The Friday Report: May 11th, 2018

Gold and Diamonds:  Is the Future in Blockchain?

Heralded as the cure to traceability challenges for everything from food to pharmaceuticals and beyond, blockchain is now in trials to help track and trace key commodities, including conflict minerals and diamonds.  Using blockchain means that a secure peer-to-peer validated audit trail would be used to record the movement of these commodities to provide transparency in the supply chain and record the lifespan of a commodity.

Providing traceability of diamonds is hugely problematic as they are passed through many hands before reaching a retail destination.  Diamonds are a commodity that is relatively easy to smuggle over borders, get mixed up with KPCS-certified boxes or for which fraudulent certificates can be obtained.  Due to the complexity of these issues, KPCS alone cannot be successful in dealing with these issues.

Similar to issues involving the counterfeiting of luxury goods, solving the traceability challenge can help to safeguard human rights and issues of sustainability by proving the provenance of the commodities and tracing it through the supply chain.

IBM and a group of four diamond and gold industry companies in combination with an independent laboratory are collaborating on the development of a blockchain network.  The goal is to develop a blockchain network that can trace the provenance of finished pieces of jewelry from the mines where the gold and diamonds are mined to the retailer.  Labeled “The TrustChain Initiative”, the blockchain network will rely on IBM technology.  Products in this program are anticipated to be available to consumers by the end of the year. TrustChain recently completed its first proof-of-concept test.  The London Bullion Market Association (LBMA) which oversees the largest spot gold market in the world is interested in using blockchain to help prevent money laundering and to detect conflict minerals.

Can Public-Private Collaboration Help Prevent Cyberattacks?

Former directors of the U.S. National Security Agency (NSA) and CIA recently spoke out about security and intelligence challenges at a major supply chain management event, the Institute for Supply Chain Management (ISM) conference in Nashville, Tennessee.  Keith Alexander, former NSA Director and John Brennan, former CIA Director addressed the need for change in approaching cyber threats.  Cyber attacks are not always apparent because hackers can disguise their identities, encrypt IP addresses and leave no way to follow the agent that caused the damage.

One problem identified by the speakers is the fact that many CEOs fail to understand and recognize cyber vulnerabilities.  The speakers advocated public-private partnerships to expedite the awareness of and response to cyberattacks.  Sharing of information can lead to better response times and the ability to act pro-actively, rather than reactively.  Government agencies and businesses can both monitor cyber behavior and report changes in patterns.  Serious privacy concerns arise when sharing information with the government, making companies in the private sector less likely to share sensitive information regarding its clients with government agencies.

In a 2017 survey on risk and resilience by FM Global, of the 100 CFOs who responded, 66% had experienced harm from operational risks including equipment failure, 59% had experienced data breaches and 52%, natural disasters.  With respect to each of these risks, only 34% or less of respondents noted that they were prepared for these operational risks. In another report, 40% of supply chain managers indicated that they do not plan ahead for risk.

Clearly, greater focus and action need to be taken to prevent cyber threats and help companies get prepared for potential damage. 

More exploration of potential ways to remediate concerns about privacy need to occur, including potential industry liability protection for data sharing, incentivization to share data with the government.

Will Brexit Result in Supply Chain Disruption?

The UK is scheduled to depart the European Union at 11PM UK time on Friday, March 29, 2019.  Three of the main issues have already been decided provisionally, but what about the supply chain?

Already there is apprehension and disruption.  Nearly two thirds of EU businesses which deal with UK suppliers anticipate moving at least part of their supply chains out of the UK due to Brexit according to a study conducted by the UK-based Chartered Institute of Procurement & Supply (CIPS).

The government of the United Kingdom has reached out to business groups to help plan ahead to minimize disruption.  Companies have been asked to highlight areas of the economy that are in the greatest risk if Brexit imposes additional trading costs on exporters.  The response will help government ministers and trade negotiators develop a better understanding of the companies and business sectors that are most likely to suffer the most damage if the UK’s departure from the customs union results in costly rules of origin.  This would mean that exporters would be forced to prove the proportion of the value of their products which originates from domestic production.  The issue is a complicated one and remains in flux, despite the fact that the change will occur in 10 months.

With the complexity of European supply chains, there is a myriad of problems to solve long before Brexit occurs.  The pharmaceutical industry is especially concerned about the impact Brexit will make on free trade.  Pharmaceutical manufacturers are especially concerned in licensing their products as 12,000 medications will require a separate license from the UK to be prescribed.

As UK businesses watch and wait for answers, they are trying to find a way forward to prevent supply chain disruption.  Companies need to understand the barriers they will face in order to relocate production, develop new supply chains or take other action.  

Until the UK government can decide on the burden exporters will face, whether trade is viable with the EU as well as with third party countries that the UK has existing trade agreements with as a member of the bloc, British companies have to wait to take definitive action. The delay may result in significant disruption and upheaval.