The Benefits of Blockchain

How can this emerging technology help your franchise’s international supply chain?

By Joyce Mazero

In response to a material defect or epidemic product failure anywhere along an international supply chain, a franchisor must be in position to react immediately in order to determine the provenance of the components or ingredients and track key information. Key information includes the identity of the manufacturer, production date, batch, registration and identification numbers, inventory availability, inspection history, authorizations, and related programs used to manufacture, assemble, inspect and distribute the product. In the food products supply chain, tracking is especially pivotal to address sources of contamination and adulteration in the products.

Security Connection

This can best occur by using the transparent and authentic record keeping of the secure, trusted environment that blockchain technology makes available. In this environment, no single authority holds the provenance and related information, but rather that information and the relevant logistics, food safety and regulatory data are readily available to the franchisor, manufacturer, franchisees and government authorities. This is so because the information in each transaction is agreed to by all members of the network at each step, and once there is a consensus, it becomes a permanent record that cannot be altered.

This is vastly different from the tracking and inspection systems of many supply chains that are still subject to paper processing and management. With limited accessibility to essential data on a timely basis, as well as the potential for alteration, errors and lack of consistent communication are exacerbated in the traditional system. This is in stark contrast to the immediate access of this same information via blockchain technology, which dramatically improves the franchisor’s and manufacturer’s ability to identify, assess and remedy the defect or other failure, including improving the ability to make
product-specific recalls.

Internet of Things

For example, information such as product origination details, batch numbers, factory and processing data, expiration dates, storage temperatures, and shipping details are digitally connected to the food products, entered into the blockchain and become accessible to all participants as the transactions proceed. In addition to food safety issues, the data provides a record that can help manufacturers and retailers improve management of inventory, including with respect to the products’ shelf-life within a distribution center, during transport over ocean and land, and in stores and restaurants.

In the Internet of Things, the interactions between machines can also be automatically reported through smart contracts by the machines and then maintained in the blockchain. Getting products from one point to another across markets involves complex global logistics. Numerous parties and actions are required by manufacturers, freight forwarders, shippers, brokers and agents. In today’s logistics paradigm, various providers are required to act and interact, usually using different systems to communicate and track shipments and compliance with the steps along the shipment continuum with legal, customs and other regulatory requirements.

Blockchain technology permits these steps including payment, licensing, inspection and delivery obligations contained in smart contracts to be tracked and updated automatically, indelibly recording the path of shipping containers as they move from product origin to the delivery destination. This creates increased transparency for the shipment process, which enhances efficiencies and results in improved costs across the supply chain.

Currency and Credit

Another benefit of blockchain technology involves currency exchange and credit. Financial institutions across markets use blockchain technology to maintain foreign currency accounts, which facilitate transparent and efficient reconciliation of currency exchange accounts – an important part of international trade. Blockchain technology can also be used by financial institutions to decrease delays in obtaining credit for financing the purchase and sale of products on a blockchain, thereby making access to capital easier for manufacturers, distributors and suppliers.

Blockchain technology with smart contracts also facilitates access to products and funds by expediting the processes for obtaining  approvals, authorizations and licenses (e.g., customs, trucking, ocean and other transportation concerns) for the shipping of products across international borders. They do this by allowing all parties to sign approvals, and by tracking the status of the inspection, approval, authorization and licensing processes, and then triggering action upon the occurrence of material events, such as when payment is received or products are delivered.

Blockchain and You

Each franchisor should identify the opportunities and issues in its international transaction network in order to determine how the blockchain can solve problems, create efficiencies and reduce costs. For example, using smart contracts with the blockchain can address difficulties with delays caused by complex agreements (that contain payment, inspection or licensing processes that could more easily be handled through transaction-specific smart contracts). The immutability of the blockchain can provide visibility into these specific transactions, and access to transaction histories can improve trust among all participating parties.

Key questions for a U.S. franchisor considering participating in international transactions in a blockchain, either directly or through a provider such as the franchisor’s manufacturer or distributor, include:

Do you have a complete audit trail for your product distribution, payment or other transaction?

Do you have a way to confirm consensus across the network to validate each transaction and ensure it is tamper-proof?

Do you need a permissioned network so you can identify and limit participation and access to information in the network?

Do you need to ensure that the participants on the blockchain comply with certain regulations like OFAC and HIPAA?

Do you need a transaction system that is not vulnerable to fraud, cyber-attack and human error?

Will automated or pre-programmed exchanges or speedy transactions facilitating payments or approvals result in reduced costs?

The purchasing, payment and delivery aspects of international trade – an important component of international franchising – can be frustrating to work through without sufficient planning and expertise from international advisors and third party providers. Blockchain technology can reduce this frustration if planned correctly to address a franchisor’s needs and concerns.

Blockchain technology could realistically be a critical value-add for many franchisors giving them enhanced leverage and flexibility. Blockchain technology can significantly facilitate a franchisor’s assessment of risk and their ability to capture value at different points across the chain. International franchising and the necessary international supply chain can thereby become dynamic valuable assets replacing the static and inconsistent international supply chains used by many franchisors today.

Joyce Mazero is Shareholder of Polsinelli and Co-Chair of the Global Franchise and Supply Network practice. She is the recipient of numerous awards from IFA, the Women’s Foodservice Forum and the Dallas Business Journal. Find out more about Polsinelli here.