Get out your white coats: we’re going to create a laboratory. The interface between the supply chain and finance is our specialist area, and we’ve recently started seeing some extremely interesting but complex technology develop in this space. We need to understand it and we need to see how it can be made to work for us.
It’s blockchain, of course, and we can see the potential for it to link physical assets – trucks, planes, shipping containers, products, packages – with finance in a way that creates a readily-accessible flow of information that we have never had before. Using the data that these assets themselves are now able to generate will bring together the physical world and the virtual world, creating value, streamlining finance and maybe even leading to new business models.
To see how we can make this happen, we are going to create a ‘living lab’ – a multimillion-euro project supported by industry, the Dutch government and academics. We’re planning it now and aim to go live in 2019.
This is more than just another blockchain pilot project, however. Much more. Most pilots you’ll have read about so far have been closed use cases with all the acquired knowledge retained within the sponsoring organisation. What we’re going to do is all about open innovation and sharing key learnings. Collaborative effort will make all the difference, accelerating development and ensuring that no one has to reinvent the wheel. You can build on what’s already been discovered.
It will also help us learn a lot of lessons about making this technology scalable. In most use cases to date, the technology is not completely ready for large numbers of transactions. We need to find solutions so the technology can work in a complex, global network.
Physical hubs and lower barriers
So what actually are we going to do? Initially focused within the Netherlands (more on that later), we will be creating a number of physical hubs where we will create a test ground for new solutions. We think that if you have a physical location where you can actually experience blockchain for real – linking physical assets with sensors via blockchain – it will lower the barrier for companies so they can try it out and get a through understanding of what it can do.
The trial-and-error approach will bring together global corporate buyers, suppliers, logistics service providers (LSPs), financial services firms and technology companies to see how processes can be developed and, ultimately, implemented within their own organisations.
This initiative is initially supported by the Port of Rotterdam, the Dutch Shippers’ and Logistics Organisation (EVO), the Dutch Association for Transport and Logistics (TLN), the Netherlands Organisation for applied scientific research (TNO), and universities such as TU Delft and Windesheim. The aim is to provide a platform for a wide range of companies, universities and institutes across the Netherlands to experiment with the use of blockchain in their supply chains.
Bringing technology to SMEs
A really important part of this project, however, is to bring in SMEs – not start-up fintechs, but actual suppliers to large corporates. They could be real beneficiaries from blockchain if it’s able to remove cost and improve process efficiencies – but they don’t have the resource to be able to invest in blockchain pilots of their own. So, by creating half a dozen or more local hubs, we can bring the technology to the SMEs – and the only investment they have to put in is time, itself. We will make students available to work with them on these projects, supporting them and providing them with access to the sort of blockchain knowledge that larger corporates can tap into with ease.
Linking to automated smart contracts
Why would you want to? The beauty of blockchain is that you don’t work with a central database but with a ledger that each asset has and which is linked to ‘smart contracts’. Imagine, if you can, a world where physical assets relay information that not only provides raw data such as delivery dates, but actually triggers supply chain actions without human intervention. A container of fruit from Costa Rica could arrive in Rotterdam, informing its particular blockchain that it has arrived and that it has remained properly chilled en route. While self-driving vehicles convey it to a distribution centre, a smart contract makes immediate and automatic payment to the supplier. Or imagine a package of pharmaceuticals providing assurance that it has not been tampered with and didn’t receive any shocks from rough handling, while drones arrange its onward delivery. Self-organising networks of physical assets. Imagine!
Imagining is, in fact, part of the challenge, here. Could we, in 1993, in the earliest days of the internet, have imagined what it would be like and what we could do with it today? The same is true, in a sense, with blockchain: we currently don’t know how pervasive it will be in ten or 20 years from now. But we expect the living lab could even be the birthplace of new business ventures and new business models – things that are beyond our current horizons. That’s the most exciting part of this.
Making it global
Our horizons extend beyond the Netherlands, of course. Before long, we expect to be working with promising-looking initiatives in other countries. Collaboration on a larger scale is going to be absolutely essential to develop a technology that works across global supply chains.
As an aside, the blockchain world doesn’t yet have an agreed platform of industry standards on which to build applications. These standards will come – just as TCP/IP is a protocol that underpins the internet. Blockchain technology won’t work to its fullest potential if we wind up in ten years with a range of competing and incompatible blockchain standards. But at the moment it seems sensible to me to ‘let a thousand flowers bloom’ and learn which standards will suit us best, rather than trying to nail them down now and find out further down the road that global industry has invested everything in a significantly suboptimal option.
All of this is very much in the supply chain finance sweet spot. Everything in supply chain management and supply chain finance is about collaboration. Collaboration means sharing, and that means trusting the data and trusting the source of the data. Blockchain could be the technology that makes that much more efficient, more transparent and more robust, improving access to increasingly sophisticated forms of supply chain finance. Blockchain is right at the interface of where the most exciting things are going to happen in our field. I don’t know which way it’s going to go, but with the living lab we can inspire people to try it out and be at the forefront. So get out your white coats.