Hot Commodities: Supply Chain Troubles
I was in the grocery store over the past few weeks and noticed something: there’s no romaine lettuce anywhere. None. Anywhere.
Every single leaf of romaine in the nation was thrown away. The recall disrupted trucking markets, and thousands of tons of romaine were dumped at landfills.
While food safety is certainly top priority, in the supposed age of big data it’s amazing that the U.S. supply chain lacks the systems to quickly identify exactly where the breakout originated.
Today we’re exploring a few other troubled commodity supply chains.
BMW and Cobalt: Avoiding "Blood Batteries"
As global EV sales explode, BMW is expanding their fleet of electric vehicles offered. Electric vehicles rely on lithium ion batteries, which utilize lithium as the anode and an assortment of metals as the cathode, with cobalt being a significant part in all cathode arrangements. While vehicle batteries use a smaller proportion of cobalt than consumer electronic devices, the sheer size of vehicle batteries means that over half of the global cobalt produced is used in EV batteries. And over half of the global cobalt production comes from the conflict-torn Democratic Republic of Congo.
After an uproar from customers about the child labor and dismal living conditions of the “artisanal” mines, BMW launched a strategy to take the unethically mined cobalt out of their supply chain. The company would start by releasing the names of the smelters and origins of the raw materials. They said they will publish where their batteries’ raw materials originate, and not just for batteries supplied to BMW but all indirect suppliers too. But how exactly they will know with such a messy, opaque supply chain is yet to be seen.
Last week, BMW Group, BASF SE, Samsung SDI, and Samsung Electronics launched a project to improve mine safety in the DRC. The project aims to improve working conditions, but details were limited.
One major improvement would be a significant increase in the transparency of the entire supply chain, from the mine all the way to the car. Up to now, all announcements were limited to BMW saying they were investigating suppliers and looking into conditions. Releasing actual data on where raw materials were sourced would go a long way with consumers in reassuring them that their new i8 isn’t going 0-60 in four seconds flat on a blood battery.
Cocoa Value Chain
A scathing report published by the Brazilian government reported that the cocoa supply chain is rife with human rights abuses, where indentured servitude, slavery, and child labor are prevalent.
Cocoa production is almost exclusively located in tropical countries, with the majority in Africa. The African supply chain has long been known to have similar human rights issues, but it appears Brazil is taking the lead on addressing these issues, in publicizing this report if nothing else.
The chocolate industry has long researched sustainability and social issues with cocoa production. But with the geographic disparity of cocoa production the problems have thus far been insurmountable.
Cargill Poultry Acquisition
It appears that Cargill’s strategy for supply chain efficiency is to own the whole thing, at least in the poultry space. The company continued its global campaign with the acquisition of CAMPOLLO in Colombia. The acquisition of the team of 2,500 brings Cargill’s total presence in Colombia to 7,500, and follows the September acquisition of Konspol, one of Poland’s major value-add processors in the poultry space.
While Cargill has highlighted transparency in recent years, owning that much of a supply chain brings into question the veracity of data released. Though the poultry space doesn’t have the same environmental and social issues as previously-mentioned commodities, with the ever-increasing demand for protein and white meat taking the lead, issues are likely to arise.
Blockchain has long been lauded as a potential solution for creating supply chain transparency. It seems like every news journal is pumping out estimates of how many billions blockchain in commodities will be worth.
As we noted in our previous edition of Hot Commodities, the Cargill project using blockchain to track turkeys back to the farm where they were raised is certainly an interesting case study. But as firms like Cargill encompass entire supply chains, is blockchain really an effective solution?
The main value-add for blockchain is the trustless, decentralized scaling to a large amount of users. A private blockchain exclusive to one user is simply a needlessly complicated, slow database.
Another model is the private, permissioned blockchain that would create a ledger of shared, overlapping infrastructure between the large players. There would be permissioned blockchain, fully encrypted, with only counterparties privy to the info that would be unlocked. But that just makes the blockchain a shared database, with which there is plenty of viable, proven competition.
A new report based on the monitoring, evaluation, research, and learning (MERL) process — which is sure to be not controversial in any way and widely accepted with open arms — found that every one of the 43 use cases studied were significantly under-delivered. Furthermore, they “found no documentation or evidence of the results blockchain was purported to have achieved in these claims.”
Their final findings?
“Blockchain firms supporting development pilots are not practicing what they preach — improving transparency — by sharing data and lessons learned about what is working, what isn’t working, and why. There are many generic decision trees and sales pitches available to convince development practitioners of the value blockchain will add to their work. But, there is a lack of detailed data about what happens when development interventions use blockchain technology.”
Could this be the Trough of Disillusionment in the Gartner Hype Cycle, with the Slope of Enlightenment on the way bringing a wave of successful and groundbreaking use cases? Let’s see what 2019 brings.