Application of the Blockchain technology to Green Supply Chain Management

Green business is a growing trend today, limited by the complexity of implementing its processes. However, there is one technology that can support sustainability: blockchain.

Green Supply Chain Management: A New Era for Industrial Companies

Growing awareness of corporate social responsibility and the need to implement environmental standards and manage resources responsibly have driven companies to find solutions that not only meet environmental protection requirements, but also increase the economic efficiency of production and service processes.

Eurostat data show that the turnover of the green economy sectors in Europe amounts to 799 billion euros, with gross value-added rising from 129 to 326 billion euros over the past two decades. According to these figures, there has also been an explosion in sustainable employment: “green jobs” have increased by 41% since 2000, while employment in the traditional economy has grown by only 12%. This information can be translated into over 4.5 million people employed in the green economy in Europe today.

Considering the changing environment, many companies are reconsidering the way they operate, with the aim of gaining a competitive advantage and operating in compliance with environmental regulations. Therefore, alongside the traditional supply chain, companies have started to adopt the “green supply chain”, which focuses more on managing sustainable operations.

Operational issues

While the data suggests strong potential for improvement, one of the key challenges companies face in managing a green supply chain is obtaining visibility and reliability of information from other stakeholders. A timely and reliable exchange of information would allow companies to accurately assess various factors such as the environmental impact of their products, the actual level of sustainability of their suppliers and the management of reverse logistics practices. Currently, to obtain the desired data, it is estimated that companies must spend nearly 80% of the time and costs associated with supply chain operations.

Modern communication systems, such as personal digital assistants (PDAs), global positioning system (GPS) scanners and tagging methods such as RFID, are the best tools available for Industry 4.0 supply chains. However, they rely on a centralized database system and thus limit stakeholders’ access to specific information.

The Solution: Blockchain Technology

Among the emerging technologies in Industry 4.0 is one that allows companies to manage information and data sharing through a unified distributed database system: blockchain technology.

Blockchain is a distributed ledger technology (DLT) that records and stores data on a digital ledger. It is a decentralized system that is not managed by a single authority. It is managed by a network of computers connected to the blockchain. Each computer on the network has its own copy of the blockchain, which is constantly updated and verified by the other computers on the network. The data stored on the blockchain is secured using cryptography, making it virtually impossible to falsify or alter. The blockchain is also transparent, which means that anyone can view the data stored on it. This makes it a secure and reliable way to store and transfer data. The structure of the blockchain is illustrated in Figure 1.

Figure 1: Blockchain structure and distribution

Blockchain could help with green supply chain management in many ways. For example, it could be used to track the origin of materials used in the production process, ensuring that components or products come from sustainable sources. In addition, blockchain technology could be adopted to create verifiable records of sustainability and environmental standards, ensuring that all participants in the supply chain are meeting the same standards. Finally, blockchain could be used to create intelligent supply chain management systems. contracts and automated payments, helping to streamline the supply chain and reduce the need for manual paperwork.

The Study

A study was conducted in Switzerland to assess the opinions of manufacturing companies with 50 or more employees regarding the potential adoption of sustainable blockchain applications. The purpose of the study was to estimate their adoption intent and identify any potential barriers.

To achieve the study objectives, seven distinct elements (five dimensions and two moderators) were considered. The dimensions directly influence adoption intention and were classified as follows: The dimensions directly influence adoption intention and were categorized as performance effort expectations, social influence, enabling conditions, and corporate culture; while the moderators influenced the strength of the links between the dimensions and adoption intention by assessing the company’s level of trust in the technology and in other supply chain stakeholders.

The results of the study indicate that there are two main motivations for companies to adopt blockchain technology for green purposes. The first is associated with corporate culture, which can be interpreted as the company’s attitude to continuously improve its operations with increasingly sustainable technologies. The second is related to the expected performance of blockchain, which companies see as highly beneficial, believing that this technology can provide tangible benefits for the implementation of specific tasks. In addition, they believe that blockchain facilitates the tracking of procurement data, enabling sustainability-based supplier selection.

However, the study identified several potential barriers to blockchain adoption. The most critical factor is perceived to be the excessive monetary and non-monetary costs associated with blockchain implementation. Research findings suggest that this perception is heightened by external conditions that do not facilitate innovation. In fact, companies believe that Switzerland, both at the cantonal and federal levels, should provide more concrete support to the private sector to encourage sustainable innovation. In addition, collaboration with stakeholders should be optimized, as companies are not very open to sharing information, even if it is related to sustainability aspects. This barrier also leads to a lack of joint development projects between stakeholders.

The research identified a small number of companies that are already adopting blockchain (3.5% of the analysed sample), which expressed a much more positive opinion on almost all the variables examined. The data indicates that these companies can be considered technology leaders, as they are not hindered by the external environment and instead strive to innovate, thus acting as market pioneers and gaining a competitive advantage over their competitors.

Conclusion+

In conclusion, at a first level of analysis, the study showed that companies still consider blockchain not 100% ready for business applications, especially due to the associated development costs and the lack of strong collaborative relationships with partners.

However, it is important to consider that blockchain could provide solutions to these problems. Indeed, contrary to common thinking, blockchain does not necessarily have to be programmed from the start, but there are many open-source platforms from which companies can build on the basic structure of blockchain. In addition, because blockchain is a distributed database among a network of stakeholders, it could facilitate coordination and collaboration among stakeholders.

The companies’ responses also highlighted several cultural issues in terms of awareness and management of processes related to sustainable production, starting with their belief that running a “green” business relies solely on a voluntary decision.

While this is still true in some realities, in many others, the adoption of sustainable processes is already mandatory. In fact, it is not uncommon for the most structured companies to require their partners to verify or demonstrate the use of socially and/or environmentally sustainable processes; companies that are not deemed compliant risk having their business relationships severed.

Therefore, if companies are able to anticipate the market and have processes that comply with updated regulations, they could gain an enormous level of visibility and differentiation from the competition. For this reason, it is fundamental for companies to have a technology that guarantees transparency and reliability in the sharing of information, and today the most promising technologies is the blockchain.

Author : Mr. Stefano C., Consultant Engineer at AYES Switzerland GmbH