Industry Insights

Consortium-supported Blockchain Applications: Trust Your Supplier

As mentioned in my last post[1], over the last decade or so Electronics companies (among others) have installed processes to improve their control over the way that they qualify new suppliers. Regulatory requirements, audits, penalties and the potential for damage to a company’s brand have made it critical that companies do an effective job of validating suppliers’ credentials. Electronics companies in particular have been forced to improve their control over the process of qualifying new suppliers.

 

“Improved control” sounds like a good thing – and it is, for the most part. But the due diligence now required by the process has also placed a burden on both OEMs and their suppliers. That due diligence translates into a large amount of information, with portions requiring validation by a third party, that prospective suppliers have to provide to their future customers in order to become active suppliers of components or services. The net result has been to make the supplier selection and approval process at many companies slower and more expensive. IBM has estimated that this process costs both the OEM and the supplier some thousands of dollars. The time to first transaction is often greater than 30 days, despite the fact that the process (and the information required) is very similar from one OEM to another.

 

For those of us who are used to working with production suppliers, this may not seem like a big deal. What’s a few thousand dollars when the value of future business is likely to be in the millions? That logic is turned upside down, however, when dealing with nonproduction suppliers, and especially with service providers. Electronics companies that provide “infrastructure” products (network equipment, data communications, large data storage devices, even some large automated office equipment installations) have an ongoing need to bring local service providers on board. (A lot of the installation work is done by local contractors.)

 

An OEM that installs its products in hundreds of locations each year may find that they spend some millions of dollars on new supplier set-up. The situation is even more problematic for the local contractors. Since the revenue they realize from a new customer may only amount to a few tens of thousands of dollars, a delay of a month and expense of a “few thousand dollars” impacts their cash flow and their bottom line.

 

And… what is supremely frustrating about the entire process (and the reason that blockchain is such a good solution) is that the service provider or contractor finds itself answering essentially the same questions, and providing the same evidence, over and over again to different OEMs.

 

This problem falls into a group of blockchain use cases spread across multiple industries and environments. They all have to do with permissioned sharing of validated private data. The use cases deal with two groups of users – in most cases one group that consumes a range of services and a group that provides those services. One group needs some level of validation in order to do business with the other. Examples might include consumers sharing their validated data with multiple institutions (banks, mobile telephone service providers, utilities, etc.), where they need to provide a verified street address or bank account; or independent contractors (plumbers, electricians, even dog walkers & nannies) who need to be bonded before consumers will let them in their home; or (as in this case) local service providers dealing with large multinational corporations.

 

The key elements that distinguish these use cases are:

  • A requirement for members of one group to provide validated data to members of the second group (with that validation generally provided by a trusted third party);
  • highly similar data requirements from one member to another;
  • a need to keep the data current;
  • but a corresponding need to keep the data private. Therefore, individual members of the first group determine which members of the second group will be given the privilege of viewing an individual member’s data.

 

When representatives from a number of electronics companies got together in October of 2018, this idea immediately gained traction. The basic concept is compelling:

  • The different companies share key elements of their supplier evaluation process so that a high degree of commonality can be identified and built into the process.
  • An application is built to permit the various service providers to enter their data, and have key data elements validated by trusted third parties.
  • Once a service provider has gone through the process one time, for one OEM customer, they can release their validated data to another OEM customer. That second OEM may request a small amount of additional data from the service provider, but they can reuse close a very high percentage of the original data. This eliminates most of the cost, and speeds the entire process up – from weeks to days.

 

The different OEMs benefit from an on-boarding process that represents the collective experience and intelligence of multiple world-class companies, as well as the opportunity to reduce cost and time; the service providers benefit from a more consistent, faster and lower-effort process. And the consortium approach also provides a common mechanism to maintain the data over time.

 

IBM and several other major electronics OEMs are early participants in this consortium, which has developed a blockchain-based application called “Trust Your Supplier” (TYS). The TYS application is a cross-industry trusted source of supplier information & digital identity that simplifies and accelerates supplier on-boarding and lifecycle management. Briefly, it will:

  • Reduce cost
  • Mitigate risk
  • Shorten cycle time
  • Create trust

 

The platform itself, as the common meeting place for hundreds or thousands of different suppliers and customers, will provide value on its own. The intended future state of the TYS application will provide benefits for all participants:

  • Suppliers/ service providers will only have to provide their company information one time. They will be able to provide permissioned access (to companies wishing to purchase goods and/or services from them) to their regulatory, compliance, environmental, legal, and financial data.
  • Buyers/Procurement Specialists at new customers will have instant access to 360-degree, pre-verified supplier information for on-boarding.
  • Third-party developers will have the opportunity to build new applications using the platform’s data and services.
  • Verification companies (like D&B, T&R) can provide verification services on company financials, credit, etc.
  • Certificate Issuers (such as ISO, diversity agencies, and others) will be able to easily verify the originality of certificates.
  • Auditors will be able to easily access information for all auditing purposes.
  • Additional participants (e.g. regional governments) can be added as needed (for instance, to provide business registration services).

 

Blockchain provides a technical foundation for this application that is inherently superior to other options:

  • An immutable supplier information record
  • Provision for real-time updates from suppliers & third parties
  • Controlled data-sharing capabilities; platform offers both security and privacy controls
  • Shared ledger reduces costs, improves efficiency and consistency

Additionally, the shared database, via the shared ledger, will provide additional benefits:

  • Shared governance will keep the system aligned to both buyers’ and suppliers’ needs
  • Network effects will increase value for all participants
  • Supplier and buyer discovery becomes an opportunity
  • Third parties may find opportunities to sell compliance reports, risk analysis, performance information, etc.

 

Development on the TYS application has already reached a high level of completion, and one participant has tested the process with a limited number of suppliers. General availability is planned for Q3 2019. It will be hosted on the IBM Blockchain Platform and can be operated on an easy-to-use SaaS application.

 

TYS’s Product Offering Director David Post and General Manager Gary Storr see the transformative potential of applying blockchain technology to improve controls and build trusted digital business relationships. “In today’s landscape where compliance and security are alpha concerns, supplier qualification and life cycle management are less efficient and attracting more cost than ever.” said Storr. “With TYS we are using blockchain to digitize the process for buyers and suppliers, providing opportunities for new insights in business relationships.” Post agrees.  “What ERP did within the enterprise, blockchain is now providing across enterprises. We have massive potential to evolve standards and drive a trusted, single version of the truth across industries.”

 

For more information about Trust Your Supplier, visit https://www.trustyoursupplier.com.

 

 

[1] On the “Responsible Sourcing” initiative; see http://www.ibm.com/blogs/insights-on-business/electronics/consortium-suppo…onsible-sourcing/. (That blog also provides links to three previous blogs in this series.)

 

Sr. Managing Consultant, Electronics Center of Competence at IBM

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