Supply Chain Finance on Blockchain

Presented byRichard McKeon

Objectives:

1. What is meant by Supply Chain Finance?

2. What problems does / doesn’t it solve now?

3. Will Blockchain technology solve these problems any better?

4. What projects are using Blockchain technology now?

5. The future for Supply Chain Finance on the Blockchain?

What is Supply Chain Finance (SCF)?

SCF is a simple concept.

• Under the typical model the Supplier gets paid by a 3rd party Financier at the time an invoice is raised, freeing up available capital. The finance is then repaid when the payment is received from the product or service Customer some 60 to 90 days later. The model applies equally to goods or services.

What is Supply Chain Finance (SCF)?

• The Supplier pays a fee to be paid when the invoice is raised, and the Customer pays a fee to get the 60 to 90 day extension to pay late, allowing both to optimize their working capital.

• It solves a working capital problem for the Supplier and also for the Customer.

• It is not a new issue by any means and has been a financing option for many years.

• Previously considered to be an expensive form of finance and an indication that a business was having cash flow problems but now in the mainstream.

2017 Research by PWC Australia has found

The Problems traditional SCF solves.

• Lengthy payment waiting periods create working capital gaps for contractors that can be costly to fill.

• Not knowing when payments will arrive adds to cash flow challenges and complicates financial planning for contractors.

• Credit based finance used for working capital.

The Problems traditional SCF doesn’t solve.

• Loss of control of debtor management / customer control.

• Coverage of the upstream side of the value chain when geographically and industrially diverse.

• Heavy reliance on paperwork and documentation for validation and authentication.

• Delivery of documents can be slow when dealing with international transactions.

How conceptually Blockchain could be implemented for SCF?

VALIDATION & AUTHENTICATION: Validating and authenticating access and right to information, data and resources and the integrity of the validating processes are key component of SCF. Blockchain should ensure the efficient distribution and integrity of authentication rights across parties in the Supply Chain, in a way that ensures the prevention of fraud like the case of the warehouse receipt scandal at China’s Qingdao Port where criminals used false warehouse certificates to pledge metal as collateral for multiple bank loans; obviously the traditional way of verifying receipts/certificates (even though it’s was digitize via ERP) does not guarantee adequate security and integrity of the documents.

TRANSPARENCY, VISIBILITY & AUDITABILITY: Blockchain should provide visibility and traceability of information/documents as they move from one party to another; this way banks/lenders/buyers knows what they are financing, hence are able to proactively reduce their exposure to fraud and credit risk. This technology, also includes Smart Contracts which essentially enable all parties in a supply chain finance solution to act on a single shared ledger. The bank/financier has access to the smart contracts and can track processes like manufacturing, shipping, order fulfillment at any given time. A supplier and manufacturer, along with every other participant, will solely update their parts of the transaction, enabling efficiency, trust and transparency on a ledger record that is immutable.

SPEED & INCREASED CONTROL: Today, the speed of delivering SCF solutions is very slow and lack adequate control due the arduous systems and processes (e.g. submitting Bill of Lading, Letter of Credit, invoicing, goods receipt verification and payment). Smart Contract powered by Blockchain technology can do all these processes automatically based on set conditions. The time required from initiation of SCF request to payment (as a result of less manual activity on the part of the banks/financier) will be reduced. The reduction in transaction time, will also lead to, reduced time for payment; loan approval, and reduced risk of fraud. Blockchain technology offers greater potential in terms of increased control because all transactions are monitored by both or all parties in the chain. This way of financing a supply chain is radically cheaper and more efficient than the current way of doing business.

INCREASED COMPETITION & OPPORTUNITIES: The trust, security and transparency that would be provided by blockchain technology should attract other providers of capital into Supply Chain Finance, increasing competition and driving down margins.

Are there any real use cases and what can be learned from them?

Project / Company• Commonweath Bank of Australia – Global Trade Platform

Brief Description• Collaboration project to digitise 3 key areas of global trade –

operations, documentation and finance.

Technology • Private Ethereum Blockchain accessible to trusted parties for

documentation and processes.• IoT for tracking and control.

Are there any real use cases and what can be learned from them? – Continued

Project / Company• Greensill Capital – Supply Chain Finance

Brief Description• Cloud based and blockchain compliant SCF

Technology• Partnership with Oracle Textura Payment Management

Cloud Service and Morgan Stanley Securitisation

Are there any real use cases and what can be learned from them? – Continued

Project / Company• Tradelens

Brief Description• Open, neutral supply chain platform including trade finance

and trade insurance via Ecosystem.Technology• Hyperledger Fabric on IBM Cloud running on an open source

permissioned blockchain where peer members ( trust anchors) are known to the Network.

Are there any real use cases and what can be learned from them? – Continued

Project / Company• Factorin

Brief Description• Moscow based blockchain powered supply chain and trade

finance platform.

Technology • Private Ethereum blockchain running on 20 nodes on

participating servers and integrated into their systems.

Are there any real use cases and what can be learned from them? – Continued

Projecthalotrade

Brief Descriptionhalotrade facilitates access to finance which is linked to sustainable business practices.

TechnologyBlockchain by Provenance ( Ethereum based and HyperledgerFabric) and integrated into current ERP systems.

Are there any real use cases and what can be learned from them? – Continued

Project / CompanySkuchain

Brief DescriptionA smart contract between a Buyer, a Supplier, an SPV (Special Purpose Vehicle to take title) and a Financier.https://youtu.be/lrT2mdZ-xd8

Technology Proprietary blockchain called EC3 (Empowered Collaborative Commerce Cloud) built on top of Hyperledger Fabric and ported onto Ethereum and Corda.

What trends for the future?

• Public blockchains vs private blockchains to continue but be much more

interoperable and indistinguishable from each other.

• Advances in industrial monitoring brought about by the proliferation

of IoT will be further combined with blockchain technology.

• New finance systems linked to rewarding behaviour in the supply chain

e.g. Positive Anti-slavery, Ethical and Green suppliers receive better finance.

• New finance securities and assets.

• Seamless integration of Blockchain into ERP and mainstream Enterprise

Applications such that it will be viewed as easy as syncing Google Docs.

THANK YOU

PRESENTED BY

RICHARD MCKEON CA

DIRECTOR

integratedCAPITAL