Blockchain and the Future of P2P Networks

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Spend Matters welcomes this guest post from Jonas Divine, in response to the first installment in our Spend Matters crowdsourcing series. 

In response to Pierre Mitchell’s article “A TRULY Open Supplier Discovery Network” on the promise of distributed ledger technology applied to the management of vendor master databases, I would like to add to his consideration of the possible efficiency gains in this area, as well as reflect on some other areas of procure to pay (P2P) that may be ripe for the introduction of blockchain-based innovations.

In today’s master data landscape, where companies regularly maintain proprietary records of their vendors, customers and materials, there is no question that value can be extracted from a shared vendor-customer master ledger. As Mitchell pointed out, there can be value realized in 1) the elimination of redundant data maintenance activities across the supply chain, 2) the reduction in PO or AP mismatch issues on the transaction side and 3) ease of access to a wider and more universal sales/sourcing network that is not closed to participants based on membership and network fees.

The process of reimagining a world where basic supplier and customer data are managed in a ledger that is shared across all participants universally is a fundamental break with the boundaries of today’s ERP paradigm, where virtually all data are proprietary in P2P and order to cash (O2C), with a few exceptions such as vendor managed punchout catalogues — products like Ariba Punchout or Ventyx/ABB LinkOne for asset-intensive industries like mining and oil and gas. Broadly speaking, it is highly likely that these boundaries where traditional ERPs have dominated in the last few decades will begin to recede as shared cloud-based platforms and blockchain-based distributed ledgers take the place of certain P2P and O2C functions.

A distributed vendor/customer master might offer a first step toward advanced supplier risk management, but I believe in order to deliver optimal value it would still require the use of a parallel distributed database for the management of transactions. In the world Mitchell described, when a hypothetical buyer of electrical equipment for the U.S. and Canadian markets wants to procure 500,000 GFCIs for distribution purposes, he would be able to identify and contact an appropriate series of vendors using the distributed database to access the vendor’s basic information, as well as UL listings and other required certifications. What he would not be able to see is the vendor’s record of service delivery to its other customers. This is a detail the buyer would be keenly interested in accessing, as he is ultimately responsible for assessing supplier risk to the organization.

Procure to Receive Opportunities

If material and service PO-receipt transactions were tokenized in a distributed ledger with parameters of quantity, need by and promise dates, this might provide essential data on material and service delivery success rates and timeliness statistics. I am not suggesting that a blockchain database could simply replace the complex ERP functionalities embedded in SAP MM or Oracle iProcurement. I do not believe a slower, less agile technology should be used to input complex material master relationships, manage bills of materials, payment terms or taxes. I do, however, see a benefit for some of the basic functions to be replicated in a shared ledger for the purposes of universal performance tracking and ratings. Companies such as Tierion, a developer of record creation standards for material/service receipts, and Icertis, a cloud-based contract management platform, are beginning to conceive of this notion with their latest product development efforts.

The implications of a transactional P2P distributed record are substantial and diverse: public records of PO-receipt transactions could be aggregated to serve as a variable for supplier reliability rankings; receipt records could be used to manage equipment warranties (as per this Deloitte study from April 2016); they may also be able to help streamline inventory reconciliations, cycle/physical counts and the service delivery/receipt process. Most other blockchain startups in the P2P space currently focus on solving issues of transparency of product origin and overcoming manual contract management processes for conditional payments. There is less focus on improving enterprise efficiency in overall data management processes, but there is likely value in this area.

Receive to Pay Opportunities

The possibility of tokenizing PO-receipts in order to unlock value in sourcing and master data management follows from the same considerations for tokenizing and trading in invoice documents on the payment side. The functionality of a blockchain database to create, transmit and trade invoice documents has the potential to deliver substantial value in the area of trade finance and credit risk. The development of products around payables documents is far more advanced than that around procure-to-receive documents. Several well-financed startups have created platforms for financial services related to payables, but Fluent, a company started by Lamar Wilson and Lafe Taylor, the creators of Pheeva, stands out among the pack. Fluent addresses the issues of problems in trade finance, specifically when a buyer offers terms that are either not preferable or unfeasible for a supplier. Fluent makes it possible for third-party lenders to purchase tokenized invoices at a discount in order to help bridge the gap between what might be a net-90-day term offered to a small supplier that simply cannot absorb a 90-day receivable cycle.

Implication for PaaS

 In the future, will P2P platforms base their revenue models on subscription-based systems? It is unlikely that transaction delivery and sourcing transparency alone will command any kind of premium in the marketplace. Moreover, the current providers that base their revenue on subscription services run the risk of alienating customers who might view them as no more than an “expensive postal system.” There is an opportunity to evolve into more nuanced value-add businesses, but this will mean focusing on resolving some hard questions around data management.

These are some ideas based on Mitchell’s original article intended to further the discussion. I offer many more questions than answers here, but I hope it is useful to those who work and develop products in the space. I am very excited to see what new developments hit the market, and I welcome anyone who wants to discuss further to email me at jonas [dot] divine [at] alum [dot] mit [dot] edu.

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