Blockchain will forever alter the Digital Procurement landscape as we know it
Marcell Vollmer (Chief Digital Officer at SAP Ariba) spoke last week at SAP Ariba Live in Amsterdam about the impact of disruptive technologies on the digital procurement and supply chain sector and in particular about how we can embrace these innovations in order to “procure with purpose” and help contribute to making the world a better place.
Specifically he highlighted Blockchain suggesting that it “will be the most disruptive technology in the future”. Vollmer went on to explain that General Ledger with Blockchain will transform the way in which you can drive transactions, and ensure complete transparency in the supply chain from cradle to grave, resulting in positive outcomes such as helping create stronger trust between buyers and sellers through to contributing to eradicating child labour from the supply chain.
So what exactly does this mean? And how exactly will Blockchain become the most disruptive technology for those working in digital procurement and supply chain? Lets first take a second to understand the key concept of what Blockchain actually is, and then we can apply these concepts to SAP Ariba in order to understand its’ implications…
What is the Blockchain?
I’ve heard many definitions of what a blockchain is, some more confusing that others, but in it’s simplest form it can be described as a digital ledger in which transactions made (for example in a cryptocurrency such as bitcoin) are recorded chronologically and publicly via distributed systems (not central systems such as a bank). The entire transaction history/ledger is accessible to everybody within the distributed network. The blockchain is therefore a continually growing list of records (called blocks) linked in sequence using cryptography.
For a visual explanation in very easy to understand terms I recommend this video explainer (6 mins) by “Simply Explained”:
The benefits of using Blockchain technology are generally accepted to be 5-fold:
- Greater Transparency
- Enhanced Security
- Improved Traceability
- Increased Efficiency and Speed
- Reduced Associated Costs
PwC have summarised visually how the blockchain works in the infographic above, and as you can see we can improve trust between two parties by eradicating the middle man and rather extending the transaction for approval by a large distributed network.
This technology has opened up a wealth of opportunity for technologists to create lightspeed solutions and the hub for open industrial blockchain development is Hyperledger.
What is Hyperledger?
Hyperledger is the blockchain framework allowing developers to create open, standardised and enterprise grade distributed ledger blockchain frameworks and code bases to produce tangible results.
Hyperledger Fabric is the framework powering the IBM Blockchain platform and can be defined as “an enterprise grade distributed ledger based on blockchain technology that uses smart contracts to enforce trust between parties”. Hyperledger Fabric started from IBM, and with their wish to make it open source they partnered with the Linux Foundation. This has since become their (Linux Foundation) fastest growing project ever and promises to be an increasingly hot technology.
As projects around this technology start to increase expect to see a rise in demand for developers skilled in blockchain and Hyperledger Fabric. And if you are a developer looking for a niche upon which to focus then seriously consider Blockchain.
What does this mean for SAP Ariba?
Now that we have touched on what we mean when we talk about Blockchain lets take a look at how this all relates to SAP Ariba…
…Last year, SAP Ariba unveiled plans to leverage blockchain across its’ cloud based applications and business network in an effort to improve the way goods and services can be traded. By investing in blockchain technology they can drive business processes involving multiple parties. And by embedding it across the applications and network SAP Ariba can enable smarter, faster and more transparent supply chains across the full S2S cycle.
Lloyd Keays (Global Head of Presales at SAP Ariba) explains that blockchain is all about getting rid of switchboards, the middle man. Just like VoIP enabled elimination of the switchboard for phone calls, blockchain is similar but instead of it being voice conversation we are talking about text being written on a ledger. Keays explains that a ledger can be thought of as a large book that tracks transactions.
To consider an easy to follow example that Keays has used previously… we can look at the process of tracking coffee beans from their source through to their packaging as a 100% organic coffee on the shelves of a supermarket. When we see the product label we assume the coffee beans are 100% organic and ethically sourced, but how can we prove this. To be able to say with absolute certainty that these coffee beans are ethically sourced we would need to be able to follow the path of the supply chain at each and every stage, tracing right the way back to the source.
In a world without blockchain, the switchboard or middle man in this process would be the centralised tracking system. This model can be prone to fraudulent activity or risks because it is relatively easy for somebody with motive to access the centralised ledger and alter the information on it. When we introduce the blockchain model we can remove the centralised ledger and replace it with multiple copies of the ledger spread around the world in a distributed model. Therefore it becomes almost impossible for somebody to tamper with the ledger because there is more than just one version of the transaction history, and any changes need to be approved by a majority of the distributed network in order for an update to the “block” to be accepted.
Furthermore, once a transaction on the blockchain has been recorded, encrypted and verified they are there forever, and… everybody has access to the ledger. This visibility is important when we consider the supply chain because now we have this increased transparency that means we can unequivocally determine that our supply chain is clean, ethical and true. This is key to the mission of SAP Ariba to promote “Procurement with Purpose”.
Using a blockchain model we can guarantee that our coffee is as it says. When we review the blockchain we can clearly see the route of the beans from source in Ethiopa, in transit in Djibouti, at the roasting company in Italy and finally as a packaged product on our shelves in the supermarket. The transparency of origin allows us to prove the chain of transport all the way back to the organic plantation in Ethiopia.
For companies using SAP Ariba this is an incredibly attractive model as it means we can select at all stages of our supply chain companies who share the same morals and ethics as us, and ensure that we can avoid companies and suppliers we do not wish to trade with. This will have large implications on helping to reduce child labour, slave labour and unethical practice from our procurement practices.
Another example is the Diamond trade… you may have heard of Everledger? SAP Ariba and Everledger are joining forces to create digital thumbprints for valuable objects such as diamonds and this is stored on the blockchain. The digital thumbprint includes important information such as history, transport, events and ownership. This information is relied upon by multiple stakeholders globally across supply chains in order to verify authenticity. Using the blockchain model to track transactions we can help eliminate blood diamonds and unethical practices from the industry.
If we can improve the ethical chain from source to settle for products from coffee beans to diamonds then what else can we harness this technology for within procurement? In the context of SAP Ariba, Blockchain is disrupting the industry because it means we do not need the middle man as much as we used to. It provides absolute trust between sender and receiver and allows us to truly “procure with purpose!”
bluewaveSELECT are SAP experts and have a deep rooted interest in innovative technologies that will allow the world to operate more ethically and #MakeProcurementAwesome. We are experts in SAP related digital procurement across SAP Ariba, integration with s/4 HANA, IoT and Blockchain technology.
If you (i) are looking for experts in these disciplines, or (ii) are a consultant seeking your next exciting project then please do not hesitate to get in touch.
Tyler Watts (SAP Ariba Specialist at bluewaveSELECT)
+44 (0) 1423 559 559 / +44 (0) 7738 566 539 / firstname.lastname@example.org