Watches to handbags

The digital transformation that has changed the retail segment beyond all recognition over the past decade has mainly been lauded in excited tones. However, whilst much of the effect it has had on global trade have been positive, it has also inadvertently increased the propensity for counterfeited goods to enter the supply chain. This has led to a reduction in consumer confidence levels.

Everything from luxury watches to handbags, computer games to – most scary of all – medicines, have been affected. Although the scourge of counterfeiting is not new, the sale of fake goods has certainly increased post digital transformation and with increasing globalisation. Today, the amount of total counterfeiting has reached a staggering 1.2 Trillion USD globally according to the Global Brand Counterfeiting Report 2018. However, with this statistic being only based on actual known seizures, the real total is likely to be far, far higher. The simple truth is that with so much commerce now taking place online, spotting fake copies has become much harder for both consumers and those tasked with policing the supply chain.

Wrestling back control

The fact that digital transformation has been the root cause of such an increase is particularly galling for retailers. In their eagerness to keep up with shifting consumer demands and digital-first companies, they have spent billions. Therefore, the last thing they want to have to do is rip and replace the costly infrastructure they only put in a few years’ previously. Yet, with almost nine-in-ten (86%) retailers admitting their sales have been hurt by phoney goods entering the supply chain, they are finding themselves needing to wrestle back control.

Hot tech on the block

As the hot new tech on the block, plenty has been written about the blockchain. In fact, Google searches of “what is blockchain” have risen more than eight-fold in the last year. The public ledger on which the famed digital currency Bitcoin is built, the blockchain is designed to verify the validity of transactions to provide an indisputable record of events. Built upon complex cryptography, the blockchain effectively provides a permanent, incorruptible and irreversible record. This means, in theory, it leaves no room for fraud of any kind throughout the supply chain. This ability for blockchain technology to provide a full audit trail has made it attractive to multiple industries.

Diamonds and pearls

Unlike traditional ledgers that prevent tampering by adding layers of security on top of a database, blockchain weaves the security into the data itself – providing a full audit trail that everyone can see. This certainty and trust can help create new levels of transparency within supply chains.

Providing an audit trail would afford retailers with a transparency and intelligence that has so far been beyond their capabilities. They will not be the first, though, as one of the highest value supply chains of all has just announced its intention to use blockchain to mitigate the criminal element that had entered its supply chain.

The world’s largest diamond producer, De Beers, declared in January it is progressing development of a blockchain technology initiative to span the diamond supply chain so that it can provide a single, tamper-proof and permanent digital record for every diamond registered. By doing so it can clamp down on the trade of so called conflict diamonds.

Need for a witness

Blockchain will, in essence, allow individual items or shipments to be tagged with identifiers so that they can be tracked as they move along the supply chain. This could be at the point they are simply raw materials, to components, to finished assembled goods, right through to final customer delivery. This will create a real-time, auditable, tamper-proof record of a product’s journey, from ‘first-mile’ to customer.

On their journey through the supply chain, an item’s location can be recorded at key points by trusted ‘witnesses’ and tagged with unforgeable cryptographic identifiers which are then written immutably to the blockchain. Further, smart contracts can be used at each node to track the item’s progress, and release payments to shippers or suppliers as milestones are reached, without the need for manual reconciliation, and regardless of how many different parties are involved in the supply chain.

Crowdsourcing for the digital age

Whilst the use of blockchain by the likes of De Beers is encouraging, in many ways, the next big innovation in blockchain isn’t going to come from a large blue-chip organisation, but from Sheila in accounts creating her own app that helps her do her job more effectively. This will be the shadow IT that you actively want to encourage: solution crowdsourcing for the digital age, built upon the power of the blockchain ecosystem.

A big pie

eCommerce sales in 2016 were estimated to be worth $1.86 trillion and are projected to grow to $4.48 trillion by 2021 – almost equivalent to the GDP of Japan! With counterfeiting on the rise, it is become a big slice of an incredibly big pie.

Whilst it might not matter so much if a consumer buys a pair of fake trainers, the consequences of buying counterfeit pharmaceuticals could be catastrophic. The blockchain can bring back an integrity to a variety of markets and help combat the blight of counterfeiting.

Rather than ripping and replacing the very systems that have accelerated their digital transformation, companies can implement blockchain technology within an integration layer of their legacy systems to provide an audit trail to track parts and service provenance and ensure the authenticity of goods; helping to mitigate the potential for counterfeit goods entering the supply chain and damaging brand reputations.

By Chris Painter, CEO, Omnitude