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Blockchain – Rebooting from Technology to Strategy

Praphul Chandra
4th April, 2020

Praphul Chandra of KoineArth spoke to Shanmukh Singh on how blockchain can help firms ensure visibility, improve reconciliation and cash flow optimization.

Supply chains are complex. Multiple stakeholders, complex processes and crossed communication. Today’s tools are not able to achieve end to end supply chain visibility and effective process integration. Blockchains have the potential to provide complete visibility into the supply chain – across multiple tiers. In a chat with SCMPro Knowledge, Dr. Praphul Chandra, Founder and Chief Scientist KoineArth discusses the potential of Blockchains- and the need to look at it from a strategy perspective, not technology.

What was the vision that lured you into setting up KoineArth?

I have always been fascinated by evolution. One of the unique features of human societies is the scale at which we cooperate with each other – socially and economically. Technology has played a critical role in enabling this. With LinkedIn, Slack, WhatsApp, individuals are able to collaborate with each other very effectively but when it comes to coordination across companies, we still have a long way to go. The objective of setting up KoineArth was to enable trusted collaboration among entities who need to collaborate to achieve a common objective.

Why have you named your firm KoineArth?

The word KoineArth combines Koinne (Greek “shared”) and Arth (Sanskrit “meaning”). The name captures the spirit that a group of individual entities becomes a community when they share the same purpose or meaning.

In today’s interconnected world, where value gets created by firms collaborating with each other, our aim is to enable firms in a supply chain to work together efficiently so that they can compete together as a group.

Can you explain the basic concept of block chain?

Originally conceived as a ledger to securely store Bitcoin transactions, Blockchain has evolved into a platform to store any kind of information that may need to be shared in a secure, trusted way. At its heart, it is a ledger with three unique properties.

  1. All data written in the ledger is digitally signed.
  2. Data once written in the ledger can neither be deleted, nor modified.
  3. The “ledger” can also be used to store software code which executes and the result of this code execution are also stored in the ledger.

(1) and (2) together create a ledger with auditability built-in. With (3) we get the power of smart contracts – a better name would be “auto-executing” contracts which once coded in software, will execute transparently and whose results are auditable too.

How do you intend to use block chain in the field of supply chain?

An effective supply chain requires close collaboration and coordination with suppliers, service providers, distributors etc. Yet, today’s enterprise tools are designed to work WITHIN an enterprise.

When each organization has its own IT infrastructure, each organization in the supply chain maintains its own copy of records, its own copy of data, and its own copy of the contracts. This creates silos and leads to friction in the flow of information, goods, services,and money.

How can you collaborate efficiently with your suppliers when ERPs and CRMs were designed for individual organization not for collaboration across organizations?

What are the main pain points that you wish to address with the help of block chain?

There are three key pain points that wish to address:

Visibility: As any supply chain professional will attest, managing today’s geographically spread, deep supply chains is a huge challenge. Many supply chain professionals are perpetually in fire fighting mode leaving little time for strategic planning. The issue is that there is very little systemic visibility beyond the first-tier business partner. With blockchains this point-to-point visibility can be replaced by network-wide visibility of operations in real time.

Reconciliation: As long standing B2B transactions proceed, flows of goods, services, information,and money get out of sync. Resolving discrepancies across these flows requires periodic reconciliation – a costly, error-prone approach sometimes leading to disputes. With marketsN, we have leveraged the blockchain technology to get rid of any need for reconciliation. We have built-in support for 5-way reconciliation: orders, deliveries, invoices, contract SLAs and quality reports are automatically reconciled in real time. We leverage IoT data, AI algorithms, and ERP data to do this.

Cost of Capital: Almost any organization running operations at scale knows the value of cash flow optimization. However, receiving payments from customers may take days, if not weeks. During this time, businesses can potentially borrow against receivables (e.g. invoices). Supply chain finance is a long-standing practice. However, the time taken by banks / NBFCs to authenticate a receivable itself may take several days often defeating the purpose of the loan. The auditability of Blockchains means that invoices become trusted collaterals which can be shared digitally with banks and authenticated at a click of a button. This reduces the processing time and the bank’s risk.

Which are the companies you are working with?

We work with a variety of organizations across the supply chain. We are currently working with a metal manufacturer which is using our solution to have real time visibility in a 4-tier contract manufacturing supply chain. We are working with another manufacturer to automate SLA enforcement in 3PL. We are also working with a large distributor who coordinates business transactions between suppliers and retailers by providing credit and logistics services. Finally, we will soon be piloting an invoice financing solution with a bank.

What has been the area of intervention and what are the key benefits for the companies supply chain?

The key area of intervention has been breaking silos – across organizations in a supply chain, and across departments in an organization. We have observed that when customers adopt our solutions in their supply chain, not only does it become a catalyst for organizations to collaborate more effectively with their business partners but it also drives closer collaboration within departments.

The key measure of supply chain efficiency are well captured in key SCOR metrics like Reliability, Responsiveness, Agility, Cost,and Inventory. Different customers have different priorities. Let me give you a couple of examples.

One of our customers wanted to increase the reliability of their logistics operations where they worked with multiple 3PL providers. Despite having strict and very detailed SLAs, contract enforcement was a perpetual issue since parties could not agree on whether the SLA terms were met or not and what, if any, was the penalty / bonus due. Leveraging smart contracts, we were able to automate contract enforcement and remove friction in this B2B interaction.

With another customer, we have deployed our solution in a contract manufacturing setting in a 4-tier supply chain of 28 companies where raw material, components, and finished goods move across these companies in an extremely dynamic fashion. Visibility into material inventory across the network was a huge challenge. By enabling real time visibility and removing the need for inventory reconciliation, we helped the supply chain planning department to reduce the base stock levels they had to maintain by 8% across the network.

What are the constraints of implementing block chain in the Indian industry?

India is a very cost sensitive market. Customers want to see a clear value from their investments. The fact that we have paying customers in India is very encouraging for us. This has also guided us to innovate both from a technical and business model perspective to come up with a solution offering which customers are willing to pay for. We have various pricing models to suit both the SME and the large enterprise / bank segment

What road map do you see for companies using block chain in the future?

I think business leaders should be looking at Blockchain as a Strategy not a technology. It offers organizations an opportunity to build a partner network and redefine the boundary of their firm. Blockchain offers such a huge potential for deep integration that in operations, the boundary between an organization and its business partners can disappear. I see this as an opportunity to build strategic advantage. ♦♦♦♦♦

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