A couple months ago, I sent a short two-question technology survey to a few forestry contacts. What I learned from this exercise was that foresters seldom agree on the most important issues within the industry, but we tend to agree that technology can help address those issues. (Note: It was no surprise that trucking and logistics were among the top issues cited.)
In some ways I believe the industry is moving forward with technology. For example, we’ve had significant improvements in remote sensing, access to better analytical software, and thanks to smartphones and tablets we have access to more technology in the field (Thank you Apple!). But on the other hand I believe there are areas where we can still improve, specifically with implementing technology to reduce inefficiencies in fiber sourcing, logistics and forest sustainability. Distributed-ledger Technology (DLT) can help provide solutions in these areas. With DLT and connected devices, it is now possible to track the flow of materials through each phase of the supply chain.
What is Distributed-ledger Technology?
DLT is commonly confused with Blockchain, which gained popularity in the last decade during the rise of cryptocurrencies such as Bitcoin and Ether. However, Blockchain is only one specific implementation of DLT. Or to put it another way, DLT is the superset which includes technologies like Blockchain.
At its core, DLT is a digital ledger with specific properties that transactions can be created in the open (privately or publicly), validated, secured and stored in a distributed database across multiple locations. DLT is useful for creating a cryptographically secure means for recording anything of value. Another way to think about this is the ability to associate something in the physical world, with a unique identifier in the digital world (i.e.; a “digital token”).
The key aspects of these systems are their decentralized nature (i.e.; no central authority) and the security and validation offered by hashing algorithms such as SHA-256. Because they are decentralized, someone has to decide what is and is not a valid transaction. This is often handled through a consensus between the parties involved in the transaction, or block of transactions, prior to storing a record in the database. Additionally, the consensus process creates a record of contiguous transactions that can be easily audited. The consensus process can get very technical, so I won’t go into the details here, but feel free to check out this article on Blockgeeks if you would like more information on how they work.
Possible use-cases for DLT in the Forest Industry:
- Identifying the source of origination for finished products and raw materials at any point within the supply chain.
- Building elaborate networks that include landowner-logger-dealer-producer transactions, or customer-supplier-retailer transactions.
- Automated certification programs developed with sustainability practices that more accurately align with customer or landowner objectives.
- Smart contracts that release funds when certain conditions are met (e.g.; such as when logs reach the mill, when finished products reach the retailer, or when harvesting is complete).
- A system for automating and auditing Forest Incentive Programs or research grants.
These are just some of the uses I could come up with, and I’m certain there are many more.
Current inefficiencies in the Wood Supply Chain:
Below are some areas where I believe DLT can help provide practical solutions for our industry. I’ll leave it to the reader to decide whether or not these issues are important enough to justify needing a solution.
- The inherent lack of communication and transparency between supply chain parties, which leads to a significant amount of waste in the supply chain (e.g.; idle time, over-supply and under-supply). This was a recent finding from Virginia Tech in a report titled “A Lean Logistics Framework: Applications in the Wood Fiber Supply Process. Virginia Polytechnic Institute and State University, 2018” Source.
- The inability to accurately and consistently identify a point-of-origin for domestic and global wood products, leading to incidences of fraud, theft, and a lack of consumer trust and dissatisfaction in the supply chain (see Lacy Act violations and Catenaut Forest Blockchain of Custody).
- A heavy reliance on paper-based transactions to keep track of transporting raw materials and finished goods (e.g.; load tickets, scale tickets, bill-of-sale and bill-of-lading). Paper based systems are inherently slower, error prone and can be easily misplaced or tampered with. As a forester, I am in favor of using more paper, but more importantly I’m for business practices that minimize inefficiencies and that build trust and accountability within the supply chain.
- Stumpage contracts that require time and manpower to process stumpage settlements. When landowners sell timber on stumpage, it can take two or more weeks to receive timber settlements after it has been cut and delivered to the mill. Part of the reason for this is that companies have separate resources and systems for handling these transactions, and no two are identical.
- Lack of financial incentives for Forest Certification Programs. The current requirements for demonstrating certified wood compliance is a burden and expense to the landowner. To my knowledge, landowners are not financially compensated for participating in Forest Certification Programs. If consumers are demanding accountability for sustainable forest practices, then producers stand more to gain, assuming they can charge more for products made from certified wood or that they have access to better markets. But, I seriously doubt this is the case, and I’m certain the landowner’s cost is not recovered through the sale of certified forest products? Obviously corporate social responsibility is something of importance in this scenario, but would consumers pay higher prices for sustainable products if they could choose a product off the shelf based on where the raw materials originated and who handled them? If you would like to know more about these forest certification programs, here are some resources to start with, SFI, FSC, PEFC, ATFS.
Current challenges with implementing DLT:
DLT is currently gaining ground in areas such as finance, voting, real estate, regulation, advertising, and supply-chains. DLT is still in the early concept stage, but companies in various industries are already investing substantial resources in this technology. Like any new technology, DLT has several challenges that need to be overcome before it can really begin to transform business. As of now, I’d say that it’s an unproven technology with a lot of great potential.
- Risk associated with being the first to implement a new technology. Most companies already have lots of time and money invested in internal systems. Getting companies to integrate DLT with existing systems or start fresh with a new system that hasn’t been fully tested will be a challenge. As the technology matures, this early tension should begin to ease, but the risk may remain for quite a while.
- Uncertain political and regulatory environment. This is uncharted territory, so no one knows exactly how governments will respond with regulations on DLT technology. How will companies maintain data privacy policies with a distributed technology? There are more questions than answers in this regard.
- Lack of technical knowledge. DLT is new technology with its own vocabulary and technological knowledge-base. Companies are struggling to find people who have experience in this domain. Companies are also struggling to understand the applications for DLT and how to implement a DLT from scratch.
- High cost relative to existing legacy solutions. All of the above mentioned challenges and difficulties result in higher initial costs for this technology. In the long-run, DLT may be the cheaper solution, but its hard to prove this without a long-running example to draw from. As more companies and talent begin to fill this space, the cost should drop significantly.
These are new and exciting times for technology and our industry. Will DLT have a place in the forest supply chain of the future? I hope so, but I have no idea what that will look like. In this post we discussed some of the attractive aspects of DLT such as transparency, security, traceability, and efficiency. But we’ve also discussed how implementing DLT can be costly and challenging, making it a risky endeavor, at least at this point. To my knowledge, DLT is still an idea or concept, but it’s quickly gaining interest in several unrelated industries, and it’s interesting to think about the areas within our industry where it might have an impact. Is this technology something that can drastically change our industry, or is it just another “solution in search of a problem“?