Can blockchain save dietary supplement industry transparency?

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In the natural products industry, the number of transactions that take place, from the seed of a natural ingredient (often sourced from a foreign supplier) to the finished product sitting on the shelf, is staggering. Managing the complexity of this global supply chain can be an arduous undertaking for any company.

What makes the task even more challenging is the growing demand for comprehensive transparency from both consumers and regulators. Supplement companies are now expected to know the origin, quality life cycle, and source of their ingredients, all in the face of greater demand for limited resources. Running a tighter and more transparent supply chain is not just a “nice to have” option anymore; it’s quickly becoming a “must have.” This work will have to be done sooner or later as companies set themselves up for future success.

The good news is that this problem has been previously solved in other industries, and it is being increasingly addressed in the dietary supplement industry also. The great news is that we now have the added help of a technology called blockchain.

What Is Blockchain?

In simple terms, blockchain is a digital ledger that records a list of transaction records called blocks. Each block contains both a time stamp and transaction data. A key feature of blockchain is that the data entered once within a given chain can never be deleted and, at most, can be appended. In other words, if someone wants to make a change, their only recourse is to create a new block that lets others know about the change.

In effect, this creates an audit trail that cannot be manipulated, creating a fully transparent, ongoing sequence of transactions. Think of this like a more complex “redline” version of a Word document that can’t ever be removed. In the world of supply chain traceability, blockchain is a game changer.

Public vs. Private Blockchain

A common misconception is that all blockchains are public in nature. This idea seems to have been driven by media coverage of the world’s most popular blockchain and cryptocurrency use case: Bitcoin. In reality, blockchains can be set up in different ways and could be public, private-or somewhere between the two, which is called a consortium blockchain (or semi-private). Let’s examine these three types.

Public blockchains are completely open to the public. Anyone with an internet connection can send transactions to the blockchain and become a validator (i.e., participate in the execution of a consensus protocol). Usually, such networks offer economic incentives for those who secure these transactions, which utilize a proof-of-work algorithm.

Private blockchains, on the other hand, are permission based and restrict access only to trusted entities. This is considered a middle ground for companies that are interested in using blockchain but that are not yet comfortable with the level of control offered by public networks. Think of it as a database, but with additional benefits of cryptographic auditability, immutability, and transaction identity that can be traced with time stamps associated with specific parties.

Consortium, or semi-private, blockchains are a hybrid of the two. Instead of a single organization with control, multiple companies may operate a node on a network. The administrators of a consortium chain restrict users’ access rights as needed and only allow a limited number of trusted nodes to execute a consensus protocol.

How Blockchain Can Help You

The implementation of a blockchain-enabled supply chain management system will enable companies to not only have an immutable digital ledger to track all of their supply chain information, such as data and transactions with their suppliers and buyers, but also give them the capability to trace specific ingredients, from “seed to shelf.”

Once these systems are integrated, traceability capabilities can be incredibly fast. In a highly publicized recent experiment, Walmart was able to identify the farm and farmer of a mango sold in its stores in 2.2 seconds using a blockchain implementation. Previously, it had taken the company almost a week to accomplish this same task.¹ However, a cautionary note here: response times for blockchain solutions are a function of the specific use case and the blockchain architecture. Scenarios dealing with a large amount of data, copied and stored across a large network of participants and running a consensus protocol for validation, can take much longer to run.

But there are potential implications here: with full traceability, problems can be isolated quickly and managed without a large-scale, public recall. This can eliminate any consumer fears of escalation and preserve significant revenue for growers, distributors, and retailers alike.

Blockchain’s benefits extend beyond crisis management, too. Audits become significantly easier to handle and much less time consuming. Organizational leadership will also have the ability to view the entire supply chain on a single platform, empowering them to manage proactively and opening the door to process improvement, insightful vendor analysis, and increased visibility on profit-generating tactics.

How Blockchain Can Help the Natural Product Industry

Many industry leaders in natural products, such as MegaFood, Gaia Herbs, Cepham, and Califia, have committed to high-quality products and sustainability. They are investing considerable time and effort in driving transparency initiatives within their supply chain network to lead their respective industries. With more visibility of their supply chain, the better they can serve their customers and end consumers, who make decisions based on trust.

But in reality, many companies continue to focus on a short-term, “profit at any cost” philosophy rather than doing what’s best for the consumers’ health or the long-term success of the industry. As price becomes a focal point, many companies continue transacting in sub-quality ingredients, severely compromising quality and thus the benefit of what consumers put in their bodies.

Imagine if adulterated Tylenol tablets didn’t fix my headaches anymore. Would I still continue buying them?

But what if the consumer could become informed about which brands are using pure products? What if they knew exactly which part of the world their curcumin extract came from and which farmer grew it? What if they also knew that this curcumin brand was paying farmers fairly and following fair trade practices, and therefore committed to sustainability?

Blockchain technology can validate these “claims,” which were practically impossible for the consumer to track, and allows companies to share them on mobile and desktop devices. In essence, what was simply “doing the right thing” for integrity-oriented companies will be a brand differentiator.

Considering that natural products are both finite in nature and sourced globally, the potential impact on the industry of integrating blockchain could be extensive. Imagine a world where we are tracking all natural products from seed to shelf on a supplement industry blockchain. For example, let’s assume, in a specific year, we had a hypothetical crop of 1000 tons of turmeric globally, but 1200 tons were in circulation, (Remember our supply and demand imbalance!) With blockchain, we will instantly know that there was an imbalance and an extra 200 tons was on the market, which would have to be attributed to adulteration.

Finally, adverse events can be tracked back with speed and precision, which keeps consumers safe and confident as to what they are putting in their bodies.

Where Are We Today?

The big question is: Can blockchain become an industry mainstay and help today’s dietary supplement companies integrate transparency in their supply chain? The answer is “yes.” But let’s keep in mind that this is still an evolving technology that is yet to reach its end state.

Companies planning to move forward with their transparency journey need to look at blockchain as an amazing tool that will make global supply chain transparency a reality. But blockchain technology is not so much the solution itself as it is an isolated platform. Blockchains provide the auditable, immutable data backbone to supply chain systems, which work together to help address transparency challenges. Think of blockchain like a turbo boost in a car. You still need a great car, and blockchain will make it better. And, like any other significant technological change, basic operational principles of systems, processes, and procedures are critical components to maximizing any organization’s investment in supply chain transparency using blockchain.

Ultimately, blockchain is not a savior of natural products and dietary supplement problems, but over time, with forward-thinking leaders, it will solve a myriad of operational challenges, eradicate bad players, and build trust with consumers.

TJ Gupta is CEO of TagOne (Princeton, NJ). TagOne is a supply chain management advisory and technology company that delivers transparency to the natural foods industry through expertise and innovation in supply chain management. TagOne’s supply chain management platform is an example of a private blockchain. TagOne empowers B2B customers with End-to-End (E2E) track-and-trace processes and capabilities, resulting in increased operational integrity, reduced waste, and leadership visibility. Learn more at www.TagOne.com.

References:

1. Hoffman S and Kressler S. “Blockchain for romaine? Transparency could benefit from technology.” New Hope Network. Published November 29, 2018.