40,000 direct suppliers, plus a multiple of indirect suppliers – the Volkswagen Group’s global supply chains are highly complex. In fact, they are so complex that in spite of the many successful initiatives to increase transparency, there is still a residual risk that raw materials are not extracted sustainably and in line with contractual provisions … but not for much longer – because Volkswagen intends to exclude this risk in future.
To do that, the automaker began collaborating with the tech company Minespider in April. Minespider has developed a solution for controlling supply chains and procuring raw materials that protects people and the environment.
Minespider presented its vision of fair raw material procurement at the “Hackathon for Supply Chain Transparency” held in Berlin last November; this gathering is the brainchild of Volkswagen and online retailer Zalando. Specialists from different fields and industries came together with startups at the Volkswagen Digital Lab to find answers as to how supply chains can be made more sustainable and transparent.
Minespider’s vision is based on blockchain – a technology that became familiar to many at the latest when bitcoin became a buzzword. “Companies have a right to be able to ensure that their suppliers act responsibly”, says Nathan Williams, founder and CEO of Minespider. “And that is exactly what blockchain guarantees.”
A blockchain is a log of interlinked data blocks. In some ways, it is similar to the classic memory game “I packed my bag”. That game has several players, just like a decentralized blockchain. And in both cases, all the participants join together to make sure everything that goes into the bag – or the blockchain – is present and correct. So, if the bag already holds some swim trunks, a crocodile and a towel, and if the next player wants to add some sunglasses and says: “I packed my bag with some swim trunks, a crocodile and… some sunglasses!” everyone else shouts out “You’ve forgotten the towel!” While there are no swim trunks in the data blocks in the blockchain, anything missing or manipulated would be immediately noticed.
That functions on two levels. On the first level, every block contains encrypted and condensed information from all previous blocks – like a unique digital fingerprint. And each of these fingerprints is created based on the previous fingerprint. That generates a chain of interlinked data blocks. If one of these blocks is changed in any way it no longer fits with the rest of the chain. On the second level, there is not just one chain on the central server, but tens of thousands of copies distributed all over the world on mainframes and private PCs. Each of these nodes connects up automatically with all the other nodes. If one of the nodes is changed, it no longer fits into the system, and that is one way the system protects itself.
The solution developed by Minespider is based on a public blockchain. A multi-layer architecture guarantees the security of the sensitive supply chain data despite the open source approach. One layer of the protocol contains generally accessible information, a second layer contains the private data blocks which cannot subsequently be changed, and the third layer is the encryption layer.
The advantage versus a private blockchain is that everyone – from suppliers and sub-suppliers through to those directly responsible for mining or recycling the raw material – works with one system, even if several supply chains are involved. Blockchain technology makes it possible to track the raw material back to the point of origin by means of digital certificates.
Williams’ approach was one of six that were developed during the hackathon, one element of Volkswagen’s corporate citizenship. At the end of the event, a jury evaluated the solutions and chose the winner with the most innovative approach. And that came from Minespider.
Young enterprises and startups will have another opportunity to shape their ideas and projects in collaboration with business professionals from Volkswagen and Zalando in 2019: the hackathon series continues.