Blockchain is not a silver bullet for each and every problem
There has been a lot of hype on how blockchain can act as a digital twin for a physical asset in the textile supply chain. However, Amit Gautam, chief executive of TextileGenesis, cautions Subir Ghosh that there should be a balanced view about what blockchain as a technology can or cannot deliver.
Many people believe that blockchain will eventually make or break supply chains. Do you think it is an overstatement which will change the game altogether or do you think it is an understatement in the sense that probably there is more that blockchain can do considering whatever little is being talked about?
The first thing I want to highlight is that blockchain is not a silver bullet for each and every problem in the supply chain. There are specific challenges that it can solve in the supply chain. And there are a lot of things it cannot. So, we should have a balanced view of what blockchain as a technology can or cannot deliver-not only for supply chains, and beyond too. I have a pragmatic but still optimistic view of what it can achieve but very clearly focused on what problems it can solve and what it cannot. A lot of cynicism comes from the lack of truly understanding what the technology is. And if you go deeper into the technology then it becomes clear-what specific areas it can address and what it cannot.
Where do you see the possibility of regulatory frameworks coming into play?
Regulations would come into play in different areas from different angles. One example is that the European Commission (EC) is talking about a regulation around traceability of garments being imported into Europe to ensure that a garment has a clear traceable supply chain, that there are fair labour wages across the supply chain, that there is no labour exploitation, etc. Once one of those things come into play, we will see a fast adoption of solutions that deliver supply chain traceability. Our focus is to tell people that we are solving your challenges in a very complex and highly fragmented global textile supply chain. Sometimes for a garment being delivered in Europe by a brand, even the brand might not realise that it has gone through six countries before the product has reached them. Fibre production may be in one county, spinning in another. So, we are solving supply chain traceability using blockchain as a building block. We are not a blockchain company per se. We are a supply chain traceability and transparency company that uses blockchain as one of the elements or building blocks of that technology.
Who would be your ideal client?
Our ideal customer is from the two ends of the supply chain. At the end of the day the system has to be used across the supply chain, but the main actors we want to engage with first are the brand/retailer and the sustainable fibre producers like Lenzing or a recycled polyester player or a cashmere producer who wants to differentiate its product across the supply chain. Those are the two ends. Once we start working with them, we can then work with the entire chain in between.
There has been a lot of hype about blockchain and people have known about it for a few years now. But then, beyond cryptocurrencies and beyond fintech as such, the revolution so far has not kind of happened. How do you react to that? Do you think these are still the early days?
You are right. The majority of the work and applications have been in cryptocurrencies or fintech (intersection of finance and technology) but beyond that real life applications have been limited. The reason why it has been limited is because of not truly understanding how the technology works and how it can practically be applied at scale. What we have to understand is that if you are trying to apply blockchain in an industrial scenario (like supply chains, and supply chain is a very good use case for blockchain because a lot of things can naturally be applied there)-if you apply the technology in its purest form (the way it exists in the cryptocurrency space), it will be too costly, time-consuming, and too slow. We have to step back and think… what are some of the building blocks or some of the aspects of blockchain that one could apply in a business problem rather than in its purest form. The evolution is happening. We have seen a lot of traction at TextileGenesis from brands, textile suppliers and fibre producers. This year we won the H&M Global Change award. They looked at 6,000+ innovations. We are the only supply chain traceability platform (that uses blockchain) which has been selected since the award was started five years ago. The trust, focus is increasing. But it also depends on a solution provider to come up with a practical solution with a very clear use case, a clear application.
What are some the issues in understanding blockchain?
There is definitely a problem for a layman in terms of understanding what blockchain essentially means. There are three aspects as to why it is a distinctive technology and also unique, versus all that has happened before, be it the internet or software technologies. At the basic level, blockchain is nothing but a way to store data. There have been hundreds of ways to store data, but what is special about blockchain is that once you store something on it, it's virtually impossible to alter that data because of its distributed nature and the high level encryption. That creates a certain level of trust between you and me. We both agree to write something to that database. We know that it cannot be edited, modified or deleted. So, it is a database that is highly secure. The second thing is that it connects transactions naturally to each other. That is why we talk of a chain. Because of that it is a natural database to use if you are trying to look at an audit trail. It is a natural database to use if you are trying to understand supply chain transactions. The third and perhaps the most unique feature that can be delivered with or without blockchain is the idea of tokenisation.
It means you can take a physical asset and create a digital twin, and as the physical product gets transformed in the supply chain from fibre to yarn and from yarn to fabric and fabric to garment, the digital twin on the platform also could exchange hands. So, you could, for example, create a digital chain of custody. It won't need a PDF file or a transaction certificate (which is quite common in the textiles industry). We say: look, we are picking up the idea of tokenisation as the most important innovation and try to incorporate that into our solution. That opens up new opportunities about how you could create an audit trail, how you can ensure that organic cotton is actually present in the garment, or that recycled polyester is indeed being delivered across the supply chain. So, it creates a very secure and viable way to conduct transactions across the supply chain.
What are the future projects you are working on?
The work with Lenzing is proceeding well. Over the last year we have conducted live traceability trials with Lenzing and brands like H&M, Armed Angels, Mara Hoffman and Chicks in 10 countries looking at Tencel and Ecovero fibres' end-to-end traceability. After a very positive and enthusiastic response, we can now say that the technology works. We can use digital tokens for electronic traceability. Now we are moving into the commercial rollout phase. We have started onboarding the Lenzing supply chain partners (Lenzing onwards, up to the brand) in South Asia (India, Pakistan, Sri Lanka and Bangladesh). After that we will move to China and Turkey. We did trials for about one year to ensure that the system works in different countries, that the system is scalable, get the real time market feedback from the value cain, and also feedback from the brands. So, now we are rolling it out and scaling it up.
We have also partnered with the Schneider Group, one of the largest Italian wool and cashmere producers. We are creating traceability for wool and cashmere. For Lenzing, it was manmade cellulosic fibres. We are also conducting trials with a major brand for recycled polyester. Those are the three major sustainable fibres that we focus on. Next year, we are expected to start trials in organic cotton and then we can have a very broad coverage of sustainable fibres.
What are the shifts you can see in the post-Covid world?
In the post-covid19 world I see two shifts. First, the focus on traceability and transparency has significantly increased not only with brands but also consumers. Second, the focus on sustainability too has increased. It was reported that 80 per cent consumers want brands to declare that they are more transparent about the supply chain and increasingly want brands to offer sustainable products. That has created a big shift in the demand in the market for traceability and transparency. Any technology solution that helps practically solve that problem will help. Blockchain can be one of the elements in that. I don't think it is a silver bullet, but it is an important element that will play in solving that challenge. For the whole chain, it is important how we use digital technologies and innovation to create traceability that has been until now been very difficult to have.
Even now during the pandemic we can see only certain names (luxury brands which have suddenly realised that we should have probably invested much more time to online channels rather than brick and mortar stores). This is something they should have done 10-15 years back. Our industry has been very slow in technology adoption. So how do you react to it given the fact that you are dealing with this industry for sometime now?
Yes, technology adoption is going to be critical. It would only work if you create the right incentives. If you come up with a solution that helps either the supply chain or the brands or the fibre producers to save compliance costs to reduce their risk in the supply chain or to do what they are already doing more effectively, that is the only scenario where you can actually scale it up rapidly. Any technology solution needs to deliver very clear benefits for the use case, for the problem it is trying to address. And that has been our key focus. Because, if there is no intrinsic benefit, you will go ahead 1 or 2 years and then it will not fly. That is what we are trying to change-make it more attractive for supply chain players, brands and fibre producers to adopt a technology that helps deliver clear business benefits which they will not be able to capture without the technology.
Is there a possibility of digital divide to crop up in industrial supply chains?
As far as industrial supply chains are concerned, I don't see any digital divide. Whoever offers a scalable technology that delivers clear benefits to suppliers and brands is likely to get more broadly adopted. There might probably be 2-3 systems that might have to communicate with each other, and there'll be a strong pull from downstream players. If you are not a traceable or transparent supplier eventually you might have less business because you are not transparent or traceable with your downstream customers. These things are more important. Maybe the market will start segmenting itself towards more traceable products, towards more transparent supply chains. That's the kind of segmentation that might happen. But not really a digital divide.
What would be the cost of implementation of your supply chain traceability platform?
It would be very nominal. We are very much in the price discovery phase. I think the business model will be fine-tuned over the next year. We are trying to make it nominal like a fixed annual subscription fee so that you can run as many transactions as possible, add as many users, add plants in different geographical locations. The fee might be slightly different based on the size of the customer. So, it will be very much like a Netflix pricing model. We want to keep it very simple for people to use the system. But like I said we are very much in the discovery phase now. (PC)
Published on: 21/01/2021
DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.
