Are Blockchains the future of Supply Chains? Lessons from WW-II…
Supply chains are complex. Today’s tools, like ERPs & EDIs fall far short of the desired end state. marketsN is a Blockchain & AI based solution that enables organizations to react faster to market signals, reduce complexity and manage supply networks smarter.
Ed Guilbert had a problem. As Army Master Sergeant in 1948, he had been given the problem of ensuring that people in Berlin were fed. The challenge was that the Soviet Union had blocked the Western Allies’ railway, road, and canal access to the sectors of Berlin under Western control.
In response, the Western Allies organised the Berlin airlift to carry supplies to the people of West Berlin. Ed Guilbert’s problem was that the manifests for different goods arrived in different languages & formats. In response, he created a standard manifest format which enabled the logistics coordination & tracking of goods. Over the next two decades, Guilbert turn this paper-based approach to standardized business documents into the electronic messages that would later develop into EDI.
Electronic data interchange (EDI) is the computer-to-computer exchange of business documents, such as purchase orders and invoices, in a standard electronic format between business partners.
Today, EDI has become an enabling technology to connect ERP (Enterprise Resource Planning) systems of multiple business partners in a supply chain across industries including automotive, manufacturing, healthcare and retail. EDI standards such as X12 and EDIFACT govern the content and structure of documents that are exchanged between companies to coordinate B2B transactions.
It would not be unfair to say that EDI provides the information backbone for B2B integration today. Despite efforts like EDI, B2B processes relying on emails, spreadsheets & PDFs are still common. A recent survey of the top 200 companies in Switzerland showed that even though solutions for EDI are supported by 62.5 % of the companies, they are used only occasionally in the large majority of cases because it is difficult to involve all partners in deploying such solutions. Is there a better solution?
EDI: The key value proposition
The basic unit of interaction in EDI is a “document” — a data format which enables exchange of information related to B2B transactions among organizations. The exchange of these documents is supported by some underlying communication layer, usually the Internet.
A simplified view of EDI connecting two trading partners.
The key value proposition of EDI is B2B transaction visibility .EDI enables data integration between trading partners e.g. the automation of the exchange of business documents between business applications, such as automating the exchange of all the documents in the procure-to-pay process.
By enabling data sharing among trading partners in a B2B transaction, EDI allows businesses to coordinate. It helps eliminate manual paper processes and leads to significant and persistent broad supply chain efficiencies through automation. EDI effectively reduces friction in B2B commerce.
Where does EDI fall short?
Thousands of companies around the world use EDI every day. There is no doubt about the value of EDI in achieving B2B integration. But does it go far enough?
The simple exchange of digital documents is no longer enough. In a highly interconnected world, organizations have to work in a seamless, open and collaborative way with their customers, suppliers and other trading partners. Limitations of EDI can be created to three key problems:
1) EDI connectivity model does not scale
EDI is designed for point-to-point communication. For two businesses to use EDI, they must enable communication between their respective IT systems securely and standardize the data model. An organizations which has 100 trading partners must therefore enable 100 such connections.
Hub & Spoke model: A central org using EDI to connect to its direct trading partners, suppliers etc.
This results in a hub-and-spoke collaboration model. The central organization can benefit by using EDI with each one of its trading partners. However the trading partners have no way to collaborate with each other — even if it is to fulfill the order of central org.
Real world supply chains are often more complex. An organization must depend not only on its direct trading partners but their suppliers and so on. Trading partners of an organization must often coordinate among themselves and trade among themselves to work effectively. Such inter-dependencies are common.
Kito, T., Brintrup et. al. (2014). The structure of the Toyota supply network: an empirical analysis.
The point to point model of EDI is suitable for the hub-and-spoke collaboration model but not for real world complex supply chains with several inter-dependencies. Achieving true B2B collaboration across the business network.
2) EDI is shallow integration
EDI is a standard for data exchange. B2B transactions are more than data.
B2B transactions involve transfer of goods, money & information. They require specification of terms & conditions under which organizations will work with each other (contracts). They require support from financial institutions who can process payments, offer finance etc.
True B2B collaboration requires going beyond data integration. Automating contractual terms, tracking products, ensuring process compliance and enabling collaborative end-to-end planning. EDI is not really designed for any of this.
3) EDI is brittle
Setting up EDI among trading partners takes time and effort; often quite substantial. On boarding new trading partners is a time consuming process. Removing a trading partner is non-trivial.
In today’s fast evolving world, B2B collaborations are highly dynamic. As organizations adapt to changing customer preferences, they must work with different partners. The speed of business often exceeds the time it takes to set up or tear down new EDI connections.
Blockchains will be the future of EDI
The basic unit of interaction in EDI is a “document” — a data format which enables exchange of information related to B2B transactions among organizations.
The basic unit of interaction in Blockchains is a “Smart Contract”. It is a digital format for encoding the rules of a transaction — the conditions under which value is transferred from one entity to another.
This fundamental difference between EDI & Blockchain offers a new paradigm for B2B collaboration. For long standing transactions which require coordination among multiple organizations (suppliers, contractors, manufacturers, logistics providers etc.), Blockchains enables a much deeper level of collaboration.
marketsN is a Blockchain based solution for achieving Supply Chain integration which addresses several of these limitations:
1) Groups & Channels not Point-to-Point
The fundamental unit of collaboration in marketsN is a “business group”. Each business group is a permissioned blockchain created on-demand for transactions among group members.
Think of each group as an e-marketplace (e.g. Amazon) hosted on the cloud enabling member organizations to trade and coordinate procurement. Member organizations retain control of this group and get benefits of dynamic market places.
Multi-party coordination in a Business Group.
With the notion of a group being the key collaboration construct, any organization in the group can coordinate their transactions with other group members. A B2B network effectively becomes a marketplace enabling transactions and transparency for transactions in the group.
Such multi-org transactions may be required when multiple parties must coordinate. The underlying permissioned blockchain in a group achieves this group level transaction visibility. marketsN also enables privacy controls, if needed.
2) Deep Integration
Optimal supply chain performance requires the execution of a precise set of actions. Unfortunately, those actions are not always in the best interest of the members in the supply chain, i.e., the supply chain members are primarily concerned with optimizing their own objectives, and that self-serving focus often results in poor performance.
Optimal supply chain performance can be achieved if the firms coordinate among themselves by using contracts which offer the right incentives such that each firm’s objective becomes aligned with the supply chain’s objective. Pre-built Smart Contracts in marketsN are designed to capture different terms which can be used to incentivize performance across group members. These contracts are flexible and can be customized.
In marketsN, contract enforcement is automated to reduce contract management cost, improve overall supply chain & procurement efficiency. Digital automation of inter-org workflows enables high visibility of any movement in B2B transactions.
3) Fluid Integration
marketsN offers multiple interfaces to connect with existing and emerging technologies. The ERP connector can be customized to interface marketsN with existing ERP deployments. This extensible architecture allows easy integration with existing enterprise IT deployments and allows procurement managers & account departments to continue using the ERP user interaction paradigm.
Organizations which do not use an ERP system may use marketsN directly via a web-based user-interface or a mobile app. This allows SME group members to immediately start using marketsN via a web browser (e.g. Google Chrome) without requiring any installation.
A built-in connector interfaces marketsN with the public Blockchain. A public blockchain connector enables member organizations in a group to securely share a trusted copy of their digital assets with non-group members. For instance, an organization can share a trusted copy of its marketsN invoice with Banks or NBFCs in order to secure a low-risk, low-cost loan.
Supply chains are complex. Multiple stakeholders, complex processes and confusion in communication. Today’s tools, like ERPs & EDIs are not able to achieve end to end supply chain visibility and effective process integration.
marketsN is a Blockchain & AI based, cloud hosted solution which solves this problem. It enables organizations to react faster to market signals, reduce complexity and manage supply networks smarter.
Interested? Drop us an email at firstname.lastname@example.org.