Blockchain and Quality Assessment in Supply Chains

17 min readApr 28, 2020

This article provides a brief introduction to blockchain technology to deepen the application of this paradigm in the supply chain, going to analyse the issue of quality assessment of product. The current limitations affecting the supply chain ecosystem and the possible solutions offered by blockchain technologies are also presented.

What is blockchain

There are many meanings for blockchain, which will be summarised below. In general, when we talk about blockchain we can refer both to technology (although it would be more appropriate to call it a technological paradigm), and to a specific implementation, provided by a network of actors, even if generally the technology and its realisation as a network are a unique combination.

A blockchain is a network of independent nodes that maintains a synchronised transaction log. If the participants receive a direct economic incentive to operate honestly in the network then we are dealing with public blockchains, if there is no direct economic incentive it is more correct to call it DLT (Distributed Ledger Technologies).

In order to be able to operate correctly all the transactions of a blockchain are publicly accessible and verifiable, by anyone.

We call it blockchain as the periodic event of approval of transactions by the network takes place through the construction of new blocks of transactions connected to the previous ones in chronological order, with an operation called consensus.

One of the main advantages of blockchains is the possibility of creating programmable assets (Smart Contracts), these programs are so autonomous that once started they cannot be tampered even by the authors themselves and guarantee the exact management and execution of the assets that are assigned according to the default program, including bugs. These standalone programs can be used, for example, to manage payments or funds and to execute automatic clauses between parties.

There are different types of blockchains according to the nature of the nodes and their contribution to consensus (i.e. the construction of blocks):

public blockchains: networks formed by anonymous nodes that compete in maintaining a synchronised service in exchange for an economic incentive. Public blockchains in turn are divided into:
> permissionless, where anyone can read, write and participate in the consensus (e.g. Ethereum, Bitcoin);
> permissioned: where anyone can read and write transactions, but to participate in the consensus nodes must be authorized by a central authority (Ripple, EOS).
Consortium blockchains: networks formed by nodes that are part of a closed consortium (different legal entities) and that collaborate in maintaining a decentralized register, without necessarily receiving a direct economic incentive but benefiting from an indirect incentive. Read and write access can be limited as appropriate, participation in the consensus is always limited.
Private blockchains: term often used to indicate consortium blockchains, indicates a network whose nodes are all maintained by the same organization. It can be used for information certification in large organizations as long as the nodes are physically managed by independent groups within the organization.

Why use blockchain

Economic Transactions

The most obvious and foreseeable advantage in the use of blockchains lies in the possibility of performing international economic transactions, with almost instant execution times and commission costs that are disconnected from the transacted values. However, the use of blockchains as a value exchange tool, in addition to going beyond the scope of this article, requires particular precautions mentioned later.

Timestamping of information

Even if blockchains are born to support value generation and economic transactions, it is soon evident that the nature of transparency and immutability and of the distributed registers also lends itself to timestamping information.

Timestamping is the writing on the blockchain, through a transaction, of a cryptographic fingerprint of a data that you want to certify. This cryptographic fingerprint uses hash functions which are irreversible (it is not possible to recover the original data starting from the hash) and of fixed size (all hashes have the same length). The moment the transaction is included in a block that reaches a certain depth in the blockchain, that block becomes unchangeable (final). Each block has an immutable generation timestamp associated with it.

Through blockchain timestamping it is possible to demonstrate publicly:

The existence of information starting from a certain period of time (corresponding to the creation time of the block in which the information is timestamped);
The immutability of information, presenting the original and comparing it with the hash on the blockchain;
the ownership through the possession of the private key used to form the transaction;
the non-repudiation namely the inability to deny the execution of timestamp.

Blockchain product traceability

Traceability on blockchain includes a series of strategies that many companies are experimenting to increase the verifiability of their products and therefore the perception of their brand. The basic principle is very simple, the various items that are produced and sold by these companies have unique identifiers that can be verified with a dedicated service, which is associated with data certificates (via timestamp) on blockchain. The research output is a series of unalterable metadata that provide information on the physical associated item.

Pros and Cons for the enterprise in the use of the blockchain

In the business environment, the adoption of public blockchain technologies enables the following advantages.

Transparency: all transactions carried out are publicly verifiable.
Immutability: all finalised operations are irreversible.
Low cost: commissions on economic transactions do not depend on the value moved.
Programmability: it is possible to program automatic clauses between several parties that manage funds according to predefined algorithms according to external stimuli.
Speed in financial operations: compared to international value transfer circuits, a blockchain has a maximum delay of 1h.
Fiat support: it is possible to transfer fiat currency (euro, dollar etc) on the main blockchain networks using the appropriate stablecoins.
Pseudo / total anonymity: despite transparency, it is possible to maintain total anonymity in transactions.

Adopting public blockchain technologies also has the following disadvantages.

Irreversibility of transactions: once a transaction has been carried out it cannot be canceled by an arbitrator or manager, therefore in the event of an error it is impossible to obtain a cancellation without the cooperation of the recipient of the transaction, however there are very effective techniques such as the escrow that allow to mitigate this risk.
Irreversibility of data writing: once a sensitive data has been written on a blockchain it is not possible to delete it, to mitigate this problem, however, it is sufficient to resort to writing data fingerprints instead of raw data.
Scalability issues: many public blockchains currently support a quantity of transactions per unit of time that are not compatible with many industrial applications, however there are solutions such as second layer and side chain that compensate for this limitation.
Variability in operating costs: the costs of accessing public blockchain services vary according to the traffic on them, therefore the cost of using the service is not always predictable.

On the other hand, consortium / private blockchains have the following advantages.

They provide modular and controllable scalability, enabling use cases that are currently closed to public blockchains.
They have more efficient and modular financial transaction support.
They provide more business privacy.
They generally have a fixed operating cost.

The consortium / private blockchains have the following disadvantages.

They do not guarantee immutability towards external actors.
They do not necessarily have legal value for data timestamping.

When to apply blockchain in your business

All the advantages that a company can have in adopting a blockchain technology are attributable to the decrease in the cost of trust. The cost of trust is defined as the set of costs that a company must face to manage relationships with customers and suppliers, one of the constraints that most limits the growth of a business is precisely the cost of the trust, the reduction of this cost also allows consolidated companies to find new impetus to the growth of their business.

Among the main advantages in the adoption of blockchain technologies for businesses, the following must be considered:

the possibility of having a internationally recognised network to perform transactions and manage automatic obligations (or smart contracts);
The reduction of costs and time for economic transactions;
The reduction of costs for the certification of information;
The ability to automate verification, certification and payment processes.

Blockchain technology is a tool that allows companies to reduce the costs of managing trust in a company’s management activities: validation and certification of information including origin and tracking of items, stipulation of contracts, transfer of value.

Blockchain technology does not allow to implement new types of operations, but allows to automate and reduce the costs of existing operations (thanks to smart contracts that provide automatic obligations and commissions that are released from the transacted value).

Among the risks to be considered if one wants to adopt some blockchain technology, one must consider:

The technological instability of the various networks that are rapidly evolving;
the lack of widespread understanding of the new phenomenon.

Financial services

Returning to the original purpose, blockchains were created to provide permissionless infrastructures designed to build and exchange value.

One of the main problems of a supply chain is the possibility of executing international, fast, reliable and economic transactions.

Public blockchains were born initially precisely for this purpose, but given the historical fluctuation of the value of the main native tokens, the use of these tools as an alternative to the fiat currency is currently inapplicable.

However, for some time now a solution has been emerging that combines the flexibility, economy and international accessibility of blockchains with the stability of the fiat currency, this solution consists of stablecoins with a fiat currency collateral. A stablecoin is a token capable of being traded on a public blockchain that can be changed at any time at a fixed rate with a corresponding fiat currency, thanks to a 1: 1 reserve between the circulating tokens and the fiat currency itself.

From Supply Chains to Distribution Networks

The main operations carried out in a supply chain are divided into the following categories.

Planning: all the planning operations of a supply chain according to production requests and market feedback.
Sourcing: identification of suppliers and supply lines.
Making: product manufacturing and quality control.
Delivering: shipment of products to consumer / end users.
Returning: management of returnable items, defective products, scheduled disposal.
Supervision: horizontal activity for the realization of the product such as design and adaptation, quality, management of national / international regulations, human resources.

In the list of these operations, a blockchain supporting the supply chains could intervene in the efficiency of the following activities.

Planning: blockchain technology can be used to stimulate user engagement and obtain feedback on products and potential improvements.
Making, Delivering and Returning: the blockchain technology can be used, as explained above, to create digital representations (digital twin) of a physical item, guarantee the authenticity of it, run the Quality Assessment of products and processes, trace the history and the interactions of the product with the processes, the transport and the customer, support a more effective management of returns also through automatic obligations that make the return and disposal management process more effective, flexible and transparent.
Sourcing and Supervision: the blockchain technology is not particularly advantageous in stable relationships between organisations, but is extremely effective in many to many relationships, especially when these relations are very fluid, as in the case of supplies of the supply chain for generic components. In these cases, for example, it would be possible to achieve thanks to the blockchain of supplier scoring / review systems (a system that is hardly corruptible as it is not controlled by a single organization) capable of providing quantitative assessments on markets where there are many suppliers in competition.

Quality Assessment

Quality assessment is the collection and analysis of data through which the degree of compliance with established standards and criteria is analyzed for a product or service. If the quality, through this process is judged unsatisfactory, analyses are performed to identify the causes and corrections are introduced to bring the quality parameters back to the norm.

Quality assessment therefore consists of two main activities:

monitoring quality: continuous verification of the compliance levels of a product;
analysis anomaly: reconstruction of the critical issues that caused a compromise in the quality indices in order to make the necessary corrections.

The certification of information on the blockchain is suitable for monitoring a production process, especially when these are carried out by third parties as external inspectors, and it is ultimately essential in the analysis phase to reconstruct the reliability of the data and the responsibilities of any abnormalities.

The main causes of alteration in the quality assessment process are mainly the alteration of the results, or the alteration of the items during / after the checks, replacing products or components with others more suited to the result that it wants to alter.

Consequently, a complete solution for quality assessment must prevent both data alteration and item alteration.

Blockchain technology does not provide specific tools that allow to remote or virtualise the quality assessment on physical items, however it can be applied to:

track and certify the work of the person performing the assessment;
trace the entire supply chain of the components / raw materials of an item in order to check the consistency. In particular, it is possible to check the quantitative consistency of a supply line, for example, if to make a batch of a certain product the manufacturer declares to use a quantity of raw materials, the quantity of declared raw materials sold by suppliers to the manufacturer must be coherent.

Remote Quality Assessment

An opportunity linked to the blockchain world and to supply chains opens in these first months of 2020 with the Covid-19 emergency. The restriction of international mobility makes operations previously taken for granted extremely complex, such as the sending of inspectors and the execution, on production lines, of the verification of products destined for their own supply lines.

The problem facing many companies today is how to remote quality assessment operations on globalised supply chains, involving different partners and using different technological tracking and process management solutions.

A disruptive solution is provided by the blockchain’s founding technologies, which can be used to certify and verify the origin and immutability of the data associated with an item.

The technological solution proposed in this article is based on 3 modules as illustrated in the diagram below.

A data acquisition module, responsible for the acquisition of remote inspection data (a video / photos and associated metadata) so that these data have a low possibility of being falsified.
A data storage module, responsible for storing and indexing the acquired data, generates reports and performs analyses.
A data certification module, responsible for making the data immutable, temporally positional and verifiable by all the actors.

Data Acquisition

The acquisition of quality assessment videos can be performed in real-time or deferred. Real-time acquisition can be more effective using AR (Augmented Reality) tools that accelerate the interaction between verifier and remote operator, such as pointing objects and components for complex inspections.

Real-time video capture is safer, because it is more complex to edit a live video stream, but also more expensive, as it is reliable only with the presence of a peer who supervises the remote operator.

Delayed video capture is cheaper and simpler, but subject to tampering, therefore it requires techniques that allow verification of the operator’s identity, the item inspected, the data acquisition timeframe and (in some cases) the location. operator.

The alteration of the videos during the acquisition phase can be mitigated by using anti-counterfeiting solutions. Delayed video capture can be managed with a software app (installed on uncontrolled hardware) or with controlled hardware provided by the remote verifier.

The app software solution is cheaper and easier to deploy but can be tampered with.

The hardware solution, especially if based on an HSM element (Hardware Security Module), capable of managing private keys that can be used to sign the video streams before they leave the device, a standalone clock and, optionally, a tracking device, is more expensive but it guarantees a higher degree of reliability.

Data Storage

Data Storage provides a persistent and indexed archive of multimedia and procedure data acquired by the remote operator during the assessment phase, and can be used for verifications and for the generation of reports and analyses.

Data storage can be managed on public cloud services or on proprietary networks. Public cloud services are cheaper and flexible, but are unable to provide complete business privacy. Proprietary networks require more IT efforts, but can adapt to any security policy required by companies.

Data Certification

Data Certification can be performed on a public or private (actually consortium) blockchain. The use of public blockchains offers greater transparency of information and certainty of immutability towards third parties, but also costs of use that are not fully controllable.

The use of private blockchains guarantees less transparency and immutability, but greater flexibility and fixed management costs. The use of public blockchains should be preferred when it is desired to create an open standard that requires the attraction of external partners and solutions. The use of private blockchains should be preferred when you are already operating in a pool of companies and there is no strategic opening of interest.

Item identification

Another crucial aspect for a correct quality assessment on the supply chain is the correct identification of the items and the measures designed to prevent their alteration. One of the main alterations in a production batch is the item swap, that is, the replacement of the identity of an item that does not have sufficient quality requirements with an item that instead satisfies them.

There are two macro categories of identifiers:

passive identifier: such as Barcode, QRCode or RFID with a fixed code, inexpensive but easily duplicated;
dynamic identification: NFC (Near Field Communication) elements equipped with an IC (Integrated Circuit) capable of performing asymmetric cryptographic operations, can sign challenges without exposing private keys and therefore cannot be cloned, have a higher cost than passive identifiers . They may also contain additional encrypted information.

For an effective validation of the items, if economically sustainable, it is necessary to institute anti-counterfeiting measures on them. The identifiers based on removable labels are easily editable and therefore make the checks ineffective, the most reliable identifiers are those engraved on the body of the item, those inserted in RFC elements included / fused in the body of the item or those based on unique physical characteristics and irreproducible of the body of the item such as for example the cooling streaks after melting some metals or other physical characteristics difficult to reproduce artificially.

Anti-counterfeiting identifiers can be optical or RF, passive or cryptographic, and offer different levels of cost and security. The unequivocal and certain identification of an item allows to track its movements along the supply chain, making it possible to construct coherent timelines of information relating to a product, to the processes and checks undergone, to the components that constitute it, to handling.

Provenance and Anti Counterfeiting

Provenance is one of the most delicate issues, especially when it comes to certifying the origin of raw materials for food and environmental sensitive products.

The problem of counterfeiting consumer products also requires stringent measures to trace provenance, to which is added an increasingly marked phenomenon of counterfeiting of products intended for industry.

In this case, to establish the quality and safety of a product, it is necessary to retrace the entire supply line in all its parts, an operation that requires close collaboration of all the actors involved and a common tracking platform. For this purpose blockchain based platforms fits better.

The Value of Collaborative Quality Assessment

The figure below shows a possible interaction in an ecosystem of Suppliers, Manufacturers, Retailers and Customers, through a hypothetical tool based on decentralized technologies, where the various actors can provide their data and obtain feedback that they can improve the quality of their services and products.

In order for such an ecosystem to develop, it is necessary to build appropriate economic incentives for each actor, the advantages are obvious.

In detail, the value of a Quality Assessment shared between Suppliers and Manufacturers leads to a selection of the most performing Suppliers in terms of quality. This approach can also be extended in the Manufacturer and Retailer relationship, where retailers can find better products to sell if they are willing to share information on quality and sales performance. The same goes for the relationship between Retailers and Customers, where a sharing of quality feedback on a shared platform rewards the quality of products and processes both for the consumer market and for the industrial / professional market.

Consistency Checks

A collaborative Quality Assessment solution, which sees a collaboration in terms of information between the various players in the production line, could go even further: by tracking the quantities of materials (Raw Materials / Components) that are supplied by Suppliers to the Manufacturers, it would in fact be possible to carry out consistency checks between supplies and productions, for example verifying that if a certain Manufacturer produces products using a certain quantity of raw material, then it must be found that the quantity declared as supplied by its Suppliers is consistent with what has been declared.

Shipping Quality

Another interesting aspect that can be obtained thanks to the cooperation of the various actors of a supply chain is a more effective control of shipping quality. Many goods and raw materials can be damaged during shipping, and this can compromise the quality of the final product, just consider the impact of an improper management of the cold chain in the shipment of refrigerated food products or drugs.

A simple and effective way to monitor and certify the transport, mechanical and environmental conditions of a shipment is to insert data acquisition systems in the packaging, perhaps made with an HSM similar to that illustrated above, which cannot be easily altered and which can also be checked remotely in complete safety.

Zero Knowledge Proof and business privacy

One of the main obstacles to the adoption of solutions for sharing information in a supply chain is certainly business privacy. In fact, many businesses are not particularly enthusiastic of providing information concerning customers and supply volumes, turnover and supply status. However also in this case there are some technologies developed in the blockchain ecosystem, in particular those related to the Zero Knowledge Proof. Without going into too much detail, the main concept is that there are algorithmic tools that allow you to make conditions verifiable (such as compliance with certain quantities and qualities) without necessarily making visible the values that these conditions are going to verify. These techniques can be used to protect the most sensitive information in a context of completely public sharing, while maintaining the salient aspects of a supply chain verifiable.

Customer Involvement

One of the most interesting aspects of Quality Assessment is the possibility of involving the customer in a feedback process, which could also be integrated with cross / up selling services.

The feedback process can be stimulated through rewards and / or gamification and is useful for identifying problems in time with the product and expected perception. It also allows you to engage in a direct relationship with customers without having to go through the intermediation of Retailers or third parts.

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