Edition 111, November 2020

How Blockchain Can Prevent Counterfeiting and Enable Reverse Logistics

By Amit Gautam, Innover Digital

In 2019, as global trade volumes stagnated, one section of the overall market was able to grow its total share from 2.5% to 3.3% – counterfeit goods. According to reports from the OECD and EU’s Intellectual Property Office, this trend not only comes at the cost of companies and governments, but also ends up profiting organized crime. This not only jeopardizes the revenue stream for global businesses, but also threatens their brand credibility.

With an increasingly sophisticated means of productions, modern counterfeits are extremely difficult to identify and can remain undetected within a product’s lifecycle. For years, businesses have sought out ways to combat this threat but to no success. In fact, the rise of e-commerce has made this challenge exponentially harder with a notably high number of anonymous distribution channels. As a result, the majority of counterfeit products are only discovered in organized raids at ports of trade, beyond which they become almost impossible to expose. However, this may no longer be the case as new digital innovations have begun to show encouraging results. Blockchain is exactly such a solution.

Power of Blockchain

For the uninitiated, blockchain technology is a type of distributed ledger system that uses open-source collective verification and complex encryption to establish an enviable identity for any data. So far, blockchain has been most commonly been associated with digital currencies like Bitcoin, but it’s underlying technology makes it a powerful tool in tracking, tracing, and verifying data across complex ecosystems.

Blockchain has already proven effective as major financial industry players have adopted it to securely store and transfer digital transaction data across the world. Now, its versatility is being applied to the world of tangible goods as it takes on problems such as counterfeiting. With blockchain technology, businesses today have the means to easily and securely ensure transparency throughout any product value chain from raw material to final product. This is a major breakthrough as it has the potential to impact everything from high value luxury goods to essential life-saving medications.

The Counterfeiting Challenge

Contrary to popular belief, the primary entryway of counterfeit materials is during the production stage and not during distribution or sales. Expert investigation has shown that the key vulnerability to counterfeiting is the porous nature of any supply chain. This takes the form of various nodes along the product journey — such as warehouses, logistics partners, refurbishing agents, retailers, wholesalers, customer control agents and much more. These nodes make it near impossible to establish the exact origin of fake goods and further perpetuate the problem.

Since blockchain is used to protect data, it can be paired with physical or digital data tracking devices as well. For example, blockchain can be used to establish a real-time traceability system for food and beverage supply chains using IoT tags that comply to the FDA regulation. This convergence of technologies can be leveraged suing an information platform for all stakeholders, ensuring reliability, security, neutrality, and transparency.

Furthermore, distributors can apply a similar platform approach for product identification and location tracking as well. In addition to RFID/IoT tags, companies can configure QR codes as transaction monitoring sensors across factories and warehouses. And while simple device tracking can be digitally manipulated and altered, this is a near impossibility when blockchain is used. This is why it is especially useful in the case of returns and reverse logistics, where the combination of these technologies can prevent counterfeiting and ensure a secured and verifiable trail of information.

Role of Blockchain to Counter Entry of Duplicates and Frauds

In the distributed ledger system, all records are stored in an encrypted form, making it accessible and verifiable by only authorised users. Manufacturers and logistics companies can use the technology to record and store data from their RFID tags, sensors, and QR codes, and allow access to specific personnel. The encrypted codes that are embedded in the system cannot be used or replicated for distributing counterfeits as they are protected by powerful encryptions and collective verification frameworks.

Owing to its accessibility, the blockchain solution is ideally suited for todays globalized economy, where products are often manufactured using parts sourced from different countries. Thanks to its interoperability with other technologies, it can easily be configured to allow the traceability of parts as well. By leveraging connected devices and IoT tools, companies can broaden their visibility to an even more granular scale. This means that it’s not just the final product but every component in the value chain that can be tracked and traced for authenticity.

Blockchain can even be used for executing smart contracts and securing agreements, standard transactions, and even invoices and inventories within supplier supply chains to ensure a seamless and unbroken trail of data for every part. This can help bolster product authentication and warranty management throughout the value chain to further strengthen brand value, quality, and consumer trust. But more importantly, it can be used to authenticate the product as it enters the reverse logistics phase of its life cycle. This results in the creation of an indisputable chain of provenance.

The Benefits of a Blockchain Platform

According to a survey from Cerasis, reverse logistics costs exceed $750 billion with 30% of all products ordered online being returned. Research shows that 32% of product costs can potentially be recovered with enhanced reverse logistics practices such as combining supply chain systems into a single platform. Blockchain has the potential to revolutionize this possibility and enhance product cost recovery by enabling counterfeit management and sustainable supply chains.

Combining reverse logistics and blockchain technology can connect disparate supply chains securely, effectively, and at lower operational costs for all stakeholders involved. The broader impact also includes benefits for governments, organizations and authorized suppliers as it can reduce the costs involved in regulatory validation, product monitoring and verification, documentation, and tracking. In the long run, other downstream benefits include major risk mitigation from consumer lawsuits, product recalls, increased operating costs, and damage to brand reputation.

By implementing blockchain based solutions at the key supply chain nodes, companies can secure all their vulnerabilities, going so far as to include third-party partners and supplier networks. The combined data from all stakeholders can be used to create an accurate and verifiable data trail that tells the story of the product, including every constituent part. As a result, any fraudulent attempt can be easily detected, allowing companies to block the entry of counterfeit parts into their product build. This, in turn, can minimize defects caused by fake parts, and directly reduce servicing and reverse logistics burdens.

Securing a Sustainable Future

With the unprecedented transparency that blockchain offers, information visibility becomes a powerful tool in the hands of companies. They can use this power to help consumers make more informed choices as they themselves implement ethical business practices. China, for example, has already taken steps in this direction by implementing a blockchain solution for the efficient generation of carbon assets to ensure that they are compliant with the China’s Carbon Emissions Reduction for the Paris Agreement. Similarly, Provenance, a social enterprise start-up has developed a blockchain solution that tracks and validates product origins, empowering consumers to make informed decisions based on the environmental and sustainability of products.

Fundamentally, blockchain has the power to be a transformative tool for businesses the world over as it can radically improve how supply chains operate. It has the potential to revolutionize the entire reverse logistic pipeline from recycling to disposal, and even going so far as to securely protect the private consumer data on products like laptops and smartphones. All this is only possible due to the powerful features of blockchain that can enable data-driven information platform tools. The imperative now is on businesses to adopt blockchain solutions that best help them tackle their core business challenges so they can deploy a sustainable reverse logistics enterprise ecosystem for the next generation of global trade.

Amit Gautam
In his role as President and Chief Strategy Officer for Innover, Amit Gautam  has responsibility for all aspects of the company’s product & services strategy & execution, as well as its financial performance and growth. Amit has a relentless focus on Growth and Innovation and holds a strong personal commitment towards “Outcome-Driven” Digital Transformation for businesses. Amit collaborates with the C-suite executives of Fortune 1000 companies and guides them to adopt a digital-first mindset, delivering bold transformations and exceptional experiences. Prior to Innover, Amit worked with firms like GE and Cognizant in various leadership roles. Amit studied Data Science at Harvard and holds a Bachelors Degree in Engineering from India. www.innoverdigital.com amit.gautam@innoverdigital.com