How would a book-and-claim blockchain for textiles work?
Understanding and tracking textile supply chains is a colossal task. We’re talking about tracking the movement of materials as they go through very different activities. In the cotton supply chain, we have a minimum of farmers, ginners, spinners, weavers, dyers, distributors, garment manufacturers, and brands. Companies with very different processes spanning diverse geographies, cultures, and levels of digitization.
The world is looking to blockchain as the technology that will allow us to untangle this mess. It should help us to level the playing field so that responsible actors have an advantage in the market. The aim is to purchase our clothing confident that we aren’t supporting human rights abuse or environmental damage.
But garment-level traceability is not the only application of blockchain in the textiles industry. There are many other use cases that can benefit from blockchain to increase efficiency and trust.
Today let’s look at one of the simpler use-cases, a book-and-claim system.
What is a book-and-claim system?
In a book-and-claim system, we produce “credits” whenever responsible material is produced. Manufacturers then purchase their raw materials off the market as normal but also purchase an equivalent number of credits to account for their purchase.
The processing steps in between production and manufacture are not traced at all, and material from untracked sources is not separated from the material from tracked sources.
Book and claim systems have the advantage of being much cheaper to implement than identity-preserving traceability or mass-balance systems.
In essence, they are accounting methodologies, and are most useful when you primarily want to incentivize responsible production.
Example: Fair Trade
Imagine we want to set up a fair trade cotton program where farmers are given a premium for looking after the environment and paying their workers a living wage.
For every ton of cotton harvested and sold, the farmer would receive a Credit Token in addition to the market price for their cotton. They could then sell these tokens on the open market. Garment manufacturers would purchase tokens on the open market; one token for each ton of cotton fabric they use in a year. When the year is up, the manufacturers burn the tokens to create a report showing that they had essentially paid a premium on every ton of cotton they used.
How can blockchain help?
Book-and-claim systems are one of the most common measures for supply chain responsibility because they don’t necessarily need a lot of technology to implement.
They do, however, need a recognized organization to manage the credits booked and the credits claimed, and with a large industry this can become expensive.
Blockchain can greatly simplify this management process by using tokens to represent production credits. In traditional book-and-claim systems, most of the effort is in credit management. But with blockchain, credit tokens can simply be purchased off the market with no concerns about double-spending. This allows fair trade organizations to focus on other tasks such as onboarding farmers and manufacturers.
The limitations
Because book-and-claim is an accounting methodology, it is most appropriate for accounting-type problems. This doesn’t mean we can’t also use such a system for other traceability purposes, it just means we need to understand the trade-offs involved.
We have to determine whether the gains from incentivizing participation (without adjusting any of the production processes of the middle players in the supply chain) is worth losing the ability for downstream companies to claim individual garments were produced at any given site.
Whether this is an acceptable trade-off varies on a case-by-case basis. Fair trade cotton is probably fine with such a system. Organic cotton might not be. Other qualifications might depend on the jurisdiction making the determination, the effect of the qualification on the final product, and risk to the downstream brand.
In the end, book-and-claim systems are a valuable part of the traceability ecosystem and a relatively low-hanging fruit for ease of implementation. As we move toward a blockchain-based future, book-and-claim systems will be a key segment of garment traceability, giving us the confidence that our purchases are contributing to a better world.
Nathan Williams is the Founder and CEO of Minespider & Threadcounts, a blockchain system for tracking responsibly-sourced materials along the supply chain, with ongoing projects with Fortune 100 companies such as Volkswagen and Google. Nathan has facilitated blockchain workshops as a visiting expert for the UNECE and the World Economic Forum. He has been featured in Bloomberg, Forbes, Huffington Post, and Wired Germany.
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