Business value in traceability supported by blockchain technology


As a basic technology that supports Bitcoin, blockchain has gained the global attention. The scope of its application is not limited to crypto asses but extends beyond all industrial fields. This article explains the business value created by cutting-edge technology from the perspective of blockchain x traceability, along with the knowledge that NTT DATA has acquired through projects both in Japan and abroad.

What is traceability

Traceability is a word translated as “the ability of tracing” in Japanese. In general, traceability in the business domain refers to the state where you can trace the history starting from procurement of raw materials to processing, distribution and sales (or retroactive)

Those in the early stages of supply chain(upstream) can trace where the goods go( trace forward) and those in the later stage of supply chain(downstream) can trace back where the goods came from (trace back)

Although this concept of traceability has existed since the pre-war period, even as of today there is a need for traceability and there are still great barriers to achieving this.

Issues that traceability faces and applicability of blockchain technology

Now, this chapter explain what issues NTT DATA has faced over the years from both domestic and overseas projects in terms of traceability and the approaches that have been taken from a perspective of the blockchain technology.

1: Inconsistent rules between collaborating companies

When there are two or more companies collaborating in supply chain, it would be easier if one company takes the lead and manages the business in a pyramidal top-down structure, but most of the times, it would be a horizontal relationship, which aims to connect producers, wholesalers, distributors and store operators at the same level. As a result, the differences in cultures, values and conception of each company will surface.

Looking at the needs of trace forward and trace back, the business operators of the downstream process close to the consumers have strong retrospective needs related to consumers such as recall response and safety appeal while product tracking needs are not as high among the business operators of the upstream. Thus, there is a mismatch. In other words, one of the challenges is that there are currently no or little incentive for upstream operators to digitize work and provide data just to meet the needs of downstream operators.

Therefore, NTT DATA believes that it is necessary to build a system that merits each supply chain company, especially for upstream companies.

Specifically, in order to exchange incentives for providing data that contributed to the improvement of the added value of the product, it is necessary to be able to refer to and verify who provided the specific data which contributed to the improvement of the goods and it is also necessary to build a mechanism in order to visualize distribution of information.

Therefore it is required to design rules between multiple business operators including a mechanism to share incentives based on the policies agreed among them. As an approach to tackle this situation, there is “tokenization” using blockchain technology.

Token is a blockchain technology that is expected to generate a new business by creating a kind of economic zone by granting rights and information on the blockchain and visualizing the value of the data itself. It is necessary to build a data platform where token are created by linking the distributed goods with related information and the incentives are given to the data providers in accordance with the degree of contribution in the added value of the product and the policy.

2: Cost and reliability of data entry

At the work site, it is often the case that data is manually input via a human. In other words, the authenticity and reliability of the information itself is basically left to the human. In the current work flow, the reliability of data hugely depends on the reliability of the human in charge of data entry. It is no exaggeration to say that the authenticity of the data is guaranteed based on the theory that human nature is fundamentally good.

There are other disadvantages caused by the involvement of human in business operation. For instance, since the operation rules are not unified, a reference cost will be incurred each time a sudden retroactive request is made, and business operation might be interrupted depending on the number of requests.

One of the main factors is that the data model used for linking information between multiple businesses is not standardized. Therefore, in order to ensure the validity of data input, you will fundamentally standardize and unify the rules, then integrate the data platform and technology in order to absorb real data such as IoT devices and sensing technology etc.

When it comes to data operations, it is required to build a data management system where reliability of data depends on system, not on the human, using cryptographic technology that make it difficult to tamper the data.

3: Regulatory issues related to cooperation with third-party institutions

Traceability cannot be achieved simply by clearing the business and technical issues mentioned in the above. After clearing those issues, regulatory issues arises.

In the current condition, when the business operator with analog systems provide information data to the third-party institution, access cost will occur each time and the transparency of real-time information is low.

Looking at the domestic and overseas secondary markets today, external audits are inevitable in order to bring goods overseas. It is required to make a set of tracking records and information public in order for third-parties to be able to validate the actions of the parties involved in the records. In order to achieve smooth information linkage, it is necessary to design rules that match the inspection standards for external audits while using blockchain technology that ensures information transparency. These kinds of efforts cannot be completed within a single company, thus involvement of multiple companies is required. Designing a governance model while considering the feasibility of the system is more challenging.

At the end

According the “Society 5.0” advocated by the Japanese government, it proposes a future society in which physical space (real space) and cyber space (virtual space) are highly integrated.

The efforts to integrate this physical space and cyber space is exactly what the traceability system is currently required to do and its needs are expected to grow in the future.

Today’s supply chain market is in the tide of globalization, with the distribution network expanding to areas where products that had previously been closed only to domestic distribution have been delivered to overseas. Under such circumstances, even though the needs of accelerating the distribution process is growing, it is not acceptable to allow products whose safety are not guaranteed to the market, thus the implementation of a stricter regulatory system globally.

NTT DATA envisions the world beyond where quality certification become default, and seeks approaches to blockchain as a technology that support traceability and added value created by integrating multiple technology.

NTT DATA will continue to promote new businesses together with customers toward a digital society.