Managing Supply Risk in a Digital Economy

Transcript of a discussion on how companies are gaining improved visibility, analytics, and predictive responses through a data-driven business network approach.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host the week of March 20 as we explore the latest in collaborative commerce, and learn how innovative companies are leveraging the networked economy.

Our next digital business insights discussion explores new ways that companies are gaining improved visibility, analytics, and predictive responses to better manage supply chain risk.

We will examine how companies such as Nielsen are using cognitive computing search engines, and even machine learning and artificial intelligence (AI), to reduce risk in their overall buying and acquisitions.

To learn more about the exploding sophistication around gaining insights into advanced business commerce, please join me now in welcoming James Edward Johnson, Director of Supply Chain Risk Management and Analysis at Nielsen. Welcome, James.

Johnson

James Edward Johnson: Thank you for having me.

Gardner: We are also here with Dan Adamson, Founder and CEO of OutsideIQ in Toronto. Welcome, Dan.

Dan Adamson: Thanks, Dana.

Gardner: And lastly, we are here with Padmini Ranganathan, Vice President of Products and Innovation at SAP Ariba. Welcome.

Padmini Ranganathan: Glad to be here, Dana.

Gardner: Padmini, we heard at SAP Ariba LIVE that risk is opportunity. That stuck with me. Are the technologies really now sufficient that we can fully examine risks to such a degree that we can turn that into a significant business competitive advantage? That is to say, those who take on risk seriously, can they really have a big jump over their competitors?

Ranganathan

Ranganathan: I come from Silicon Valley, so we have to take risks for startups to grow into big businesses, and we have seen a lot of successful entrepreneurs do that. Clearly, taking risks drives bigger opportunity.

But in this world of supplier and supply chain risk management, it’s even more important and imperative that the buyer and supplier relationships are risk-aware and risk-free. The more transparent that relationship becomes, the more opportunity for driving more business between those relationships.

That context of growing business -- as well as growing the trust and the transparent relationships -- in a supply chain is better managed by understanding the supplier base. Understanding the risks in the supplier base, and then converting them into opportunities, allows mitigating and solving problems jointly. By collaborating together, they form partnerships.

Gardner: Dan, it seems that what was once acceptable risk can now be significantly reduced. How do people in procurement and supply chain management know what acceptable risk is -- or maybe they shouldn’t accept any risk?

Adamson

Adamson: My roots are also from Silicon Valley, and I think you are absolutely right that at times you should be taking risks -- but not unnecessarily. What the procurement side has struggled with -- and this is from me jumping into financial institutions where they treat risk very differently through to procurement – is risk versus the price-point to avoid that risk. That’s traditionally been the big problem.

For every vendor that you on-board, you have to pay $1,000 for a due diligence report and it's really not price-effective. But, being able to maintain and monitor that vendor on a regular basis at acceptable cost – then there's a real risk-versus-reward benefit in there.

What we are helping to drive are a new set of technology solutions that enable a deeper level of due diligence through technology, through cognitive computing, that wasn't previously possible at the price point that makes it cost-effective. Now it is possible to clamp down and avoid risk where necessary.

Gardner: James, as a consumer of some of these technologies, do you really feel that there has been a significant change in that value equation, that for less money output you are getting a lot less risk?

Knowing what you're up against  

Johnson: To some degree that value was always there; it was just difficult to help people see that value. Obviously tools like this will help us see that value more readily.

It used to be that in order to show the value, you actually had to do a lot of work, and it was challenging. What we are talking about here is that we can begin to boil the ocean. You can test these products, and you can do a lot of work just looking at test results.

And, it's a lot easier to see the value because you will unearth things that you couldn't have seen in the past.

Whereas it used to take a full-blown implementation to begin to grasp those risks, you can now just test your data and see what you find. Most people, once they have their eyes wide open, will be at least a little more fearful.  But, at the same time -- and this goes back to the opportunity question you asked -- they will see the opportunity to actually tackle these risks. It’s not like those risks didn't exist in the past, but now they know they are there -- and they can decide to do something about it, or not.

Gardner: So rather than avoid the entire process, now you can go at the process but with more granular tools to assess your risks and then manage them properly?

It’s not like those risks didn't exist in the past, but now they know they are there -- and they can decide to do something about it, or not.

Johnson: That's right. I wouldn't say that we should have a risk-free environment; that would cost more money than we’re willing to pay. That said, we should be more conscious of what we're not yet willing to pay for.

Rather than just leaving the risk out there and avoiding business where you can’t access information about what you don't know -- now you'll know something. It's your choice to decide whether or not you want to go down the route of eliminating that risk, of living with that risk, or maybe something in between. That's where the sweet spot is. There are probably a lot of intermediate actions that people would be taking now that are very cheap, but they haven't even thought to do so, because they haven’t assessed where the risk is.

Gardner: Padmini, because we're looking at a complex landscape -- a supply chain, a global supply chain, with many tiers -- when we have a risk solution, it seems that it's a team sport. It requires an ecosystem approach. What has SAP Ariba done, and what is the news at SAP Ariba LIVE? Why is it important to be a team player when it comes to a fuller risk reduction opportunity?

Teamwork

Ranganathan: You said it right. The risk domain world is large, and it is specialized. The language that the compliance people use in the risk world is somewhat similar to the language that the lawyers use, but very different from the language that the information technology (IT) security and information security risk teams use.

The reason you can’t see many of the risks is partly because the data, the information, and the fragmentation have been too broad, too wide. It’s also because the type of risks, and the people who deal with these risks, are also scattered across the organization.

So a platform that supports bringing all of this together is number one. Second, the platform must support the end-to-end process of managing those supply chain relationships, and managing the full supply chain and gain the transparency across it. That’s where SAP Ariba has headed with Direct Materials Sourcing and with getting more into supply chain collaboration. That’s what you heard at SAP Ariba LIVE.

We all understand that supply chain much better when we are in SAP Ariba, and then you have this ecosystem of partners and providers. You have the technology with SAP and HANA to gain the ability to mash up big data and set it in context, and to understand the patterns. We also have the open ecosystem and the open source platform to allow us to take that even wider. And last but not the least, there is the business network.

So it’s not just between one company and another company, it's a network of companies operating together. The momentum of that collaboration allows users to say, “Okay, I am going to push for finding ethical companies to do business with,” -- and then that's really where the power of the network multiplies.

Gardner: Dan, when a company nowadays buys something in a global supply chain, they are not just buying a product -- they are buying everything that's gone on with that product, such as the legacy of that product, from cradle to PO. What is it that OutsideIQ brings to the table that helps them get a better handle on what that legacy really is?

Dig deep, reduce risk, save time

Adamson: Yes, and they are not just buying from that seller, they are buying from the seller that sold it to that seller, and so they are buying a lot of history there -- and there is a lot of potential risk behind the scenes.

That’s why this previously has been a manual process, because there has been a lot of contextual work in pulling out those needles from the haystack. It required a human level of digging into context to get to those needles.

The exciting thing that we bring is a cognitive computing platform that’s trainable -- and it's been trained by FinCrime’s experts and corporate compliance experts. Increasingly, supply management experts help us know what to look for. The platform has the capability to learn about its subject, so it can go deeper. It can actually pivot on where it's searching. If it finds a presence in Afghanistan, for example, well then that's a potential risk in itself, but it can then go dig deeper on that.

And that level of deeper digging is something that a human really had to do before. This is the exciting revolution that's occurring. Now we can bring back that data, it can be unstructured, it can be structured, yet we can piece it together and provide some structure that is then returned to SAP Ariba.

The great thing about the supply management risk platform or toolkit that's being launched at SAP Ariba LIVE is that there’s another level of context on top of that. Ariba understands the relationship between the supplier and the buyer, and that's an important context to apply as well.

How you determine risk scores on top of all of that is very critical. You need to weed out all of the noise, otherwise it would be a huge data science exercise and everyone would be spinning his or her wheels.

SAP Ariba understands the relationship between the supplier and the buyer, and that's an important context to apply.

This is now a huge opportunity for clients like James to truly get some low-hanging fruit value, where previously it would have been literally a witch-hunt or a huge mining expedition. We are now able to achieve this higher level of value.

Gardner: James, Dan just described what others are calling investigative cognitive computing brought to bear on this supply chain risk problem. As someone who is in the business of trying to get the best tools for their organization, where do you come down on this? How important is this to you?

Johnson: It's very important. I have done the kinds of investigations that he is talking about. For example, if I am looking at a vendor in a high-risk country, particularly a small vendor that doesn't have an international presence  that is problematic for most supplier investigations. What do I do? I will go and do some of the investigation that Dan is talking about.

Now I'm usually sitting at my desk in Chicago. I'm not going out in the world. So there is a heightened level of due-diligence that I suspect neither of us are really talking about here. With that limitation, you want to look up not only the people, you want to look up all their connections. You might have had a due-diligence form completed, but that's an interested party giving you information, what do you do with it?

Well, I can run the risk search on more than just the entity that I'm transacting with.  I am going to run it on everyone that Dan mentioned. Then I am going to look up all their LinkedIn profiles, see who they are connected to. Do any of those people show any red flags? I’d look at the bank that they use. Are there any red flags with their bank?

I can do all that work, and I can spend several hours doing all that work. As a lawyer I might dig a little deeper than someone else, but in the end, it's human labor going into the effort.

Gardner: And that really doesn't scale very well.

Johnson: That does not scale at all. I am not going to hire a team of lawyers for every supplier. The reality here is that now I can do some level of that time-consuming work with every supplier by using the kind of technology that Dan is talking about.

The promise of OutsideIQ technology is incredible. It is an early and quickly expanding, opportunity. It's because of relationships like the one between SAP Ariba and OutsideIQ that I see a huge opportunity between Nielsen and SAP Ariba. We are both on the same roadmap.

Nielsen has a lot of work to do, SAP Ariba has a lot of work to do, and that work will never end, and that’s okay. We just need to be comfortable with it, and work together to build a better world.

Gardner: Tell us about Nielsen. Then secondarily, what part of your procurement, your supply chain, do you think this will impact best first?

Automatic, systematic risk management

Johnson: Nielsen is a market research company. We answer two questions: what do people watch? And what do people buy? It sounds very simple, but when you cover 90% of the world’s population, which we do – more than six billion people -- you can imagine that it gets a little bit more complicated.

We house about 54 petabytes of database data. So the scale there is huge. We have 43,000 employees. It’s not a small company. You might know Nielsen for the set-top boxes in the US that tell what the ratings were overnight for the Super Bowl, for example, but it’s a lot more than that. And you can imagine, especially when you're trying to answer what do people buy in  developing countries with emerging economies? You are touching some riskier things.

In terms of what this SAP Ariba collaboration can solve for us, the first quick hit is that we will no longer have to leverage multiple separate sources of information. I can now leverage all the sources of information at one time through one interface. It is already being used to deliver information to people who are involved in the procurement chain. That's the huge quick win.

The secondary win is from the efficiency that we get in doing that first layer of risk management. Now we can start to address that middle tier that I mentioned. We can respond to certain kinds of risk that, today, we are doing ad-hoc, but not systematically. There is that systematic change that will allow us to not only target the 100 to 200 vendors that we might prioritize -- but the thousands of vendors that are somewhere in our system, too.

That's going to revolutionize things, especially once you fold in the environmental, social and governance (ESG) work that, today, is very focused for us. If I can spread that out to the whole supply chain, that's revolutionary. There are a lot of low-cost things that you can do if you just have the information.

What is the good in the world that’s freely available to me, that I'm not even touching? That's amazing.

So it’s not always a question of, “am I going to do good in the world and how much is it going to cost me?” It’s really a question of, “What is the good in the world that’s freely available to me, that I'm not even touching?” That's amazing! And, that's the kind of thing that you can go to work for, and be happy about your work, and not just do what you need to do to get a paycheck.

Gardner: It’s not just avoiding the bad things; it’s the false positives that you want to remove so that you can get the full benefit of a diverse, rich supplier network to choose from.

Johnson: Right, and today we are essentially wasting a lot of time on suspected positives that turn out to be false. We waste time on them because we go deeper with a human than we need to. Let’s let the machines go as deep as they can, and then let the humans come in to take over where we make a difference.

Gardner: Padmini, it’s interesting to me that he is now talking about making this methodological approach standardized, part of due-diligence that's not ad-hoc, it’s not exception management. As companies make this a standard part of their supply chain evaluations, how can we make this even richer and easier to use?

Ranganathan: The first step was the data. It’s the plumbing; we have to get that right. It’s about the way you look at your master data, which is suppliers; the way you look at what you are buying, which is categories of spend; and where you are buying from, which is all the regions. So you already have the metrics segmentation of that master data, and everything else that you can do with SAP Ariba.

The next step is then the process, because it’s really not a one-size-fits-all. It cannot be a one-size-fits-all, where every supplier that you on-board you are going to ask them the same set of questions, check the box and move on.

I am going to use the print service vendor example again, which is my favorite. For marketing materials printing, you have a certain level of risk, and that's all you need to look at. But you still want, of course, to look at them for any adverse media incidents, or whether they suddenly got on a watch-list for something, you do want to know that.

But when one of your business units begins to use them for customer-confidential data and statement printing -- the level of risk shoots up. So the intensity of risk assessments and the risk audits and things that you would do with that vendor for that level of risk then has to be engineered and geared to that type of risk.

So it cannot be a one-size-fits-all; it has to go past the standard. So the standardization is not in the process; the standardization is in the way you look at risk so that you can determine how much of the process do I need to apply and I can stay in tune.

Gardner: Dan, clearly SAP Ariba and Nielsen, they want the “dials,” they want to be able to tune this in. What’s coming next, what should we expect in terms of what you can bring to the table, and other partners like yourselves, in bringing the rich, customizable inference and understanding benefits that these other organizations want?

Constructing cognitive computing by layer

Adamson: We are definitely in early days on the one hand. But on the other hand, we have seen historically many AI failures, where we fail to commercialize AI technologies. This time it's a little different, because of the big data movement, because of the well-known use cases in machine learning that have been very successful, the pattern matching and recommending and classifying. We are using that as a backbone to build layers of cognitive computing on top of that.

And I think as Padmini said, we are providing a first layer, where it’s getting stronger and stronger. We can weed out up to 95% of the false-positives to start from, and really let the humans look at the thorny or potentially thorny issues that are left over. That’s a huge return on investment (ROI) and a timesaver by itself.

But on top of that, you can add in another layer of cognitive computing, and that might be at the workflow layer that recognizes that data and says, “Jeez, just a second here, there's a confidentiality potential issue here, let's treat this vendor differently and let's go as far as plugging in a special clause into the contract.” This is, I think, where SAP Ariba is going with that. It’s building a layer of cognitive computing on top of another layer of cognitive computing.

Actually, human processes work like that, too. There is a lot of fundamental pattern recognition at the basis of our cognitive thought, and on top of that we layer on top logic. So it’s a fun time to be in this field, executing one layer at a time, and it's an exciting approach.

Gardner: It seems like the next few years we are going to be searching for that right balance of what the humans can do best, the machines can do best, and how to apportion that properly.

I am afraid we will have to leave it there. We’ve been talking about new ways that companies are gaining improved visibility, analytics, and predictive responses to better manage their supply chain risks.

SAP Ariba is building a layer of cognitive computing on top of another layer of cognitive computing.

And we have learned how companies such as Nielsen are using cognitive computing, engine searches, and even machine learning and AI to reduce risk in their overall buying and acquisitions.

So a big thanks to our guests, James Edward Johnson, Director of Supply Chain Risk Management and Analysis at Nielsen; Dan Adamson, Founder and CEO at OutsideIQ in Toronto, and Padmini Ranganathan, Vice President of Products and Innovation at SAP Ariba.

And a big thank you as well to our audience for joining this special podcast coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect digital business insights discussions. Thanks again for listening, and do come back next time.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Transcript of a discussion on how companies are gaining improved visibility, analytics, and predictive responses through a data-driven business network approach. Copyright Interarbor Solutions, LLC, 2005-2017. All rights reserved.

You may also be interested in:

• How SAP Ariba became a first-mover as Blockchain comes to B2B procurement
• How AI, IoT and Blockchain will shake up procurement and supply chains
• Why effective IoT adoption is a team sport
• Diversity Spend: When Doing Good Leads to Doing Well 
• Seven secrets to highly effective procurement: How business networks fuel innovation and transformation
• Meet George Jetson – your new AI-empowered chief procurement officer
• SAP Ariba's chief strategy officer on the digitization of business and future of technology  
• Business in the Cloud: How Efficient Networks Help the Smallest Companies Do Brisk Business with the Largest
• A Hit with Consumers, Digital Payments Now Catching On Across the Business World Too  
• How new technology trends disrupt the very nature of business
• Winning the B2B Commerce Game: What Sales Organizations Should Do Differently 

SAP Ariba a First-Mover as Blockchain Comes to B2B Procurement

Transcript of a discussion on the major opportunity from bringing Blockchain technology to business-to-business procurement and supply chain management.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast, coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host the week of March 20 as we explore the latest in collaborative commerce and learn how innovative companies are leveraging the networked economy.

Our next digital business thought leadership panel discussion examines the major opportunity from bringing Blockchain technology to business-to-business (B2B) procurement and supply chain management. We will explore how Blockchain’s unique capabilities can provide comprehensive visibility across global supply chains and drive simpler verification of authenticity, security, and ultimately control.

Fox

To learn more about how Blockchain is poised to impact and improve supply chain risk and management, please join our guests, Joe Fox, Senior Vice President for Business Development and Strategy at SAP Ariba. Welcome back, Joe.

Joe Fox: Thanks, Dana. It's good to be here.

Gardner: We’re also joined by Leanne Kemp, Founder and CEO of Everledger, based in London. Welcome, Leanne.

Kemp

Leanne Kemp: Thank you, great to be here.

Gardner: Joe, Blockchain has emerged as a network methodology, running crypto currency Bitcoin, as most people are aware of it. It's a digitally shared record of transactions maintained by a network of computers, not necessarily with centralized authority. What could this be used for powerfully when it comes to gaining supply chain integrity?

Fox: Blockchain did start in the Bitcoin area, as peer-to-peer consumer functionality. But a lot of the capabilities of Blockchain have been recognized as important for new areas of innovation in the enterprise software space.

Those areas of innovation are around “trusted commerce.” Trusted commerce allows buyers and sellers, and third parties, to gain more visibility into asset-tracking. Not just asset tracking in the context of the buyer receiving and the seller shipping -- but in the context of where is the good in transit? What do I need to do to protect that good? What is the transfer of funds associated with that important asset? There are even areas of other applications, such as an insurance aspect or some kind of ownership-proof.

Gardner: It sounds to me like we are adding lot of metadata to a business process. What's different when you apply that through Blockchain than if you were doing it through a platform?

Inherit the trust

Fox: That's a great question. Blockchain is like the cloud from the perspective of it’s an innovation at the platform layer. But the chain is only as valuable as the external trust that it inherits. That external trust that it inherits is the proof of what you have put on the chain digitally. And that includes that proof of who has taken it off and in what way they have control.

As we associate a chain transaction, or a posting to the ledger with its original transactions within the SAP Ariba Network, we are actually adding a lot of prominence to that single Blockchain record. That's the real key, marrying the transactional world and the B2B world with this new trusted commerce capability that comes with Blockchain.

Gardner: Leanne, we have you here as a prime example of where Blockchain is being used outside of its original adoption. Tell us first about Everledger, and then what it was you saw in Blockchain that made you think it was applicable to a much wider businesscapability.

Kemp: Everledger is a fast-moving startup using the best of emerging technology to assist in the reduction of risk and fraud. We began in April of 2015, so it's actually our birthday this week. We started in the world of diamonds where we apply blockchain technology to bring transparency to a once opaque market.

And what did I see in the technology? At the very core of cryptocurrency, they were solving the problem of double-spend. They were solving the problem of transfer of value, and we could translate those very two powerful concepts into the diamond industry.

At the heart of the diamond industry, beyond the physical object itself, is certification, and certificates in the diamond industry are the currency of trade. Diamonds are cited on web sites around the world, and they are mostly sold off the merit of the certification. We were able to see the potential of the cryptocurrency, but we could decouple the currency from the ledger and we were able to then use the synthesis of the currency as a way to transfer value, or transfer ownership or custody. And, of course, diamonds are a girl's best friend, so we might as well start there.

Dealing with diamonds

Gardner: What was the problem in the diamond industry that you were solving? What was not possible that now is?

Kemp: The diamond industry boasts some pretty impressive numbers. First, it's been around for 130 years. Most of the relationships among buyers and sellers have survived generation upon generation based on a gentleman's handshake and trust.

The industry itself has been bound tightly with those relationships. As time has passed and generations have passed, what we are starting to see is a glacial melt. Some of the major players have sold off entities into other regions, and now that gentleman's handshake needs to be transposed into an electronic form.

Some of the major players in the market, of course, still reside today. But most of the data under their control sits in a siloed environment. Even the machines that are on the pipeline that help provide identity to the physical object are also black-boxed in terms of data.

We are able to bring a business network to an existing market. It's global. Some 81 countries around the world trade in rough diamonds. And, of course, the value of the diamonds increases as they pass through their evolutionary chain. We are able to bring an aggregated set of data. Not only that, we transpose the human element of trust -- the gentleman's handshake, the chit of paper and the promise to pay that's largely existed and has built has built 130 years of trade.

We are now able to transpose that into a set of electronic-form technologies -- 

Blockchain, smart contracts, cryptography, machine vision -- and we are able to take forward a technology platform that will see transactional trust being embedded well beyond my lifetime -- for generations to come.

Gardner: Joe, we have just heard how this is a problem-solution value in the diamond industry. But SAP Ariba has its eyes on many industries. What is it about the way things are done now in general business that isn't good enough but that Blockchain can help improve?

Fox: As we have spent years at Ariba solving procurement problems, we identified some of the toughest. When I saw Everledger, it occurred to me that they may have cracked the nut on one of the toughest areas of B2B trade -- and that is true understanding, visibility, and control of asset movement.

It dawned on me, too, that if you can track and trace diamonds, you can track and trace anything. I really felt like we could team up with this young company and leverage the unique way they figured out how to track and trace diamonds and apply that across a huge procurement problem. And that is, how do a supplier and a buyer manage the movement of any asset after they have purchased it? How do we actually associate that movement of the asset back to its original transactions that approved the commit-to-pay? How do you associate a digital purchase order (PO) with a digital movement of the asset, and then to the actual physical asset? That's what we really are teaming up to do.

That receipt of the asset has been a dark space in the B2B world for a long time. Sure, you can get a shipping notice, but most businesses don't do goods receipts. And as the asset flows through the supply chain -- especially the more expensive the item is -- that lack of visibility and control causes significant problems. Maybe the most important one is: overpaying for inventory to cover actual lost supply chain items in transit.

I talked to a really large UK-based telecom company and they told me that what we are going to do with Everledger, with just their fiber optics, they could cut their buying in half. Why? Because they overbuy their fiber optics to make sure they are never short on fiber optic inventory.

That precision of buying and delivery applies across the board to all merchants and all supply chains, even middle of the supply chain manufacturers. Whenever you have disruption to your inbound supply, that’s going to disrupt your profitability.

Gardner: It sounds as if what we are really doing here is getting a highly capable means -- that’s highly extensible -- to remove the margin of error from the tracking of goods, from cradle to grave.

Chain transactions

Fox: That’s exactly right. And the Internet is the enabler, because Blockchain is everywhere. Now, as the asset moves, you have the really cool stuff that Everledger has done, and other things we are going to do together – and that’s going to allow anybody from anywhere to post to the chain the asset receipt and asset movement.

For example, with a large container coming from overseas, you will have the chain record of every place that container has been. If it doesn't show up at a dock, you now have visibility as the buyer that there is a supply chain disruption. That chain being out on the Internet, at a layer that’s accessible by everyone, is one of the keys to this technology.

We are going to be focusing on connecting the fabric of the chain together with Hyperledger. Everledger builds on the Hyperledger platform. The fabric that we are going to tie into is going to directly connect those block posts back to the original transactions, like the purchase order, the invoice, the ship notice. Then the companies can see not only where their asset is, but also view it in context of the transactions that resulted in the shipment.

Gardner: So the old adage -- trust but verify -- we can now put that to work and truly verify. There's newstaking place here at SAP Ariba LIVE between Everledger and SAP Ariba. Tell us about that, and how the two companies -- one quite small, one very large -- are going to work together.

Fox: Ariba is all-in on transforming the procurement industry, the procurement space, the processes of procurement for our customers, buyers and sellers, and we are going to partner heavily with key players like Everledger.

Part of the announcement is this partnership with Everledger around track and trace, but it is not limited to track and trace. We will leverage what they have learned across our platform of $1 trillion a year in spend, with 2.5 million companies trading assets with each other. We are going to apply this partnership to many other capabilities within that.

Kemp: I am very excited. It’s a moment in time that I think I will remember for years to come. In March we also made an importantannouncement with IBM on some of the work that we have done beyond identifying objects. And that is to take the next step around ensuring that we have an ethical trade platform, meaning one that is grounded in cognitive compliance.

We will be able to identify the asset, but also know, for example in the diamond industry, that a diamond has passed through the right channels, paid the dutiful taxes that are due as a part of an international trade platform, and ensure all compliance is hardened within the chain.

I am hugely excited about the opportunity that sits before me. I am sincerely grateful that such a young company has been afforded the opportunity to really show how we are going to shine.

If you think about it, Blockchain is an evolution of the Internet.

Gardner: When it comes to open trade, removing friction from commerce, these have been goals for hundreds of years. But we really seem to be onto something that can make this highly scalable, very rich -- almost an unlimited amount of data applied to any asset, connected to a ledger that’s a fluid, movable, yet tangible resource.

Fox: That’s right.

Gardner: So where do we go next, Joe? If the sky is the limit, describe the sky for me? How big is this, and where can you take it beyond individual industries? It sounds like there is more potential here.

Reduced friction costs

Fox: There is a lot of potential. If you think about it, Blockchain is an evolution of the Internet; we are going to be able to take advantage of that.

The new evolution is that it's a structured capability across the Internet itself. It’s going to be open, and it’s going to be able to allow companies to ledger their interactions with each other. They are going to be able, in an immutable way, to track who owns which asset, where the assets are, and be able to then use that as an audit capability.

That's all very important to businesses, and until now the Internet itself has not really had a structure for business. It's been open, the Wild West. This structure for business is going to help with what I call trusted commerce because in the end businesses establish relationships because they want to do business with each other, not based on what technology they have.

Another key fact about Blockchain is that it’s going to reduce friction in global B2B. I always like to say if you just accelerated B2B payments by a few days globally, you would open up Gross Domestic Product (GDP), and economies would start growing dramatically. This friction around assets has a direct tie to how slowly money moves around the globe, and the overall cost and friction from that.

So how big could it go? Well, I think that we are going to innovate together with Everledger and other partners using the Hyperledger framework. We are going to add every buyer and seller on the Ariba Network onto the chain. They are just going to get it as part of our platform.

Then we are going to begin ledgering all the transactions that they think make sense between themselves. We are going to release a couple of key functions, such as smart contracts, so their contract business rules can be applicable in the flow of commerce -- at the time commerce is happening, not locked up in some contract, or in some drawer or Portable Document Format (PDF) file. We are going to start with those things.

I don't know what applications we are going to build beyond that, but that's the excitement of it. I think the fact that we don't know is the big play.

Gardner: From a business person’s perspective, they don’t probably care too much that it’s Blockchain that’s enabling this, just like a lot of people didn't care 20 years ago that it was the Internet that was allowing them to shop online or send emails to anybody anywhere. What is it that we would tease out of this, rather than what the technology is, what's the business benefit that people should be thinking about?

Fox: Everybody wants digital trust, right? Leanne, why don’t you share some of the things you guys have been exploring?

Making the opaque transparent

Kemp: In the diamond industry, there is fraud related to document tampering. Typically paper certificates exist across the backbone, so it’s very easy to be able to transpose those into a PDF and make appropriate changes for self-gain.

Double-financing of the pipeline is a very real problem; invoicing, of course accounts receivable, they have the ability to have banks finance those invoices two, three, four times.

We have issues with round-tripping of diamonds through countries, where transfer pricing isn't declared correctly, along with the avoidance of tax and duties.

All of these issues are the dark side of the market. But, now we have the ability to bring transparency around any object, particularly in diamonds -- the one commodity that’s yet to have true financial products wrapped around it. Now, what do I mean by that? It doesn’t have a futures market yet. It doesn’t have exchange traded funds (ETFs), but the performance of diamonds has outperformed gold, platinum and palladium.

This platform shift is like going from the 
World Wide Web to the 
World Wide Ledger.

Now, what does this mean? It means we can bring transparency to the once opaque, have the ability to know if an object has gone through an ethical chain, and then realize the true value of that asset. This process allows us to start and think about how new financial products can be formed around these assets.

We are hugely interested in rising asset classes beyond just the commodity section of the market. This platform shift is like going from the World Wide Web to the World Wide Ledger. Joe was absolutely correct when he mentioned that the Internet hasn't been woven for transactional trust -- but we have the ability to do this now.

So from a business perspective, you can begin to really innovate on top of this exponential set of technology stacks. A lot of companies quote Everledger as a Blockchain company. I have to correct them and I say that we are an emerging technology company. We use the very best of Blockchain and smart contracts, machine vision, sensorial data points, for us to be able to form the identity of objects.

Now, why is that important? Most financial services companies have really been focused on Know Your Customer (KYC), but we believe that it's Know Your Object (KYO) that really creates an entirely new context around it.

Now, that transformation and the relationship of the object have already started to move. When you think about Internet of Things (IoT), mobile phones, and autonomous cars -- these are largely devices to the fabric of the web. But are they connected to the fabric of the transactions and the identity around those objects?

Insurance companies have begun to understand this. My work in the last 10 years has been deeply involved in insurance. As you begin to build and understand the chain of trust and the chain of risk, then tectonic plate shifts in financial services begin to unfold.

Apps and assets, on and off the chain

Fox: It’s not just about the chain, it's about the apps we build on top, and it's really about what is the value to the buyer and the seller as we build those apps on top.

To Leanne’s point, it’s first going to be about the object. The funny thing is we have struggled to be able to, in a digital way, provide visibility and control of an object and this is going to fix that. In the end, B2B, which is where SAP Ariba is, is about somebody getting something and paying for it. And that physical asset that they are getting is being paid for with another asset. They are just two different forms. By digitizing both and keeping that in a ledger that really cannot be altered -- it will be the truth, but it's open to everyone, buyers and sellers.

Businesses will have to invent ways to control how frictionless this is going to be. I will give you a perfect example. In the past if I told you I could do an international payment of $1 million to somebody in two minutes, you would have told me I was crazy. With Blockchain, one corporation can pay another corporation $1 million in two minutes, internationally. And on the chain companies like Everledger can build capabilities that do the currency translation on the fly, as it’s passing through, and that doesn’t dis-remediate the banks because how did the $1 million get onto the chain in the first place? Someone put it on the chain through a bank. The bank is backing that digital version. How does it get off the chain so you can actually do something with it? It goes through another bank. It’s actually going to make the banks more important. Again, Blockchain is only as good as the external trust that it inherits.

I really think we have to focus on getting the chain out there and really building these applications on top.

Gardner: It’s very exciting, and has certainly opened my eyes to more opportunity and potential. We will be talking about this quite a bit more, I’m sure. But I’m afraid we will have to leave it here today. We’ve been talking about the major opportunity from bringing Blockchain technology to B2B procurement and supply chain management.

And we've learned how Blockchain’s unique capabilities can provide comprehensive visibility across global supply chains for far simpler verification of authenticity, security, and ultimately control.

So, a huge thanks to our guests, Joe Fox, Senior Vice President for Business Development and Strategy at SAP Ariba, and Leanne Kemp, Founder and CEO of Everledger.

And a thanks as well to our audience for joining this special podcast, coming to you from the 2017 SAP Ariba LIVE conference in Las Vegas. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of SAP Ariba-sponsored BriefingsDirect Digital Business Insights Discussions. Thanks again for listening, and please come back next time.

Listen to the podcast. Find it on iTunes. Get the mobile app. Download the transcript. Sponsor: SAP Ariba.

Transcript of a discussion on the major opportunity from bringing Blockchain technology to business-to-business procurement and supply chain management. Copyright Interarbor Solutions, LLC, 2005-2017. All rights reserved.

You may also be interested in:

• How AI, IoT and Blockchain will shake up procurement and supply chains
• Why effective IoT adoption is a team sport
• Diversity Spend: When Doing Good Leads to Doing Well 
• Seven secrets to highly effective procurement: How business networks fuel innovation and transformation
• Meet George Jetson – your new AI-empowered chief procurement officer
• SAP Ariba's chief strategy officer on the digitization of business and future of technology  
• Business in the Cloud: How Efficient Networks Help the Smallest Companies Do Brisk Business with the Largest
• A Hit with Consumers, Digital Payments Now Catching On Across the Business World Too  
• How new technology trends disrupt the very nature of business
• Winning the B2B Commerce Game: What Sales Organizations Should Do Differently 
• Converged IoT systems: Bringing the data center to the edge of everything