We will now explore how Blockchain’s unique capabilities can provide comprehensive visibility across global supply chains and drive simpler verification of authenticity, security, and ultimately control.
Listen to the podcast. Find
it on iTunes. Get the mobile app. Read a full transcript or download a copy.
To learn more about how Blockchain is poised to impact and improve supply chain risk and management, we're joined by Joe Fox, Senior Vice President for Business Development and Strategy at SAP Ariba, and Leanne Kemp, Founder and CEO of Everledger, based in London.
The panel was assembled and recorded at the recent 2017 SAP Ariba LIVE conference in Las Vegas. The discussion is moderated by Dana Gardner, principal analyst at Interarbor Solutions.
Here are some excerpts:
Gardner: Joe, Blockchain has
emerged as a network methodology, running crypto currency Bitcoin, as most people are
aware of it. It's a digitally shared record of transactions maintained by a
network of computers, not necessarily with centralized authority. What could
this be used for powerfully when it comes to gaining supply chain integrity?
Fox: Blockchain did start
in the Bitcoin area, as peer-to-peer consumer functionality. But a lot of the capabilities of Blockchain have been recognized
as important for new areas of innovation in the enterprise software space.
 |
| Fox |
Gardner: It sounds to me like
we are adding lot of metadata to a business process. What's different when you apply
that through Blockchain than if you were doing it through a platform?
Inherit the trust
Fox: That's a great
question. Blockchain is like the cloud from the perspective of it’s an
innovation at the platform layer. But the chain is only as valuable as the
external trust that it inherits. That external trust that it inherits is the
proof of what you have put on the chain digitally. And that includes that proof
of who has taken it off and in what way they have control.
As
we associate a chain transaction, or a posting to the ledger with its original
transactions within the SAP Ariba Network, we are actually adding a lot of
prominence to that single Blockchain record. That's the real key, marrying the
transactional world and the B2B world with this new trusted commerce capability
that comes with Blockchain.
Gardner: Leanne, we have you
here as a prime example of where Blockchain is being used outside of its
original adoption. Tell us first about Everledger, and then what it was you saw
in Blockchain that made you think it was applicable to a much wider businesscapability.
Kemp:
Everledger is a
fast-moving startup using the best of emerging technology to assist in
the reduction of risk and fraud. We began in April of 2015, so
it's actually our birthday this week. We started in the world of
diamonds where we apply blockchain technology to bring transparency to
a once opaque market.
 |
| Kemp |
At
the heart of the diamond industry, beyond the physical object itself, is
certification, and certificates in the diamond industry are the
currency of trade. Diamonds are cited on web sites around the world, and they
are mostly sold off the merit of the certification. We were able to see the
potential of the cryptocurrency, but we could decouple the currency from the
ledger and we were able to then use the synthesis of the currency as a way to
transfer value, or transfer ownership or custody. And, of course, diamonds are
a girl's best friend, so we might as well start there.
Dealing with diamonds
Gardner: What was the problem
in the diamond industry that you were solving? What was not possible that now
is?
Kemp: The diamond industry
boasts some pretty impressive numbers. First, it's been around for 130 years.
Most of the relationships among buyers and sellers have survived generation
upon generation based on a gentleman's handshake and trust.
The
industry itself has been bound tightly with those relationships. As time has
passed and generations have passed, what we are starting to see is a glacial
melt. Some of the major players have sold off entities into other regions, and
now that gentleman's handshake needs to be transposed into an electronic form.
Some
of the major players in the market, of course, still reside today. But most of
the data under their control sits in a siloed environment. Even the machines
that are on the pipeline that help provide identity to the physical object are
also black-boxed in terms of data.
We
are able to bring a business network to an existing market. It's global. Some
81 countries around the world trade in rough diamonds. And, of course, the
value of the diamonds increases as they pass through their evolutionary chain. We are able
to bring an aggregated set of data. Not only that, we transpose the human
element of trust -- the gentleman's handshake, the chit of paper and the
promise to pay that's largely existed and has built has built 130 years of
trade.
We
are now able to transpose that into a set of electronic-form technologies
--
Blockchain,
smart
contracts, cryptography, machine vision -- and we are able to
take forward a technology platform that will see transactional trust being
embedded well beyond my lifetime -- for generations to come.
Gardner: Joe, we have just
heard how this is a problem-solution value in the diamond industry. But SAP
Ariba has its eyes on many industries. What is it about the way things are done
now in general business that isn't good enough but that Blockchain can help
improve?
Fox: As we have spent years
at Ariba solving procurement problems, we identified some of the toughest. When I saw Everledger, it occurred
to me that they may have cracked the nut on one of the toughest areas of B2B
trade -- and that is true understanding, visibility, and control of asset
movement.
It
dawned on me, too, that if you can track and trace diamonds, you can track and
trace anything. I really felt like we could team up with this young company and
leverage the unique way they figured out how to track and trace diamonds and
apply that across a huge procurement problem. And that is, how do a supplier
and a buyer manage the movement of any asset after they have purchased it? How
do we actually associate that movement of the asset back to its original
transactions that approved the commit-to-pay? How do you associate a digital
purchase order (PO) with a digital movement of the asset, and then to the
actual physical asset? That's what we really are teaming up to do.
That
receipt of the asset has been a dark space in the B2B world for a long time.
Sure, you can get a shipping notice, but most businesses don't do goods
receipts. And as the asset flows through the supply chain -- especially the
more expensive the item is -- that lack of visibility and control causes
significant problems. Maybe the most important one is: overpaying for inventory
to cover actual lost supply chain items in transit.
I
talked to a really large UK-based telecom company and they told me that what we
are going to do with Everledger, with just their fiber optics, they could cut
their buying in half. Why? Because they overbuy their fiber optics to make sure
they are never short on fiber optic inventory.
That
precision of buying and delivery applies across the board to all merchants and
all supply chains, even middle of the supply chain manufacturers. Whenever you
have disruption to your inbound supply, that’s going to disrupt your
profitability.
Gardner: It sounds as if what
we are really doing here is getting a highly capable means -- that’s highly
extensible -- to remove the margin of error from the tracking of goods, from
cradle to grave.
Chain transactions
Fox: That’s exactly right.
And the Internet is the enabler, because Blockchain is everywhere. Now, as the
asset moves, you have the really cool stuff that Everledger has done, and other
things we are going to do together – and that’s going to allow anybody from
anywhere to post to the chain the asset receipt and asset movement.
For
example, with a large container coming from overseas, you will have the chain
record of every place that container has been. If it doesn't show up at a dock,
you now have visibility as the buyer that there is a supply chain disruption.
That chain being out on the Internet, at a layer that’s accessible by everyone,
is one of the keys to this technology.
We
are going to be focusing on connecting the fabric of the chain together with Hyperledger. Everledger builds on the Hyperledger platform. The fabric that we are going to tie into is going
to directly connect those block posts back to the original transactions, like
the purchase order, the invoice, the ship notice. Then the companies can see
not only where their asset is, but also view it in context of the transactions
that resulted in the shipment.
Gardner: So the old adage --
trust but verify -- we can now put that to work and truly verify. There's newstaking place here at SAP Ariba LIVE between Everledger and SAP Ariba. Tell us
about that, and how the two companies -- one quite small, one very large -- are
going to work together.
Fox: Ariba is all-in on transforming the procurement industry, the procurement space, the
processes of procurement for our customers, buyers and sellers, and we are
going to partner heavily with key players like Everledger.
Part
of the announcement is this partnership with Everledger around track and trace,
but it is not limited to track and trace. We will leverage what they have
learned across our platform of $1 trillion a year in spend, with 2.5 million
companies trading assets with each other. We are going to apply this
partnership to many other capabilities within that.
Kemp: I am very excited. It’s a moment in time that I think I will remember for years to come. In March we also made an importantannouncement with IBM on some of the work that we have done beyond identifying objects. And that is to
take the next step around ensuring that we have an ethical trade platform, meaning one that is grounded in cognitive compliance.
We
will be able to identify the asset, but also know, for example in the
diamond
industry, that a diamond has passed through the right
channels, paid the dutiful taxes that are due as a part of an
international trade platform, and ensure all compliance is hardened
within the
chain.
I
am hugely excited about the opportunity that sits before me. I am sincerely
grateful that such a young company has been afforded the opportunity to really
show how we are going to shine.
If you think about it, Blockchain is an evolution of the Internet.
Gardner: When it comes to open
trade, removing friction from commerce, these have been goals for hundreds of
years. But we really seem to be onto something that can make this highly
scalable, very rich -- almost an unlimited amount of data applied to any asset,
connected to a ledger that’s a fluid, movable, yet tangible resource.
Fox: That’s right.
Gardner: So where do we go
next, Joe? If the sky is the limit, describe the sky for me? How big is this,
and where can you take it beyond individual industries? It sounds like there is
more potential here.
Reduced friction costs
Fox: There is a lot of
potential. If you think about it, Blockchain is an evolution of the Internet;
we are going to be able to take advantage of that.
The
new evolution is that it's a structured capability across the Internet itself.
It’s going to be open, and it’s going to be able to allow companies to ledger
their interactions with each other. They are going to be able, in an immutable
way, to track who owns which asset, where the assets are, and be able to then
use that as an audit capability.
That's
all very important to businesses, and until now the Internet itself has not
really had a structure for business. It's been open, the Wild West. This
structure for business is going to help with what I call trusted commerce
because in the end businesses establish relationships because they want to do
business with each other, not based on what technology they have.
Another key fact about Blockchain is that it’s going to reduce friction in
global B2B. I always like to say if you just accelerated B2B payments by a few
days globally, you would open up Gross Domestic Product (GDP), and economies would start growing
dramatically. This friction around assets has a direct tie to how slowly money
moves around the globe, and the overall cost and friction from that.
So
how big could it go? Well, I think that we are going to innovate together with
Everledger and other partners using the Hyperledger framework. We
are going to add every buyer and seller on the Ariba Network onto
the chain. They are just going to get it as part of our platform.
Then
we are going to begin ledgering all the transactions that they think make sense
between themselves. We are going to release a couple of key functions, such as
smart contracts, so their contract business rules can be applicable in the flow
of commerce -- at the time commerce is happening,
not locked up in some contract, or in some drawer or Portable Document Format (PDF) file. We are going to start with those things.
I
don't know what applications we are going to build beyond that, but that's the
excitement of it. I think the fact that we don't know is the big play.
Gardner: From a business
person’s perspective, they don’t probably care too much that it’s Blockchain that’s
enabling this, just like a lot of people didn't care 20 years ago that it was
the Internet that was allowing them to shop online or send emails to anybody
anywhere. What is it that we would tease out of this, rather than what the
technology is, what's the business benefit that people should be thinking
about?
Fox: Everybody wants
digital trust, right? Leanne, why don’t you share some of the things you guys
have been exploring?
Making the opaque transparent
Kemp: In the diamond
industry, there is fraud related to document tampering. Typically paper
certificates exist across the backbone, so it’s very easy to be able to
transpose those into a PDF and make appropriate changes for self-gain.
Double-financing
of the pipeline is a very real problem; invoicing, of course accounts receivable,
they have the ability to have banks finance those invoices two, three, four
times.
We
have issues with round-tripping of diamonds through countries, where transfer
pricing isn't declared correctly, along with the avoidance of tax and duties.
All
of these issues are the dark side of the market. But, now we have the
ability to bring transparency around any object, particularly in
diamonds
-- the one commodity that’s yet to have true financial products wrapped
around
it. Now, what do I mean by that? It doesn’t have a futures market yet.
It
doesn’t have exchange traded funds (ETFs), but the performance of
diamonds has
outperformed gold, platinum and palladium.
This platform shift is like going from the
World Wide Web to the
World Wide Ledger.
World Wide Web to the
World Wide Ledger.
Now,
what does this mean? It means we can bring transparency to
the once opaque, have the ability to know if an object has gone through
an ethical chain, and then realize the true value of that asset.
This process allows us to start and think about how new financial
products can be formed around these assets.
We
are hugely interested in rising asset classes beyond just the commodity section
of the market. This platform shift is like going from the World Wide Web to the
World Wide Ledger. Joe was absolutely correct when he mentioned that the
Internet hasn't been woven for transactional trust -- but we have the ability
to do this now.
So
from a business perspective, you can begin to really innovate on top of this
exponential set of technology stacks. A lot of companies quote Everledger as a
Blockchain company. I have to correct them and I say that we are an emerging
technology company. We use the very best of Blockchain and smart contracts,
machine vision, sensorial data points, for us to be able to form the identity
of objects.
Now,
why is that important? Most financial services companies have really been
focused on Know Your Customer (KYC), but we believe that it's Know Your Object
(KYO) that really creates an entirely new context around it.
Now,
that transformation and the relationship of the object have already started to
move. When you think about Internet of Things (IoT), mobile phones, and
autonomous cars -- these are largely devices to the fabric of the web. But are
they connected to the fabric of the transactions and the identity around those
objects?
Insurance
companies have begun to understand this. My work in
the last 10 years has been deeply involved in insurance. As you begin to build
and understand the chain of trust and the chain of risk, then tectonic plate
shifts in financial services begin to unfold.
Apps and assets, on and off the chain
Fox: It’s not just about
the chain, it's about the apps we build on top, and it's really about what is
the value to the buyer and the seller as we build those apps on top.
To
Leanne’s point, it’s first going to be about the object. The funny thing is we
have struggled to be able to, in a digital way, provide visibility and control
of an object and this is going to fix that. In the end, B2B, which is where SAP
Ariba is, is about somebody getting something and paying for it. And that
physical asset that they are getting is being paid for with another asset. They
are just two different forms. By digitizing both and keeping that in a ledger
that really cannot be altered -- it will be the truth, but it's open to
everyone, buyers and sellers.
Businesses
will have to invent ways to control how frictionless this is going to be. I will
give you a perfect example. In the past if I told you I could do an
international payment of $1 million to somebody in two minutes, you would have
told me I was crazy. With Blockchain, one corporation can pay another
corporation $1 million in two minutes, internationally.
And on the chain companies like Everledger can build capabilities that do the currency translation on the fly, as it’s passing through, and that doesn’t dis-remediate the banks because how did the $1 million get onto the chain in the first place? Someone put it on the chain through a bank. The bank is backing that digital version. How does it get off the chain so you can actually do something with it? It goes through another bank. It’s actually going to make the banks more important. Again, Blockchain is only as good as the external trust that it inherits.
And on the chain companies like Everledger can build capabilities that do the currency translation on the fly, as it’s passing through, and that doesn’t dis-remediate the banks because how did the $1 million get onto the chain in the first place? Someone put it on the chain through a bank. The bank is backing that digital version. How does it get off the chain so you can actually do something with it? It goes through another bank. It’s actually going to make the banks more important. Again, Blockchain is only as good as the external trust that it inherits.
I
really think we have to focus on getting the chain out there and really
building these applications on top.
Listen to the podcast. Find
it on iTunes. Get the mobile app. Read a full transcript or download a copy. Sponsor: SAP
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