By Grainger Editorial Staff 11/29/22
Non-fungible tokens (NFT) have an image more aligned with the art world, speculators and pop culture than with durable goods, but their potential industrial application could revolutionize how multiple industries store and share data. Among them is the supply chain industry, where the traditional logistical patchwork that forms its backbone could evolve into something more digital in the very near future.
“NFTs are more than just for art collectors, and they do more. For instance, they can store data,” said Vincent Broyles, head of IoT and business development for California-based Nejavi, an advisory firm focused on digital transformation. “They truly do have a functional, business use. Data added to an NFT becomes registered – whoever touches it leaves an immutable, yet fully accessible record. Every time a change occurs, who made the change, when it was changed, and how it was changed is all there.”
Today, inventory is still sometimes tracked on a piecemeal basis across disparate and disconnected systems. Some players will use technical solutions with varying degrees of security, connectivity and innovation, while less sophisticated systems are comprised of whiteboards, spreadsheets and even paperwork.
Proponents say NFTs would change this system dramatically by providing universal access through a digital ID – the NFT – that can be permanently attached to any item. This NFT links that item back to a data trail that provides a history for that item. While the data can always be updated, the history can never be overwritten or changed.
“It’s also extremely hard to hack a well-decentralized blockchain, which is of value in supply chain applications,” said Broyles, who noted that the very nature of the technology is to store information on decentralized nodes rather than one centralized location. “You would have to get control of a majority of the nodes before you could even attempt to disrupt it, and that would be extremely difficult to do in a mature, decentralized, logistics blockchain.”
“There can be numerous parties involved in a supply chain,” he said. “Sometimes those people don’t trust each other. Sometimes they don’t even speak the same language.”
That's just one reason it’s not common for a supply chain to rely on a comprehensive tracking system for logistical information. It could also expose companies’ sensitive commercial and operational data. “To do so would likely give these entities access to information you don’t particularly want them to have,” Broyles said.
Protecting data from outside actors, as well as from other companies, is another concern. Supply chain breaches can cause monumental problems, both for the manufacturer as well as the customer and/or consumer. One report found that these cyber attacks increased 51% in the second half of 2021.
Though application of NFTs and blockchain remain new, and not particularly well understood outside of the programming and technology community, implementation has started to occur.
The fashion industry is using blockchain and NFTs to combat the $20-plus billion counterfeit goods industry. The Aura Consortium is a blockchain initiative that allows consumers to authenticate a luxury item by scanning its QR code, which then shows the entire lifespan of the item, from raw material stage through manufacturing and distribution to the retailer.
NFTs could also change pharmaceutical industry logistics. In 2021, there were at least three global instances of patients receiving saline instead of COVID-19 vaccinations, including an estimated 8,600 German residents. Had these vaccination lots been tagged with an NFT, their origin, distribution chain and authenticity could have been verified.
One Fortune 500 company uses blockchain and tokenization to track 15 different food commodities, including the origin of its coffee products. The company established a digital ledger network which is accessible by all logistics partners to share information. In the case of the coffee, all partners involved in the logistical chain that takes coffee beans from the plant to the cup can update the blockchain’s metadata.
An Antwerp-based logistics company has started applying this technology to maritime logistics. More than 1,000 registered companies in more than 20 countries are using the company’s decentralized technology concepts in place in the Ports of Antwerp and Rotterdam as part of their supply chain data control.
Broyles said that while the implementation of NFTs and blockchain remain in their infancy, there are numerous industries that would benefit, especially as the technology matures. “Think of the construction industry, where materials are constantly being delivered to a job site – that’s perfect for blockchain,” he said.
Though blockchain and tokenized information represent an emerging technology, Broyles said the entry investment is less about money and more about the effort involved.
“Is it expensive to integrate this technology?” Broyles asked. “That’s a relative question. But no, it shouldn’t be. The technology itself is already developed. On some level, a company would need to do its own development work, including a managing entity to set up the blockchain and network so there is cost there, but companies who wanted to join and support a logistical supply chain should not see any prohibitive costs to be a reporting member.”
Supply chain entities could agree to become members on a network that is managed by a custodian. In this instances, different business models could apply. “For example, use of the blockchain could be per unit, where a minute payment is added to every item with data assigned to it. In this model, using the network could be quite cheap for members, but the custodian would be profitable over time due to the network traffic,” said Broyles.
Most integrators using this technology would simply utilize an existing blockchain. “It wouldn’t be hard to get that up and running fairly quickly and inexpensively,” he said.
Critics have raised other general concerns about the use of blockchain, including challenges of uploading and storing larger-sized assets. The technology is also still in an emerging stage; there’s no way of knowing which blockchains will emerge as the dominant players and which will fade into obscurity, which could leave users with a defunct platform in the future.
But the biggest problem isn’t likely cost or even familiarity with how tokenized data and blockchain can improve supply chain. Broyles said it really comes down to interest in using the technology.
“The hardest part right now is probably getting everyone to agree to use it,” he said. “The logistics companies who join the chain will have some light shone on them – all stops in a supply chain will have that data shared with everyone else. You’ll be able to see the gaps, where things aren’t quite right or who’s responsible for the problems that could be occurring. And frankly, some parties won’t be especially happy about that.”
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