AI and DNA unlocking mysteries of global supply chains

NEW YORK – At a cotton gin in San Joaquin Valley, California, a boxy machine helps to spray a fine mist containing billions of molecules of DNA onto freshly cleaned Pima cotton.

This DNA will act as a kind of minuscule barcode, nestling amid the puffy fibres as they are shuttled to factories in India. There, the cotton will be spun into yarn and woven into bedsheets, before landing on the shelves of Costco stores in the United States.

At any time, Costco can test for the DNA’s presence to ensure that its American-grown cotton has not been replaced with cheaper materials – like cotton from the Xinjiang region of China,

which is banned in the US because of its ties to forced labour.

Amid growing concern about opacity and abuses in global supply chains, firms and government officials are increasingly turning to technologies like DNA tracking, artificial intelligence (AI) and blockchain to try to trace raw materials from the source to the store.

US companies are now subject to new rules that require firms to prove their goods are made without forced labour, or face having them seized at the border. US Customs officials said in March they had already seized nearly US$1 billion (S$1.3 billion) worth of incoming shipments that were suspected of having some ties to Xinjiang.

Customers are also demanding proof that expensive, high-end products – like conflict-free diamonds, organic cotton, sushi-grade tuna or manuka honey – are genuine, and produced in ethically and environmentally sustainable ways.

This has forced a new reality on companies that have long relied on a tangle of global factories to source their goods. More than ever before, companies must be able to explain where their products really come from.

The task may seem straightforward, but it can be surprisingly tricky. This is because the international supply chains that firms have built in recent decades to cut costs and diversify their product offerings have grown astonishingly complex. Since 2000, the value of intermediate goods used to make products that are traded internationally has trebled, driven partly by China’s booming factories.

A large, multinational company may buy parts, materials or services from thousands of suppliers around the world.

One of the largest of such companies, Procter & Gamble, which owns brands like Tide, Crest and Pampers, has nearly 50,000 direct suppliers. Each of those suppliers may, in turn, rely on hundreds of other companies for the parts used to make its products – and so on, for many levels up the supply chain.

Given these challenges, some companies are turning to alternative methods, not all proven, to try to inspect their supply chains.

Some companies – like the one that sprays the DNA mist onto cotton, Applied DNA Sciences – are using scientific processes to tag or test a physical attribute of the good itself to figure out where it has travelled on its path from the factory to the consumer.

Ms MeiLin Wan, vice-president for textiles at Applied DNA, said the new regulations were creating a “tipping point for real transparency”.

“There definitely is a lot more interest,” she added.

The cotton industry was one of the earliest adopters of tracing technologies, in part because of previous transgressions. In the mid-2010s, Target, Walmart and Bed Bath & Beyond faced expensive product recalls or lawsuits after the “Egyptian cotton” sheets they sold turned out to have been made with cotton from elsewhere. A New York Times investigation last year documented that the “organic cotton” industry was also rife with fraud.

In addition to the DNA mist it applies as a marker, Applied DNA can figure out where cotton comes from by sequencing the DNA of the cotton itself, or analysing its isotopes, which are variations in the carbon, oxygen and hydrogen atoms in the cotton. Differences in rainfall, latitude, temperature and soil conditions mean these atoms vary slightly across regions of the world, allowing researchers to map where the cotton in a pair of socks or bath towel has come from.

Other companies are turning to digital technology to map supply chains by creating and analysing complex databases of corporate ownership and trade.

Some firms, for example, are using blockchain technology to create a digital token for every product that a factory produces. As that product – a can of caviar, say, or a batch of coffee – moves through the supply chain, its digital twin gets encoded with information about how it has been transported and processed, providing a transparent log for companies and consumers.

Other companies are using databases or AI to comb through vast supplier networks for distant links to banned entities, or to detect unusual trade patterns that indicate fraud – investigations that could take years to carry out without computing power.

Sayari, a corporate risk intelligence provider that has developed a platform combining data from billions of public records issued globally, is one of those companies. The service is now used by US Customs agents as well as private companies. Ms Jessica Abell, vice-president of solutions at Sayari, recently ran the supplier list of a major US retailer through the platform and watched as dozens of tiny red flags appeared next to the names of distant companies.

“We are flagging not only the Chinese companies that are in Xinjiang, but... also automatically exploring their commercial networks and flagging the companies that are directly connected to it,” Ms Abell said. It is up to the companies to decide what, if anything, to do about their exposure.

Studies have found that most companies have surprisingly little visibility into the upper reaches of their supply chains because they lack either the resources or the incentives to investigate. In a 2022 survey by consultancy McKinsey & Co, 45 per cent of respondents said they had no visibility at all into their supply chain beyond their immediate suppliers.

Executives at these technology companies say they envision a future, perhaps within the next decade, where most supply chains are fully traceable – an outgrowth of both tougher government regulations and the wider adoption of technologies.

“It is eminently doable,” said Mr Leonardo Bonanni, chief executive of Sourcemap, which has helped companies like chocolate-maker Mars map their supply chains. “If you want access to the US market for your goods, it is a small price to pay, frankly.”

Others express scepticism over the limitations of these technologies, including their cost. While Applied DNA’s technology, for example, adds only five to seven cents to the price of a finished piece of apparel, this may be significant for retailers competing on thin margins.

Some express concerns about accuracy, including, for example, databases that may flag companies incorrectly. Investigators still need to be on the ground locally, they say, speaking to workers and remaining alert to signs of forced or child labour that may not show up in digital records.

Mr Justin Dillon, CEO of FRDM, a software company that helps organisations map their supply chains, said there was “a lot of angst, a lot of confusion” among companies trying to satisfy the government’s new requirements.

Importers are “looking for boxes to check”, he said. “Transparency in supply chains is as much an art as it is a science. It’s kind of never done.” NYTIMES