Cutter Expert Curt Hall recently spoke with Michael Marus, CIO of the Forest Stewardship Council (FSC). The purpose was to learn more about FSC’s experience with developing a blockchain-based supply chain application designed to facilitate its mission of ensuring the sustainability of forest-based materials and enabling better forest management. This Advisor is an excerpt of their interview.
Curt Hall (CH): You touched on some of the analytics of the FSC blockchain platform in a recent Amplify article and in your podcasts. Can you comment on the additional analytical capabilities that participants in the pilots indicated they would like to see in the next version of the platform?
Michael Marus (MM): The pilot gave companies a very basic view of their transactions: so I’ve input these transactions, and these are the ones that have been verified by my trading partners and the FSC algorithm, and these are the ones that have not, etc.
We also provided mocked-up dashboards of what would be possible to encourage companies to consider the kind of functionality they would like to have going forward. In particular, we wanted them to consider the type of analytical capabilities they would like to see built into our next blockchain platform because the real value of blockchain for traceability is in the analytics.
I’ll give some examples of what we learned during those pilots, beginning with trading partner analysis. This means knowing which trading partners you’re using and the volumes that they’re providing you as a company, the region where their materials come from, and whether their trading partners are connected to those that have been 100% verified.
This type of information can tell a company a lot. For example: I know about my trading partner and what they’re claiming, and if they’re verified with me as a company. But I could potentially look far beyond that, to be able to understand that everything has been verified for those materials I am currently handling. A company can get a good compliance report out of that: I know that the materials I’m handling have been accounted for and verified, not just with my direct trading partner, but also with all of those connected to my trading partner all the way back to the source.
This type of provenance analytics can support a focus on source countries and regions. We also have a product-classification system that can include detailed species information of materials. All this information is captured, which is another important feature of blockchain, and this is valuable when it comes to know-your-trading-partner compliance. You usually trust your trading partner, but, that said, you don’t know who your trading partner is connected to and who they are connected to, and so on. Understanding whether or not your trading partner is 100% verified like your own company is fundamental now.
This holds great potential for documenting compliance. Also, during our pilots, companies asked this question: if we have all of our trade transactions in an immutable and verified ledger, can we not just share that with our auditor every year, so they have a clear registry of our inputs and outputs? The FSC chain of custody certification requires companies to maintain up-to-date records of their inputs and outputs of FSC materials. So this is the basis by which that becomes an immutable record of verified transactions.
CH: Those are great examples. In 2017, I conducted a large Cutter survey on blockchain that asked companies how they were using/planning to use the technology. We saw a lot of initial excitement around blockchain. Then it sort of plateaued. But I was always curious about what emerged during the pilots and what the end users found useful. You mentioned that you want your next blockchain to support more real-time or even forward-looking capabilities. Analytics, I assume, will play a big part in that vision?
MM: Our next-generation blockchain platform will cater to some of those very basic needs and will go quite deep. Already by connecting with your suppliers in a blockchain, we are able to also present the certification aspects of your suppliers to the companies directly that help them determine, for example, where you are getting certain types of materials that you’re transforming to become a final product. But I think the real promise is that our next blockchain will be built in such a way that we will be able to develop future analytics capabilities.
For example, I imagine that once we start getting supply chains on board, there will be even more requests to have analytics that support greater supply chain efficiency, like metrics, to help companies understand the efficiency or the carbon footprint or the sustainability impact based on the data from the supply chains they’re connected to. These capabilities could be possible if we have a good flow of data in a connected supply chain. Consequently, we’re thinking beyond our next-generation blockchain and continuing progress on the analytics front because that could prove very valuable to companies.
CH: I’m fascinated that your pilots focused on Ukraine and China. This raises another question pertaining to legality — for example, with respect to sourcing. I imagine that, with the sanctions against Russia due to the war in Ukraine, you want to make sure you don’t get anything from Russian companies.
MM: It’s just not possible to continue certification in Russia until there are conditions that will allow providing assurance and integrity under FSC’s rules. Unfortunately, there is a large area of forest in Russia that cannot be certified because of the war.
CH: You mentioned some usability concerns with the blockchain pilots. Usability is key with any application, especially those involving implementation of a new technology like blockchain. Can you comment on the types of new features companies indicated they would like?
MM: Most of the feedback was positive. Some companies indicated places we could improve or make changes. There are a couple of areas where we got very targeted, key feedback. One was on the performance of the technology platform. The usability was the least satisfactory for users because it was very basic. Users could only see a few things when inputting data into the blockchain, and they couldn’t get a lot out of it.
For me, the way to make the platform more useful for participating companies involves applying more analytics. Companies want to know something more than what they can already see on paper. As far as accessing the platform or the responsiveness of the platform, users were satisfied. They could use a Web interface or even a mobile device, it worked really well, and it was responsive.
Another area of feedback pertained to data. As mentioned, companies already are required to maintain up-to-date accounting records of all of their inputs and outputs. You’re essentially asking them to make that information compatible to put it into our blockchain, and that means having consistent formats, units of measure, and notation for volumes of materials. However, feedback on the data format was generally satisfactory.
One other area of feedback was on the time it took to verify a transaction. Companies saw they could enter thousands of transactions in bulk very easily, but seeing the transactions as verified depended on their trading partner entering the matching information, which could take days or weeks. Consequently, there was clear feedback on the importance of providing some kind of connectivity or feature so companies could understand whether their trading partner had been alerted that there were missing transactions — basically, to notify and instruct them to take action.
The last part of feedback involved the types of features and information companies would want to share with their auditors — that is, how can I share this information as I see fit? These kinds of sharing mechanisms will become part of our next platform.
The most important feedback was that companies must be able to output compliance-related information. Companies need to be able to capture this information, and the blockchain must “package” it so that when it comes to a table that could have come from five sources, the information can be aggregated and documented to support demonstrating compliance to, for instance, border control.
[To read the full interview with Michael Marus, see: “Forest Stewardship Council’s Blockchain: Verifying Material Trade Compliance Across Supply Chains.”]
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