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The role of blockchain in product recall

When it comes to financial damages in product recalls, one bad apple could spoil the bunch. There is a potential that if a manufacturer identifies just one bad batch of product containing a contaminated ingredient or a label missing the disclosure of an allergen, then all of its other perfectly safe batches of the same product can be flagged and disposed. This can be especially damaging and costly to distributors and retailers.

In extreme cases where brands manufacture and distribute multiple products, a recall of one product could lead to a loss of confidence in the whole brand. As a result, potential damages could increase exponentially if a retailer decides to drop the entire brand portfolio due to the recall.

Fortunately, technology is starting to make a difference in the science of traceability to protect consumers and minimize risk. The use of blockchain technology in supply chains has been a very hot topic in the food industry for the last few years. Blockchain seeks to provide a distributed and decentralized public platform (i.e. ledger) that serves as a tangible solution to reduce cost, waste, and risk. One goal of blockchain technology is to give farmers, manufacturers, retailers, and government regulators the ability to isolate the source of the contaminated ingredient and trace its path all through the supply chain; even to our houses (I received an email from an online retailer in January 2020 warning me my recent purchase was potentially part of a newly announced recall!).

The impact of such detailed traceability is far-reaching and the potential benefits to manufacturers, suppliers, and retailers are numerous. Being able to trace a product from a grower or supplier to the individual end-user can mean the difference between life and death for both consumers and, figuratively, for affected businesses. For consumers, pulling products sooner means limiting an outbreak and saving lives. For affected businesses, the advantages are equally as dramatic. On the same level, government regulators would greatly benefit from the specificity of such traceability in announcing recalls. We in the industry have all seen the all-encompassing, blanket recalls that occur because regulators could not obtain reliable information fast enough in order to pinpoint exactly which products to recall.

Achieving end-to-end visibility can also allow companies to isolate specific products containing a contaminated ingredient, which will hopefully translate to less waste in pulling products and a dramatic reduction of costs. It can also lessen the impact on the reputation of the brands, retailers, and food service providers involved.

The benefits of using this sophisticated technology are undeniable, and development is well underway. Companies such as IBM, Intel, and TE-Food are working with companies in supply chains to bring farm-to-shelf and farm-to-table traceability to both consumers and retailers. There is also a consortium, the Blockchain in Transport Alliance, which has over 500 members (from OEMs to logistics companies to technology firms), which was developed to promote the use of blockchain technology in the supply chain. Blockchain can bolster customer and consumer confidence in the products that they buy and help manage costs associated with recalls throughout the supply chain.

For us at Baker Tilly, the question remains as to whether this will ultimately result in reduced financial damages associated with a recall. As with all new technology, it will take time to build confidence and trust in its reliability (the blockchain will need to be audited), especially with so much at stake from both a health and reputational standpoint. Having instant access to reliable information about traceability can certainly expedite damage analyses.

However, even if traceability to a specific recalled product, batch number, or household address is achieved, there is no (current) way to guarantee that retailers will not pull all products (recalled batch or not) from its shelves, or cancel orders for entire brands. Even the most sophisticated solution cannot limit a customer’s reaction to a recall. Perhaps we will start to see suppliers and manufacturers protecting themselves using blockchain-specific wording in supply agreements to hedge this risk. We look forward to seeing what the next few years have in store for all of us.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

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