Icertis Blockchain Framework: A Glimpse of CLM’s Expanding Footprint into the Supply Chain

Icertis recently announced it has developed, in partnership with client Mercedes-Benz, a blockchain framework to address multi-tier supply chain visibility challenges.

Called the Icertis Blockchain Framework, the new offering allows companies to deploy a permissioned, standards-based blockchain (using one of the ecosystem standards through Hyperledger) within the core ICM platform on Microsoft Azure, as well as record specific transactions based on rules and metadata. Icertis developed the framework as an initiative within Mercedes-Benz Cars to better enforce requirements for CSR and compliance obligations without compromising contract confidentiality.

Yet while the new blockchain-based functionality provides a targeted solution for identifying and enforcing CSR standards beyond tier 1 suppliers, Icertis’ Blockchain Framework represents more than just the addition of blockchain capability adjacent to Icertis’ core CLM product. Rather, the framework is akin to a platform-level service off which Icertis can deliver numerous other applications and insights, including deeper extensions of CLM-related functionality into areas such as sourcing and supplier management.

“The transmission of contracts to each member of the supply chain is the prerequisite of cooperation with our suppliers, especially in terms of sustainability and ethical conduct,” said Sabine Angermann, head of purchasing and supplier quality for raw materials and strategy at Mercedes-Benz Cars, in a Daimler press release. “The blockchain prototype opens up completely new ways to make purchasing processes simpler and safer.”

Daimler and Blockchain

As a subsidiary of Daimler AG, Mercedes-Benz is committed to meeting a set of global sustainability standards. Compliance with those standards applies to the entire network of suppliers used to produce a vehicle, including the raw materials suppliers.

Yet agreeing on and enforcing standards for such issues as working conditions, human rights, environmental protection and safety, and business ethics is often easier said than done. Most businesses (and supporting technology players) struggle to gather relevant supplier information about partners beyond the first tier, with the business practices of those in lower tiers of the supply chain often obscured by non-cooperative corporations or lost in a sea of complex subcontracted relationships.

Thus, Mercedes-Benz had two key challenges: It needed a way to uniformly distribute contract terms (but not whole agreements) to multiple parties efficiently and securely, and it needed to persuade parties with which the company did not have a direct relationship to participate without compromising those suppliers’ needs for discretion.

This is where blockchain comes in.

Because the technology supports these challenges through two key features, immutable ledgers and decentralized data ownership that facilitates anonymous participation, blockchain presented an apt solution for Daimler’s sustainability initiative.

Most of the press surrounding blockchain has focused on the aspect of immutable ledgers, but it’s the chained aspect of the decentralized data that we think is more exciting. Why?

Automating the information flow across multi-tier supply networks requires a network based information model. We eventually expect the use of linked data in a graph database to become more pervasive in modeling these multi-tier networks, but until then, trying to manage a business process across a multi-tier network with a traditional enterprise technology platform built on a single-tier data model will at best struggle.

For example, SAP tried to implement this type of multi-tier workflow with its Supplier Infonet product back in 2012, and it struggled because of the difficulty of supplier adoption where suppliers were understandably not comfortable sharing data beyond their direct customers. What’s needed is a way to model the data in a secured distributed fashion that is information-chained like the supply chain and the commercial “contract chain.” This is where blockchain comes in.

Setting up a smart contract is part of Microsoft Azure’s blockchain workbench architecture, and while smart contracts have huge potential in the high volume transactional supply chain (e.g., paying suppliers via smart contract when an RFID-tagged sub-assembly is moved out of a JIT warehouse), the underlying framework can be used for simpler use cases such as ensuring that supplier code of conduct (or more stringent compliance documents) statements are digitally signed up the tiers. A tier 3 supplier will be comforted by the fact that the OEM doesn’t need to see the full contract with the tier 2 supplier, and the OEM can be comforted by knowing that multi-tier sign-offs are available, with associated electronic signatures and even electronic third-party certifications. And ethics-conscious consumers can have some comfort that they can buy a product made within an electronically verifiable ethical supply chain.

If you now consider how this scenario changes when you add metadata-driven content generation and presentment of pre-configured contract clauses and underlying specific obligations within them (e.g., complex delivery SLAs within a performance clause), things get very interesting!

These multi-tier scenarios have always been enticing to large, progressive manufacturers in CPG, high tech and automotive. Daimler is no exception. It did not need convincing of blockchain’s potential to drive supply chain initiatives. The automaker has been piloting the technology in multiple use cases since 2017.

Since 2017, Daimler has been a member of Hyperledger, a project of the Linux Foundation for the development of technologies and applications based on blockchain, Daimler said in a press release. It also collaborated with Landesbank Baden-Württemberg (LBBW) in the same year to execute a nearly $114 million financial transaction using blockchain.

Icertis Blockchain Framework: What It Does

Icertis has had blockchain on its roadmap for several years, although it has more recently focused on expanding its artificial intelligence capabilities in support of its core CLM platform.

We’re excited to dig into this newly developed capability alongside another 200+ requirements in our upcoming Q2 2019 CLM SolutionMap release. With the Blockchain Framework, however, Icertis is signaling where it might set its sights for the future, expanding the functional reach of its SolutionMap benchmark-leading contract management solution into adjacent procurement processes like sourcing and supplier management.

Specifically, the Icertis Blockchain Framework:

• Deploys a permissioned, standards-based blockchain within the core ICM platform on Microsoft Azure.
• Records specific transactions based on rules and metadata, including clauses, associations, obligations and entitlements.
• Adds oracles, notaries and other trusted data sources (e.g., Dun & Bradstreet, Thomson Reuters, exchange rates).
• Defines smart clauses for specific contract types that will trigger actions based on changes to the state of a contract or obligation.
• Exchanges information with existing, standards-based blockchains (e.g., the Microsoft Azure blockchain workbench architecture also specifies an integration to the Ethereum ledger via the Ethereum Router).
• Monitors and manages the solution with the advanced analytics of the ICM platform.

For Mercedes-Benz’s specific needs, Icertis created a blockchain that would allow members to opt in and share contract terms that confirmed sustainability compliance.

Only the relevant terms (e.g., ethical sourcing clauses) flow back to the tier 1 suppliers and eventually the OEM, and other information, like supplier identity, and terms, like pricing, are left private between the two original counterparties.

A built-in reputation index also rates how transparent suppliers are within the network, encouraging third parties to be more open in an effort to attract or develop future relationships.

The resulting network of contract terms can then be analyzed through an Icertis-provided compliance dashboard. Mercedes-Benz is now presented with a color-coded view of its entire supply network, with suppliers not in agreement with specific clauses listed in red.

While the Blockchain Framework does not perform the work of verifying actual compliance with contract terms, it does provide an ironclad record for Daimler to ensure that it knows how its larger supply network is structured and that all of its direct and indirect partners are aware of the CSR standards it expects them to comply with.

To be sure, a blockchain pilot with one client does not catapult Icertis into the category of a full-fledged supply chain visibility, supplier risk management or GRC solution.

Yet the use case, especially with a large multinational like Daimler, is compelling, and the future plans the CLM vendor has for various scenario-based blockchain apps should provide a broad base of technology that can apply to the needs of many different companies.

CLM is increasingly becoming a very pragmatic way to implement and put some “teeth” into many areas such as supply risk, supplier risk/compliance (and broader enterprise GRC and third-party management), supplier management, performance management, supply chain execution, services procurement and other areas.

We’ll be keen to see how the technology evolves and how additional customers realize success as they take blockchain-based contract management from theory to practice.