In our series of SAP Leonardo blogs, we split the subject of Blockchain into two parts. Part 1 focused on the challenges and benefits associated with this technology; this blog explores how the technology might be used in an end-to-end value chain and the impact on the business.
SAP Leonardo is a range of technologies—Internet of Things, Machine Learning, blockchain to name a few—and enables blockchain services to be embedded into applications to speed up transactions and deliver trust, visibility and security.
So is there really business value in blockchain for business process optimization and transformation that transcends the hype?
A recent Gartner report suggested that blockchain activity is at the peak of “inflated expectations;” its relative immaturity coupled with the potential benefits is creating pressure on CIOs to “do something.”
Indeed, some of the use cases and business processes being discussed in relation to blockchain might actually be delivered instead through improved integration, APIs or EDI messaging.
However, there are more complex scenarios in which real business value could be delivered. Key candidates are those in which:
- there is value in end-to-end and more timely visibility and traceability of transactions across customer and supplier(s)
- more transparency in the supply chain, e.g. drop ship, could lead to greater accuracy in onward scheduling or cash flow forecasting
- where there is potential for greater automation and elimination of manual activities
- where a single source of truth of transactional detail gives benefit to one or more parties
- perhaps where improvement in reputation (e.g. vendor evaluation) could take place.
Let’s take the e2e Procure to Pay (P2P) value chain as an example:
We’ll start simple and build to greater complexity.
P2P can be problematic for many organizations and their suppliers. P2P transformation or improvement programs still frequently deal with areas that could be considered fundamentals or “the basics:” three-way match, compliance and control, prompt payment of suppliers, for example.
Other challenges include understanding goods in transit, receipting of items on delivery or into inventory, understanding issues with invoice processing in the partner organization, late payments, cash forecasting.
And these are areas in which blockchain could be used.
A simple transactional flow in the P2P value chain to start with:
This is a basic direct or indirect P2P scenario that shows how blockchain could be used to record, and make visible, the key events that take place in a buyer/supplier relationship:
- A purchase requisition is created in an organisation and converted (via approval or automatically depending on the type, value, vendor) into a purchase order. As soon as the PO is created a blockchain is created visible to both the vendor and the purchasing organization.
- Receipt or acceptance of the purchase order (sales order) by the supplier in turn updates the blockchain, including certain meta data like expected delivery date.
- Other events such as proof of delivery, disputed invoices, or payment advice in turn update the blockchain providing status visibility across authorized parties.
The diagram below fleshes this out into more detail with some of the key transactions from the purchaser’s perspective called out in more detail.
The transactions that update the Blockchain and those that are visible to all parties clearly depends on the value of that update to the participating players.
More complicated scenarios in the P2P value chain could benefit from use of blockchain technology:
Real benefit could be delivered when considering more complex scenarios that can cause issues in P2P—let’s look at two real-life customer examples in a bit more detail:
- Drop ship with installation at customer site. A real-life scenario seen at a client involved the provision of a ship set to a customer, for which external procurement of components is made from multiple vendors. Assembly and installation takes place at the customer location so the components are drop shipped by the vendors to the end customer location. Assembly and installation is only possible when all elements have been received at the customer location. Visibility of all events under the unifier of the original sales order would eliminate spreadsheet tracking. The blockchain update could work something like this.
- EXW Incoterms. With Ex Works it can be difficult for the buyer to understand exactly when goods will be available at their own location; this impacts stock availability for MRP and hence dates communicated to customers. The seller under EXW only need make sure the goods are available and packed, at the agreed location (typically vendor premises), so delivery date in purchase orders can be misleading. Resolving this issue can involve manual computation, workarounds and sometimes custom development in ERP systems. Blockchain provides opportunity for visibility of stock availability in the seller’s location for better scheduling of transportation, more accurate information for MRP and potential process automation based on triggering events.
So where is all this heading?
There are many potential use cases for Blockchain and part 1 of this blog series touches on some of these in maintenance, repair and overhaul (MRO), supply chain and asset management.
And P2P, as we have seen, has a set of emerging business processes in which optimization and transformation opportunities exist and where blockchain could start to transition from expectation into the mainstream.