BlockChain “The trust protocol” challenging the Counterfeit LandscapeThere is an unprecedented wave of crime present globally, and it is being carried out in broad daylight, moving across us almost on a daily basis. We as individuals occasionally play a part in it unknowingly and feel good because we struck a good deal!This is the growing crime of the “counterfeits market.” A crime carried out in daylight, and we don’t even realize the impact it has on the economy and our lives at the end of the day. Industries globally tend to lose significant amounts of counterfeits. These losses affect producers of genuine goods and to a certain extent also have a social impact. But, the ultimate victims are the consumers who receive inferior quality goods at high value and sometimes getting exposed to health and safety dangers.Counterfeit goods have been present throughout history too, the size of the market has grown massively. In 2016, the Organisation for Economic Co-operation and Development reported that the import of fake goods was worth $461 billion globally. While this is theft at colossal scale, the fact remains that this is the world that we created for us. With growing trade, the geographical boundaries have diluted, and new ways albeit technology have come up. E-commerce platforms have been helpful, convenient and driven sales for the producers and others in the value chain taking the economy to the next level, at the same time it has also created a “counterfeits market.”For governments of countries, it a major threat as they lose out on unpaid taxes and incur costs in enforcing intellectual property rights. The other thing of concern is the increased connection of the counterfeits with other criminal activities such as narcotics, money laundering and terrorism. Supply chain Increase international trade 3.emerging markets.Fake products can be found in every aspect of our lives, from luxury handbags and perfumes, FMCG products to automotive and aviation machine parts and chemicals. Counterfeiting also produces knockoffs that endanger lives: auto parts that fail and result in massive losses, pharmaceuticals medicines that make people sick, toys that harm children, baby formula that provides no nourishment and causes harm and medical instruments that deliver false readings.Due to the increase in this market that affects a lot of lives some in a negative way, customers across segments who have become aware are asking for more information about these products. They have started questioning industries if what they claim to be the source of origin, ingredients used, etc. are for real. In a recent study, it was found that consumers are losing faith on labels and have developed a feeling that they don’t mean anything beyond a higher price. In a recent study, it was seen that 40% of shoppers below the age of 49 believe organic is “purely a marketing gimmick with no real value or definition.”1For producers of genuine goods, brands, labels, organic consumables, pharma drugs, automotive parts, etc. it’s a grappling situation to deal with. While on one side they are investing vast amounts into packaging labeling, serialization, RFIDs technology, etc. and other ERP and POS modules as well as spending on protecting trademarks, Intellectual property rights counterfeits somehow crop up everywhere. The primary issue here is that in a complex supply chain that most businesses operate in, it gets impossible to pinpoint the point of entry of counterfeits into the supply chain.Every other day news is heard globally on the nuances of counterfeits an example of such a large scale counterfeiting is affecting the automotive industry with the infiltration of fake and sub-standard parts onto the supply chains. These fakes are being sold by people who don’t care what the consequences will be. In case of common fakes such as brake pads clutch plates while a genuine brake pad part would bring the vehicle to a haltering stop at high speeds the fake may succumb resulting in a collisionThis example holds good even for the aviation industry while the airlines MRO operations have been stringent on certification of parts and its authenticity, there have been times in the history where counterfeit parts have made way and caused serious damage. Way back in the 90’s the united states defense systems had a massive surge of counterfeit parts into their systems and faced some severe losses over such decisions.The problem starts to gain dangerous proportions when such counterfeits extend to the drug industry. High-value medicines were among the 25 million counterfeit medication worth $51 million seized in the worldwide Operation Pangea X conducted in September by Interpol. Apart from grabbing counterfeits more than 3,580 websites selling fake drugs were taken offline by the operation, which was carried out in 123 countries.With the boom in trade due to e-commerce platforms, the flip side is that much counterfeit medicine can easily find ways to be sold through the Internet. These drugs might be contaminated or expired, containing wrong drug composition and ingredients in incorrect dose. According to the Interpol, as many as 1 in 10 prescription drugs around the globe are counterfeit. And estimates suggest that counterfeit medicines, which are increasing in number, are responsible for more than a million deaths each year.In another recent example, the maker of a footwear seized $700,000 worth counterfeits. Since 2009, the company says, it has taken down more than 2.2 million counterfeit products. For them, the challenge is not just identifying and seizing counterfeits but maintaining the trust relationship that their customers have with the brand. As such, proving and continuously reinforcing product authenticity amounts to significant recurring costs for manufacturers. Recently, stakeholders in the value chain have recognized the gravity of this situation. In fact, Amazon has started taking counterfeit resellers to court.Various studies have quoted on the impact of counterfeiting. Unfortunately, only a few of them are based on any substantial analysis, mainly because it is so difficult to obtain accurate statistics in this field. This is mainly because the data across the industry supply chains are siloed. However, due to groundbreaking efforts by some of the agencies such as the US Copyright industry, including the Business Software Alliance (BSA), the International Federation of Phonographic Industry (IFPI) and the Motion Picture Association (MPA) some data for analysis is available.The loss estimates are interesting but should be treated with caution since they may be on the high side. As per a whitepaper published titled “the economic impact of counterfeits” copyright OECD, 1998 the topmost counterfeit products wereShare of counterfeit products in total sales of the sector Sector Share of counterfeit goods ss a percentage of turnover Watches15Medicines16Perfumes25Aircraft spare parts (SUP) 10Toys112Music233video 250Software243Source: Various trade associations and press.Not related to any year, estimation without any account for analysis. Figures for 1996, ostensibly with some analysis.Today selling fakes have become a lucrative business, and the current supply chain infrastructure has created opportunistic gaps that feed the counterfeit industry. One of the first pain areas is the lack of visibility for the stakeholders across the supply chain. “Their current legacy platforms don’t effectively allow the ability to manage the balance between sharing data and retaining confidentiality in a verifiable and tamperproof environment,”As the demand for transparency increases across segments and stakeholders, the need for an interoperable technology becomes stronger. For businesses, society at large and the environment, this means preventing the selling of fake goods and help to solve the problem of “double spending” of certifications, and other crimes.The need for a technology that establishes trust amongst the different stakeholders such as (producers,manufacturers,distributors,dealers,wholesalers,re-sellers ,retail outlets up to the level of consumers) and upholds the integrity of the supply chain by provisioning traceability ,transparency by making the movement of physical goods auditable and maintain a tamper-proof record of the journey behind all products across the supply chain becomes evident.And that is what this stellar new technology called Blockchain does.Blockchain As A Technology And Its BenefitsBlockchain technology, the underlying ledger system for Bitcoin transactions, is being discussed as a way to optimize and secure the complexity of supply chain, but there are still a lot of unknowns about it.Many companies have started out pilots to use the decentralized ledger technology and get better visibility of their supply chain to maintain ownership and accountability. One such is by the Chinese e-commerce giant Alibaba who announced a partnership with PwC, AusPost, and Blackmores, to create a blockchain-based food security system. The project aims to develop a “Food Trust Framework” to help improve integrity and traceability on its global supply chains. A pilot blockchain solution model will be used by all participants across the supply chain. We believe that blockchain technology is particularly well-suited to address food fraud, a practice that involves packing foods with lower-quality and often artificial ingredients.The reason for that is that blockchain can be used to track any physical good in real-time digitally. A blockchain-based digital ledger ensures that records can’t be duplicated, manipulated or faked while enabling increased transparency in all parts of the supply chain.A great advantage of this technology that we keep bringing up in different discussion forums is that with Blockchain different stakeholders can be at different digital maturity levels. They need to make investments again to ramp up their current IT infrastructure. What the Blockchain does is that computers separately owned entities follow a cryptographic protocol to constantly validate update to a commonly shared ledger. Blockchain technology removes the need for error-prone reconciliation and gives each member of the network far greater and timelier visibility of the total activity.It is this kind of complexity and diversity of interest of global supply chains that Blockchain as a technology seeks to address. The technology allows the actors in the workflow to attach digital tokens to intermediate goods as they progress along the production, shipping, and delivery phases.The benefits of using blockchain technology include its decentralization, encryption methods, and immutable recordkeeping, which means everyone works with one original record that can not be altered or deleted but simply appended with updated transactions. As the goods move through the supply chain, each transaction gets recorded and time-stamped, forming a string of information that can be tracked with anonymity. The technology gives critical trading partners with permission rights the ability to view each transaction, knowing the source of the records is verified. The technology “enables the end consumers to verify the source of origin, the ingredients used, the genuineness of medicine, etc. on the blockchain. “To get there, protocols and processes would need to change to accommodate that ability. The technology also lets supply-chain executives have more inventory visibility, so they could anticipate shortages and can execute better recalls if needed.”Blockchain as a technology is not designed to replace the existing track-and-trace systems. ” what it offers them is the ability to be interoperable with other systems and enables the privacy and data-sharing capability that is needed” acting in adjuvant to the existing systems in place.In a study conducted by IEEE for Pharmaceutical industry manufacturers who were concerned with the cost of installing the system, its security, and its ability to connect all networks. While the other stakeholders such as the distributors, wholesalers, and dispensaries were worried about the technology’s acceptance by the public as well as the challenges of using it. A major cause of concern in the healthcare industry for using Blockchain and it is the same concern that stands well to some extent for other sectors is the concern around trusting other with them viewing their company’s information, which would be exchanged. While the Blockchain by design can address these concerns based on business logic and the kind of private permissioned network that is deployed most of the executives surveyed were of the opinion that they are likely to escalate their blockchain implementation within the next two years.Keeping up with the trend Everledger a startup that offers a permanent ledger for diamond certification and related transaction history, aimed at detecting and combating fraud recently signed a partnership with SAP Ariba, the US software and IT firm owned by tech giant SAP, to use blockchain technology in supply chain applications and help reduce risk and fraud for stakeholders. Some startups are already providing such solutions. UK based Provenance enables physical products to come with a “digital passport” that proves authenticity and origin. PwC’s BlockChain-as a -Service platformAs the technology matures from its introduction as a peer-to-peer lending network by a person using the pseudonym Satoshi Nakamoto way back in 2008, the Blockchain enthusiasts and evangelists have started working towards addressing the need for technical standards that can answer the concerns of potential users looking for Blockchain solutions. We all believe that standards will eliminate the need for customisation and increased cost and help the proponents of Blockchain to establish the credibility of the technology thereby providing the roadmap to integrate with existing platforms and systems.At PwC we have worked towards paving a way forward and designed a cutting-edge blockchain platform. The thought process behind such a platform was to help enterprises envision how business systems can interoperate, make deals, negotiate on-behalf across business partners and develop self-learning capabilities that help them build excellent customer relationship and build an indispensable business that knows no geographic boundaries. The platform is an interplanetary enterprise (IPE) suite blockchain based solution development platform that offers industry & use case based pre-built smart contracts, a distributed ledger to execute business contracts and a decentralized storage network that can store gigabytes of data or it can store a single kilobyte of data. The storage system can identify unique files and detects duplicates by nature. A resilient platform with a capability to integrate seamlessly with enterprise systems and hook itself into the data channels or messaging systems to generate proof of transactions.The entire thought process of creating the Blockchain as a Service platform was because we believe that the technology has potential to help different stakeholders in their value chains from various industries to boost their profits and create a strong brand relationship with their customers while helping to solve a standard issue of counterfeits. Keeping with its promise solutions of track and trace built on the platform can help the stakeholders provide customers with reliable information around product categories, the source of origin etc. and help them base their purchase decisions on the purity and authenticity of the products.BlockChain can change the consumer attitude towards products by assuring the product purity and origin which is accomplished by recording the details of product in a blockchain that is present throughout the supply chain. This data could include details as specific as the treatment the crop received, the soil, weather conditions, sensor readouts etc. Providing such information to the customers will improve trust and increase the brand presence, and the same use case can be applied to customers looking out for clothing labels, electronics, food grains, pharma drugs etc. It will help create an ecosystem where customers would be able to know that the item they just purchased came from a certified factory with proper safety measures and humane conditions or, e.g., coffee beans that have been ethically sourced by a company that cares about the environment. Another significant benefit that Blockchain enables is transaction settlements. In a typical supply chain where every player pays a steep price to ensure the exchange of goods happen and it takes time to settle payments that need intermediaries like banks, western union or PayPal to complete the transaction process, Blockchain can help reduce the need of such intermediaries.It can help reduce the time and cost delays with the upkeep of transactional safety, security, and integrity. With the help of smart contracts that are a part of the technology, suppliers can automate payment processes making attribution splits easier, traceable and help improve the supply chain visibility dramatically. From an insights perspective, the distributors and retailers will be able to reconcile better within a short time with no ambiguity, which would help them, forecast better and use the data to optimize their inventory levels. Blockchain For Enterprise implementation and its ChallengesJust like any other emerging technology, Blockchain, adoption faces its challenges however the returns are favorable, and full benefits are realized in the long run. Most organizations get stalled while looking at the implementation costs around developing a platform and driving integration with the existing legacy systems. By legacy systems we mean, ERP, CRM, and other supply chain modules and POS solutions but a point to remember is that this one-time effort would help the organization gain better visibility of the supply chain and deliver unprecedented data and insights that would be of immense value to drive business decisions. As a first step, organizations need to introspect and ask questions from a business lens before proceeding with a BlockChain solution to understand the need for it. Some questions the management needs to answer are – Will information regarding product authenticity help increase sales?To what extent will automation of processes help save costs, time and reduce risk?Will overall improved visibility to the supply chain benefit the organization? What levels does the organization need clarity to come through?Are tamper-proof, immutable time-stamped records indeed of value to the organization and customers?Will provide information to consumers help increase brand presence for the organization?Once the management gains clarity and can answer questions that are path-breaking and define the new norm the next step is to identifyAreas of their business that will be affected by the implementation. These areas include, but are not limited to, integration with existing systems, and impact on existing business processes.The second step would be to analyze how BlockChain technology will interact with existing enterprise system components and what type of read/write permissions should be granted to each of the components interacting with the BlockChain.Subsequently, enterprises must comprehensively assess challenges to adoption and develop corresponding mitigation strategies.For driving such a solution deployment blockchain based teams should be identified by organizations that have the capability to ideate and deliver the solutions or interact with external vendors to seek support wherever identified. In conclusion, organizations are on the brink of facing another inflection point with an emerging technology as Blockchain. It’s essential for them to be prepared and after evaluating the benefits mentioned above take advantage as a first mover.