Please enjoy this recording of our webinar on blockchain enabled traceability. If you have any comments or questions, please contact firstname.lastname@example.org.
- Good afternoon, everyone! I want to thank everyone for joining me for today’s webinar on Blockchain Enabled Traceability. I’m Kathy Barbeire, marketing manager for CAT Squared.
- For any of you not familiar with us, CAT Squared develops manufacturing execution systems for industrial-scale food producers predominately in the meat & poultry industries. If any of you are interested in demoing our solutions, please email our team at TellMeMore@catsquared.com.
- As part of my role with CAT Squared, I’ve been representing our company as a participant in a blockchain learning group that has grown out of Blockchain for Arkansas (BC4AR). This is an initiative launched by Governor Asa Hutchinson to promote capacity building around blockchain technology. As a part of this initiative, I’ve participated in work groups and meetings with other Arkansas technology companies as well as Blockchain service providers like IBM and FoodLogiQ, and today’s presentation will cover select topics from these meetings.
The objectives for this presentation are to
- Define what is blockchain
- Discuss the business case for blockchain traceability for food processors.
- Provide a current overview of the blockchain landscape focusing on solutions being developed for food supply chains,
- Discuss the role of MES and ERP providers in this landscape, and
- Briefly touch on possible regulatory concerns.
Blockchain is a shared ledger stored across multiple locations. To illustrate how blockchain differs from current data transfer technology, let’s consider the interactions between buyers, suppliers, and logistics providers who use EDI messaging for their business communications. In today’s supply chain,
- Messages are point to point, one-way communications.
- Each party has unique and limited visibility.
- Each party has their own version of the truth.
With a shared ledger, your supply chain network can share EDI-document information with verified authenticity. Because the ledger is shared, data is transparent to participants within the blockchain. And since the ledger is a type of database that only allows entries to be appended rather than changed or deleted, the data in the ledger is immutable, which means it’s unchangeable. And, because it’s stored in multiple locations, no one participant in the business network can modify the ledger without everyone knowing. This creates trust in the provenance of the ledger.
Slide 6: (First bullet)
What is the business case for blockchain?
- Some of you may be aware that Walmart has mandated their leafy greens suppliers to implement end-to-end traceability back to farm by the end of September of this year. To help their suppliers meet this goal, Walmart’s letter mandating this change refers suppliers to the IBM Food Trust network, which is a blockchain solution pioneered through a partnership between Walmart and IBM to improve food safety. Obviously, Walmart sees value in blockchain for food traceability through blockchain’s ability to limit the scope and scale of recalls.
Slide 6: (Second bullet)
- For example: In the case of last year’s E. coli outbreak linked to romaine lettuce, retailers knew that the source of the outbreak was lettuce from the Yuma growing region, but they had no way to easily identify which of their lots were sourced from that region. As a result, the only solution was to pull lettuce from stores all around the country at significant cost. If all participants along the supply chain had been sending data up to a blockchain, a specific product lot could have been located anywhere along the supply chain instantly. Which would have dramatically limited the cost of the romaine lettuce recall.
Slide 6: (Third bullet)
But the true business value in blockchain is realized through
- removal of friction in transaction processes,
- increased efficiency in transactions, and
- quick dispute resolution.
Using smart contracts, the SLAs of a business agreement are turned into code that lives on the blockchain, automating payments and resolving simple disputes.
The way this works is that (just like a traditional contract) the terms of the smart contract are agreed to by all parties, and once the contract is finalized, the terms are turned into code that lives on the blockchain and cannot be changed without all parties knowing. As a side note, during our learning-group meetings, the representative from IBM said that about 40% of time spent on their blockchain projects was spent getting all participants to the table and gathering consensus around the rules of governance for the blockchain. What early adopters are realizing is that they need to include an expert on dispute resolution as part of their project team to help lay the foundation of the agreements upon which the blockchain smart contracts will be built. So, if your company is considering becoming involved in a blockchain project for the purposes of streamlining your supply chain, you should be aware that a significant chunk of your time will be spent on this first step. However, once this step is completed, writing the code and processing the data is relatively straightforward.
Now, once the terms of the contract are finalized and turned into code on the blockchain, a triggering event occurs. This could be a shipment of product is received or a lot passes inspection or whatever event is defined in the smart contract. That event triggers the execution of the contract based on the pre-agreed upon terms. At this point, a settlement process occurs… like an automatic payment is sent or an invoice is generated.
This is when participants along the value chain start reaping the benefits of all the work they put in nailing down the details of the smart contract. Because they worked out ahead of time what would happen with any foreseeable contingency. Let’s say a shipment arrives damaged, or too much product was shipped, or not enough product was shipped… Whatever the issue is, the data is logged, sent up to the blockchain where it’s visible and verifiable by all participants permitted to view the data… and this event executes the appropriate clause within the smart contract, and the settlement process occurs automatically based on that agreement.
By streamlining transaction processes this way, you remove a lot of time wasted disputing the terms of your agreements. And in the food industry, particularly the meat industry, time is valuable when you’re dealing with perishable products being shipped or live animals under stress during transport. The more time you can shave out of the transaction process, the more you’ll be able to reduce loss due to DOAs and spoilage.
Slide 6: (Fourth bullet)
- Blockchain can create additional value at the enterprise level. As all plants across an enterprise begin sending data up to a blockchain, managers can do performance comparisons by plant or by product leading to new levels of insight that have never before been possible. For example, data analysis could reveal that there is consistently a problem at Plant A on Tuesdays or that there are always long dwell times at Plant B for Product X. Insights like these could lead to improved efficiency across the enterprise by identifying opportunities for process improvements and developing incentives for employees.
Will there be regulatory pressure to use blockchain?
- Currently, the main source of pressure in the industry to adopt blockchain is coming from large retail customers like Walmart as well as the perceived consumer demand to know where our food comes from. However, it’s important to note that developers of food traceability blockchains are giving free access to regulatory agencies to create a negative incentive for companies to participate. Another notable development is Frank Yiannas’s move from Walmart to the FDA. One of his first priorities as deputy commissioner for food policy will be proposing regulations advancing the Food Safety Modernization Act (FSMA). Frank was a strong proponent of blockchain adoption for food traceability during his time at Walmart; however, it’s doubtful that any new regulation will specifically require blockchain adoption. Companies would be allowed to select any technology that accomplishes the goals set forth in the final regulation, but blockchain could be among the options.
Which blockchain solution should I use?
Currently, there are several blockchain projects and commercial solutions in different stages of development, and ultimately, the decision of which blockchain solution you should adopt won’t be an “either/or” decision but “both/and” depending on your goal and the types of customers you serve.
The three biggest food blockchain solutions currently are IBM’s Food Trust (which was created in partnership with Walmart and is designed to meet the needs of grocery retailers and distributors), Ripe.io’s agricultural blockchain (which focuses on freshness during distribution), and the FoodLogiQ’s Connect solution (which focuses on meeting the needs of quick-serve restaurants).
So, if you’re supplying grocery retailers and quick-serve restaurants, in the future, you could feasibly be sending up data related to traceability and freshness to all three of these blockchain solutions and others.
Additionally, IBM is developing multiple blockchains for different purposes. The first application IBM designed with Walmart is specifically for food recall. The next food-related blockchain application they are building is for freshness tracking. And they are also developing a financial dispute resolution application called Pay2Procure to address financial settlements between suppliers, manufacturers and retailers.
Of these three solutions, Food Trust and Ripe.io run on Hyperledger, whereas FoodLogiQ runs on Ethereum.
There are several differences between Hyperledger and Ethereum, but the main differences you’ll probably be concerned with are related to data integrity, processing speed and confidentiality.
Before I discuss data integrity, let me explain a little bit about the mechanisms used to build consensus, and why this is important. As I mentioned earlier, blockchain is a shared ledger stored across multiple locations. So, each participant owns a full copy of the blockchain ledger. And as they make multiple entries onto that ledger, all participants constantly have to agree on the true state of the ledger. This process is called reaching consensus. This is what prevents “double spending.”
So, what is double spending? As many of you know, blockchain is the technology that makes cryptocurrency like Bitcoin viable. When you’re sharing files on the internet, it’s possible to make endless copies of files and send them to multiple recipients instantly. However, if I want to send a dollar to you, I can’t also be capable of sending the same dollar to my daughter. And previous forms of cryptocurrencies failed because malicious participants found ways to double spend currency by injecting faulty transactions onto the ledger.
Ethereum solves this problem by using a proof-of-work algorithm. This is an intensely complex algorithm that requires a significant amount of computing resources to solve. Once a participating node called a miner solves the algorithm, they are rewarded with ether, which is Ethereum’s built-in cryptocurrency, and their copy of the ledger is then sent across the network. Their solution of the algorithm is verified by the other nodes, and their version of the ledger becomes accepted as the truth, and all transactions stored on that version of the ledger become an immutable block of data on the blockchain.
Hyperledger uses Practical Byzantine Fault Tolerance to solve the double-spend problem. This is different type of algorithm that requires two-thirds of all validation peers to calculate the same hashcode. And I realize that explanation was a little overly technical, but what’s really important is that this type of validation uses significantly less energy than proof-of-work, which translates into more transactions per second. Ethereum can handle upwards around 20 transactions per second, whereas Hyperledger achieves an end-to-end throughput of more than 3,500 transactions per second.
Supporters of the Ethereum platform claim that proof-of-work delivers a higher degree of data integrity than Practical Byzantine Fault Tolerance; however, Hyperledger is a private/permissioned platform, which means that only verified participants can view data and only participants with special rights can verify transactions on that platform, so users don’t face the same level of risk from malicious actors as they would on a public/permissionless network.
So, the bottom line is that Hyperledger has become the preferred platform for B2B transactions because of its speed, scalability, and also its ability to allow for confidential transactions, which is important if you are participating in a blockchain project that includes your competitors as part of the supply chain.
What is the role for MES and ERP systems in the blockchain ecosystem?
Blockchain projects require clean, accurate, trusted, verifiable data. Much of this data will be housed either in a company’s ERP or its MES. Most people I talk to are familiar with ERP systems, but not everyone is as familiar with the role of MES systems. So, I’ve included a graphic where I’ve diagramed the beginning of a receiving process illustrating how data is managed between MES and ERP systems.
The primary role of an MES is to manage your plant-floor processes including gathering data from your plant floor and facilitating communication between your ERP and your plant floor hardware. Using this process map as an example, the bottom layer represents the physical process occurring in the receiving area. The second layer identifies hardware used to take a measurement or control a process. In this case, the truck drives over a scale to capture the gross weight.
The third layer represents the MES system. This is where our system would pull the receiving schedule from the ERP to check in the truck, receive the captured weight, and assign a queue number for pre-unload inspection. The data collected from the inspection would be communicated back to the ERP system in the next step of the process, which is not illustrated here.
So, as you can tell from this illustration, there is a great deal of data that is managed in the MES layer that is never communicated up to the ERP layer.
As an MES provider, CAT Squared often integrates our system with ERPs like SAP. SAP is currently developing a fee-based service for business automation to send up data to blockchains for ASNs (Advance Shipping Notices) and EPCIS events (Electronic Product Code Information Services, a global GS1 Standard for creating and sharing visibility event data). This is the kind of data necessary for traceability and food recall; however, much of the data required for freshness tracking will not be housed in the ERP system but in the MES instead. So, in the future both your ERP and MES providers will need to understand the APIs (Application Program Interfaces) necessary to send data up to a blockchain.
As illustrated here, we have APIs sending up EPCIS event data from the ERP and MES layer. So, if you wanted to do freshness tracking, data for dwell times and temperatures would need to be tracked on the ledger, so you could prove to customers that the cold chain was not broken in any part of the process. Or if the cold chain is broken, you can immediately identify where and when so the cause can be quickly resolved.
I hope you found this information helpful. If you like, we can take a few questions now, or you can email them to me at email@example.com. You can also subscribe to our monthly newsletter CAT SQUARED CONNECTIONS from the main page of our website at CATSQUARED.COM.
Thank you again for attending.