How Blockchain Is Redefining Supplier Onboarding
A Q&A with David Post
August 5, 2019
We live in an era of boundless disruption, of progress measured not in years, but weeks and months. At the core of every innovative brand, there’s a procurement arm behind the scenes making the flow of business possible. However, for just about any company that buys or sells goods and services, the task of validating and onboarding new suppliers is an acute pain point, riddled with inefficiency and even fraud. In many companies, it takes up to 30 days just to bring a new supplier onboard, and just as long to get a vendor paid. That’s why IBM is working with technology provider Chainyard and other founding partners on Trust Your Supplier, a new supplier onboarding platform powered by blockchain technology.
David Post, managing director, IBM Blockchain Ventures, explains more:
What were the primary industry challenges Trust Your Supplier was designed to address?
Right now, supplier onboarding and validation is a very point-to-point process. Despite the fact that 80 percent of the information a supplier has to provide is common across Fortune 500 buyers, there's no business process standardization, which means that suppliers have to prove and re-prove their identity every time they want to do business with a new buyer, and buyers need to find ways to track and accept that information, even for suppliers who already might be doing business with another Fortune 500 company. That leads to increased operational expenditures for both buyers and suppliers and creates delays in doing business with a company you’ve already decided to do business with. It costs everyone more time and more money.
How did IBM identify this problem as a compelling blockchain use case?
Supplier onboarding is a real pain point for IBM. Our own chief procurement officer actually identified the use case internally and decided it'd be a great basis for a blockchain network to make his job, and those of other procurement officers easier. We’re in the process of onboarding IBM’s North American suppliers and plan to scale this solution to our entire supplier base over the next year. Once you’re able to digitally establish the identity of your suppliers in a credible and trusted fashion, there are all sorts of other things you can do to drive process efficiencies.
That would make IBM Customer Zero.
We've developed this network with Chainyard, and IBM Procurement is indeed the first entity in. We're a business partner on one hand, but we're also a customer on the network. We’ll be the first procurement organization to go through all the steps, whether that's contracting with the network or onboarding new suppliers.
What are the KPIs IBM is shooting for in its internal case study?
Right now, IBM takes 30 days from initial contact to onboarding. We estimate we can reduce that to 2-5 days, and anticipate we can reduce the operational expenditures associated with supplier onboarding and validation by around 50 percent.
When do you expect additional partners to come aboard?
We're about to start onboarding suppliers with a number of our governance board members. For example, Nokia and AB InBev will start putting supplier profiles on the network in the near future. We’ll be launching general availability later in Q3, meaning we’ll be bringing on select companies who are interested in joining us early in the process as we continue to expand. In the interim, what we're focused on with our governance partners is having them begin to onboard suppliers. At IBM, it's our intention in the next six months to onboard 4,000 suppliers on the platform within North America. After that, the next region will be Europe.
Are there any other solutions in the market attempting to address the challenges of supplier onboarding through a non-blockchain platform?
There are a couple of platforms that transmit information point-to-point, but the main differentiator with Trust Your Supplier is that we’re providing a repository of supplier information that’s updated not only by the suppliers, but also third-party validators like Dun & Bradstreet. A supplier's profile will have a stamp saying, "This is when it was last validated by Dun & Bradstreet. These are the indicators that are accurate. These are the ones that are inaccurate." It puts the onus for the maintenance and contracting of supplier information onto the network. That's the benefit of having a network where a number of entities are regularly transacting information. It's more current. It's more trustworthy. It’s why we called it Trust Your Supplier.
Most blockchain consortia enjoy a “network effect” predicated on the number of participants actively transacting data. Will Trust Your Supplier function similarly?
Yes, of course. Trust Your Supplier is designed very specifically to leverage network effects very quickly. The more buyers and suppliers are on it, the higher the likelihood that suppliers and buyers are sharing information through the platform, which increases the accuracy of the information, which then leads it to be more attractive to suppliers and buyers.
How does Trust Your Supplier help mitigate fraud?
One of the challenges facing organizations is that suppliers can provide fraudulent bank information or misrepresent who they are in an attempt to get payment for a service rendered.
With Trust Your Supplier, identities are tied to a tax identification number, so an outside actor can't come in and claim that they are someone else because that information resides in the supplier profile on the blockchain. Additionally, other network members can flag suspicious behavior, so it decreases the likelihood of multiple participants being fooled by the same thing. There's a lot of safeguards built in because it's a network, as opposed to a point-to-point process.
What sorts of new business opportunities will this platform engender?
You can think of Trust Your Supplier as an app store. Third-party networks and providers are going to be building on top of the network. For example, all the third-party validators that customers are currently leveraging will be able to plug in their validation information onto the network. It's an opportunity to access best-in-class certifications and tools in a much easier way. There's also the opportunity, over time, to build additional applications on top of the network. Supplier onboarding and validation is only the first use case. Eventually, parties will be able to take advantage of the platform’s underlying data to build applications in areas like risk management or accounts payable.
How will Trust Your Supplier impact procurement professionals?
I think it provides an opportunity for innovation and for process efficiency. Every company expends significant time and resources just to validate and maintain their supplier master. Trust Your Supplier shifts a lot of the onus for this work onto the network where it can be done more effectively. Professionals will be able to work more efficiently. And by digitizing a lot of the work, many folks in the industry will be able to move away from time-consuming, paper-based processes.
How is the relationship between IBM and Chainyard structured?
It's an example of a small startup partnering with a big company, which is pretty unique. Chainyard’s expertise is around product development and network operation, while IBM is responsible for convening the network and going to market, making this a natural fit. Chainyard are experts in blockchain application development and contribute a lot of code to Hyperledger. They've been involved in building a number of applications for IBM's own networks.
Does Trust Your Supplier integrate with other networks?
It's already integrated with IBM’s Supply Chain Business Network. We are e-procurement platform-agnostic and business network-agnostic, so any business network can plug in. Over time, what I think you’ll also see is that this can serve as the basis for the information about suppliers on other blockchain networks. If we can aggregate all this information, Trust Your Supplier can become the place that various blockchain networks call on to validate identity.
By helping lower the barrier to entry for companies to work with one another, do you think Trust Your Supplier will spur competition in the marketplace and enable smaller companies to partner with larger ones?
Yes, I think over time, there will be a supplier discovery function. It's not something that's built in right now, but I think you can imagine a feature where suppliers will have ratings, both on the accuracy of their information and on the services they provide. In the future, that will create opportunities for those suppliers that perform well and are perceived as being less risky.