Businesses across industries lose money and reputation due to knock-off products and questionably sourced materials, but a solution may already exist, according to a Cisco and BCG report.
A report out from Cisco and the Boston Consulting Group (BCG) is offering a solution for businesses affected by counterfeiting: Combine Internet of Things (IoT) sensor technology with a blockchain designed to track every step of the production and sales process.
Counterfeit activity occurs across all industries, the report said, specifically in electronics manufacturers, pharmaceutical companies, and luxury goods producers.
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Anyone with a supply chain, the report said, has the potential to be tricked into purchasing counterfeit materials, and customers are constantly in danger of buying products that are nearly indistinguishable from the real thing. But combining IoT technology with blockchain to build a total inventory tracking system could be the solution, the report said.
Blockchain and IoT bring end-to-end accountability
“Pairing [blockchain and IoT] can create a shared, distributed ledger capable of recording the origin, location, and ownership of raw materials and products at each stage of the value chain—giving manufacturers, partners, and customers the transparency and authentication they need,” the report said.
The suggestion on how to do it is simple, and could feasibly be implemented without needing to wait for any new technology to come to market.
First, it’s essential that materials used to produce products comes from a reputable source. That source would be responsible for making the first entry on a blockchain ledger for the materials it sends for use in production.
“Suppliers and manufacturers join a single blockchain platform and use “smart tags” (unique cryptographic identifiers) to track and confirm the provenance and location of each item,” which the report suggests can take the form of RFID tags, QR codes, or even surface imperfections in materials like metal and plastic used to make goods.
As goods are added to the supply chain they each get a unique code and place in the blockchain ledger, and as those materials are merged into finished products they continue on the blockchain, each with entries tracing its components back to their original sources, the report said.
Once a product reaches its point of sale, the blockchain record of its production lets a buyer know that the product is legitimate, it contains materials from reputable sources, and there hasn’t been anything untrusted introduced into production at any step of the process.
Why track materials and products?
Businesses dealing with counterfeit goods and materials face significant costs.
The pharmaceutical industry deals with between $75 billion and $200 billion in losses to counterfeit drugs each year; fake parts and components costs electronics manufacturers an estimated $100 billion a year; and, around 10% of all luxury goods products sold are counterfeit, which amounts to around $28 billion dollars in loss per year.
Those losses aren’t just from sales, either. Electronics manufacturers in particular are hit hard by counterfeit materials that enter the supply chain early in production.
One example cited in the report comes from a 2012 incident in which 84,000 counterfeit electronics components were installed in US military aircraft and missiles. The components were purchased from a US-based company that had sourced questionable components from China, which the Department of Defense was unaware of.
If that company had been using a blockchain/IoT tracking system, the problem would have been identified and eliminated before all of those aircraft and missiles were built, and then pulled off the line to have components replaced.
In the end, the report finds, implementing a combination blockchain/IoT tracking system could provide companies with an average net benefit of 2% to 5% of total revenue. That may not sound like much, but to a business doing $1 billion a year it equates to $33 million.
This is just one more tool businesses of all types could use to protect their supply chain, market, and reputation for producing quality goods. On top of that, Cisco and BCG make no note of needing to wait for new technology to come to market.