers are using QR codes, apps or other applications that enable the traceability of clothing items. For brands, this means disclosing their product life cycle management (PLM) digitally. In other words, the entire strategic process of managing the lifecycle of a product from raw materials through production and distribution to whereabouts.

Another engine that Transparency and thus promotes sustainability and ethics: The German supply chain law. Coming into effect in January 2023, this company is legally obliged to take responsibility for the abuses of their suppliers. This is intended to ensure compliance with fundamental human rights standards globally and with legal certainty. MSCI ESG Research proves that this is still relevant and necessary today. The Institute has examined controversies related to modern slavery by industry and country, and highlighted the most salient occurrences as follows:

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Source & Copyright by MSCI ESG Research

How blockchain can promote environmental and social justice

But how exactly can these projects be implemented? After all, supply chains in global trade are delicate, clocked just-in-time and highly prone to interruptions due to large distances. An innovative way to efficiently optimize supply chains, control business partners and save costs is the blockchain. The blockchain method of supply chain management is similar to that of Production of cryptocurrencies like bitcoin. Ultimately, the only difference is that instead of "coins", the components of the supply chain - eg planning, control and information flows - are segmented and mapped digitally.

The advantages of this procedure include financial transparency within the network, planning security, efficiency through paperless workflows and trust. The last point is particularly relevant because it eliminates the influence of hegemonic power imbalances and geographic borders. Thus, the blockchain has the potential to better control supply chains and make them more transparent.

MSCI Report: Can Blockchain Help Dissolve Controversy in Supply Chains?

The MSCI report "ESG and Climate Trends to Watch for 2023" also highlights the blockchain as an opportunity for companies to make their supply chains transparent and traceable. In the chapter "Innovative Supply Chains", the report positions the blockchain as a potential tool to solve traceability problems - also for large companies along different levels of suppliers. Namely, by recording delivery transactions in a decentralized and immutable manner. Successful examples of this forecast: Unilever plc used SAP SE's GreenToken blockchain technology to source 188.000 tons of palm oil and Ford Motor Co. used the technology to extract cobalt - a key mineral for lithium-ion batteries - from the mine traceable to the end user.

Will blockchain become the norm of future supply chain management?

The discussion surrounding supply chains makes it clear that modern technologies are an important tool to social justice issues and ecological health in the future. In order to bring about a fundamental change in supply chain management, however, much broader acceptance of blockchain technologies is needed. It takes experimentation and investment to make their scalability and budgeting attractive, useful, and accessible. Nevertheless: There are enough signs that the necessary change will take place in the near future and that the industry is on the right track.

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