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Digitise, authenticate, collaborate with DLT

Estimated reading time: 5 minutes

A traditional supply chain; upstream or downstream; consists of a number of people or parties who need to come together to complete a transaction. “These parties could be buyers, suppliers, shippers, freight forwarders, insurers, bankers and more,” said Farooq Sidiqqi, CEO of DLT Ledgers.

Think about this – the multi-enterprise supply chain business networks, or MSCBN – as the extended community which allows supply chain transactions to happen, he said. He also explained that MSCBN was a term originally coined by Gartner to emphasise the importance of this aspect of the supply chain.

It also stresses the importance of this ecosystem or community, as companies look for the next stage of making this community’s activities more efficient, more visible, and perhaps even have better authentication and better collaboration to happen across the network.

The underlying technologies to enable all these supply chain improvements are important, especially because companies are looking to embrace the next generation of supply chain technologies.

Buying and selling – key activities of trading

The buying aspect of a supply chain, known as the upstream or procurement element of a supply chain, means they need to contract with various parties they are going to buy from. A similar thing happens when a company sells.

“That contract needs to be executed, so various parties are involved in fulfilling that contract.”

This creates friction, Farooq opined, which technology like blockchain is looking to solve by aligning all these traditional activities conducted by all these multiple different touch points.

Then comes the other considerations – is it a domestic or cross border contract? Depending on which it is, certain parties will come into the picture, for example freight forward and logistics companies, financing and bankers.

Farooq then explained, “Now, the key thing in all of this – while we have multiple parties touching a single transaction, each of them in a traditional world have their own unique version of the truth.”

This creates friction, Farooq opined, which technology like blockchain is looking to solve by aligning all these traditional activities conducted by all these multiple different touch points.

In summary, each party needs to know what their role in the transaction is,  when they need to execute their role, as well as understand and ensure that whatever the are doing is as per the original terms of contract between buyer and seller.

“Every party has to come together to ensure that whatever the company is buying from the supplier, comes on time, comes in the right quantity, comes at the right quality, and is delivered to the right place.”

In summary, each party needs to know what their role in the transaction is,  when they need to execute their role, as well as understand and ensure that whatever the are doing is as per the original terms of contract between buyer and seller.

This creates friction, Farooq opined, which technology like blockchain is looking to solve by aligning all these traditional activities conducted by all these multiple different touch points.

Solving friction

Due to different parties viewing different aspects of a transaction, issues like reconciliation arise. “Reconciliation issues mean there are efficiency, cost, and dispute issues.

“This is why supply chain in a traditional sense tends to break down. But I think underlying technology like distributed ledger technology (DLT), allows people to have that single access to the truth so that everybody looks at the same version in real time and they know what is happening with a particular transaction.”

“This means, a lot of friction issues can be addressed, and this leads to typical benefits around cost, efficiency, and risk management.”

DLT in supply chain

There are many contexts or industries where DLT technology could be applied to get multiple parties onto the same page, in terms of understanding.

Farooq observed the supply chain industry recently talking about taking DLT technology more mainstream with activities like inviting trading partners onto a network to have permissioned access to data.

For companies to get full benefits of internal digitisation, they also need to start thinking about how they start digitising the external supply chain.

Another benefit of DLT technology is it can enable traceability and provenance for supply chain.  

Farooq mentioned upcoming regulatory needs  for businesses to be able to demonstrate the provenance of their supply chain, or in other words provide transparency into where certain goods/products were farmed, or manufactured, or stored.

For companies to get full benefits of internal digitisation, they also need to start thinking about how they start digitising the external supply chain.

For the past few years, Farooq observed companies really focused on digitally transforming internal-facing systems and processes. For example ERP systems, treasury management systems, or production systems.

Farooq mentioned upcoming regulatory needs  for businesses to be able to demonstrate the provenance of their supply chain, or in other words provide transparency into where certain goods/products were farmed, or manufactured, or stored.

Farooq opined that the next wave of digitisation is really between the company and its external counterparty that it is dealing with.

“There is a lot more around external digitisation (now) due to ESG (Environmental Social Governance) reporting and traceability concerns.”

DLT use in banks for supply chain context

The finance industry’s interest in DLT is not just because it is the underlying technology to enable digital currencies that can be traded and used in capital markets.

Banks in the supply chain context are interested to reduce costs and increase efficiency as well.  If a bank is able to consume information about a transaction, digitally over blockchain, that can help minimise cost.

The key thing for banks is to get more transparency about the underlying trade. This is another big use case of blockchain, which is for banks to get a transaction financed, and also understand who’s the ultimate supplier, when were the goods shipped, what is the underlying contract, and so on and so forth. The visibility theme is so important.

There is also the benefit of being able to manage risk issues like fraud because blockchain can provide a degree of visibility into the credibility and validity of parties and transactions.

In essence

Farooq shared, “What we as a company is trying to do, is to help companies come up with a digital version of their physical supply chain, by helping them create a network on which they are able to do a lot of these transactions, digitally in a safe and authenticated manner.

“That’s where I think as a company we are focusing on and that’s a key trait as we talk about the impact of COVID-19 upon the supply chain industry.”