By Mike Faden
Blockchain, the emerging distributed ledger technology, has the potential to transform the way businesses work, but it’s not a panacea for every organizational challenge. The key is understanding where it is more effective than other technologies.
One of those areas is for transactions that span multiple companies and where there’s a lack of visibility and trust among the entities, such as the participants in a supply chain, notes Bhagat Nainani, an Oracle group vice president whose work includes blockchain application development. “With a blockchain, you introduce that trust, because every transaction, every document, is on a shared ledger that is visible to everybody and is endorsed by the appropriate parties,” Nainani says.
London-based Circulor is at the center of such activity. Using Oracle Blockchain Platform, it’s helping companies ensure that the raw materials in their products are sourced ethically and in compliance with regulations by tracing materials through the entire supply chain, from their origin to the finished product.
Circulor started by focusing on a particularly challenging problem: tracking valuable “conflict minerals” (minerals extracted in a conflict zone and sold to perpetuate the fighting), such as gold, tantalum, and cobalt, from the mine to their eventual use in manufactured products such as smartphones and electric cars. Regulations require manufacturers to ensure that those minerals are legally extracted and aren’t sourced in countries that use child or slave labor. Manufacturers are also keen to demonstrate to consumers that their products are ethically and sustainably sourced.
The supply chains for conflict minerals involve multiple parties in various countries worldwide, notes Doug Johnson-Poensgen, Circulor’s CEO and cofounder. Take cobalt, which is in high demand for lithium-ion batteries used in electric cars. The ore may be mined and smelted in Africa, transported to a refinery in China, incorporated into cathodes in Vietnam, sent to a battery manufacturer in South Korea, and finally built into vehicles by a carmaker in the US or Europe.
No central authority governs the entire supply chain, so it’s not possible to require that all parties use a single tracking and compliance database, Johnson-Poensgen says. So Circulor uses blockchain to store an immutable record of the material’s path through the supply chain, together with smart contracts that apply consistent rules that each party must follow before it can pass the material to the next company in the chain, he says.
“Our target customers are big enterprises, and we have built an enterprise-class solution that is delivered as software as a service to those customers,” Johnson-Poensgen says. “We need to be able to demonstrate security, scalability, and availability out of the box—and that’s what we get with Oracle blockchain.” Circulor was able to develop a production system from scratch—spanning multiple companies—in a few months. “The engagement with Oracle has been amazing,” he adds.
Circulor’s first publicly announced application traces tantalum, a rare mineral integral to capacitors, which are used in millions of mobile devices and other electronic products. A smartphone typically contains hundreds of capacitors.
Circulor’s system went live in three mines and an ore-sorting facility in Rwanda in the fall of 2018, enabling manufacturers to track regulatory compliance and ethical practices more effectively than with stacks of paper attestations, while also reducing cost.
Rwanda is the world’s largest tantalum exporter. The problem is that the mineral could be smuggled in from neighboring Congo, where it’s often mined by children or slave labor. As a result, US and EU regulations require companies to trace and report the source of the tantalum they use and demonstrate that it has been responsibly sourced. But before blockchain, it wasn’t possible for them to create a foolproof traceability system, which led to a black market for the mineral.
Tracing conflict minerals is particularly challenging, because the raw materials are transformed into completely different products as they move along the supply chain. The material starts as an anonymous-looking bag of metal ore, but it changes form multiple times as it’s processed by the different companies in the chain. It may ultimately get incorporated into many different components.
This is a much more complex problem than, say, tracking a single head of lettuce from farm to supermarket shelf, Johnson-Poensgen notes. “That complexity is why it’s taken longer to deal with this challenge than with other track-and-trace applications,” he says. “We need to demonstrate an unbroken chain of custody on the journey from mine to manufacture and also to reliably connect the input material to the output product at each processing step.”
To provide that assurance, Circulor’s blockchain application applies multiple verification methods at each step in the process. Those methods ensure that each company meets the rules of the smart contract required to pass the material to the next company in the supply chain.
At the mine, a smartphone app uses facial recognition technology to verify that the tantalum originates with a registered user. The phone’s GPS coordinates record the source, and other documentation methods, such as taking photos and using handheld mass spectrometers, provide additional verification. The system creates a QR code that identifies the source, which is attached to a tamper proof bag containing the ore, ready for scanning by the next company in the chain.
We need to demonstrate an unbroken chain of custody on the journey from mine to manufacture and also to reliably connect the input material to the output product at each processing step.”—Doug Johnson-Poensgen, CEO, Circulor
At each step in the supply chain, the tantalum is recorded and checked when it arrives and leaves. Companies can verify that the materials were scanned at the designated locations during their journey through the supply chain and that they were unloaded by authorized personnel. Different verification methods, including weighing and analyzing the material, may be used, depending on the stage in the supply chain, so that companies don’t need to radically change their existing procedures to improve traceability.
Now Circulor is expanding to other industries. It’s working with a major car manufacturer to trace the cobalt used in its lithium-ion batteries, and it’s launching into tracking other raw materials, such as rubber, wood, palm oil, and cotton.
Circulor is also integrating blockchain with other Oracle software. For example, it’s moving collected data to Oracle Database so that companies can use Oracle Analytics Cloud to gain deeper insights. “When a manufacturer is tracking multiple raw materials through its supply chain, it needs to be able to make sense of all the information in a coherent way,” Johnson-Poensgen says.
Circulor is on the leading edge of a wave of supply chain applications that will use blockchain, Johnson-Poensgen maintains. “Today very few people have been able to stitch together parts of a supply chain on a blockchain,” he says. “Five years from now, lots of people will be doing it.”
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Photography by John Blythe
Illustration by Wes Rowell