Blockchain May Give Rise To Even Smarter B2B Marketplaces
Does blockchain mean boom or bust for existing B2B networks? On one hand, blockchain — a series of open and global distributed ledgers — promises to smooth and validate the interactions that take place between organizations and their customers, partners and suppliers. On the other, blockchain's value proposition is that it takes out the middlemen in transactions, enabling more autonomous type of engagements.
As the dot-com boom crested a couple of decades back, we saw a plethora of online B2B exchanges emerge across key industries, promising electronically delivered communications and trading between hubs, suppliers, customers and other involved parties. Some of these key exchanges have become prominent players within their industries. Now, blockchain is entering the enterprise mainstream. Recently, some major tech players including Microsoft and Intel have come together to form what they call the "Coco Framework," which offers enterprises the performance, confidentiality, governance, and required processing power they would seek before trusting their assets and data to an unseen, commonly shared platform.
Blockchain promises to eliminate the middlemen in transactions, thanks to its transparent and immutable “smart contracts” embedded within its worldwide code. I recently had the opportunity to sit down with Marco De Vries, senior director of product marketing for the OpenText Business Network, which now oversees such longstanding industry B2B networks as Covisint and ANX. For his part, De Vries does not see blockchain as a threat to existing B2B networks, just as previous technology revolutions such as XML have often resulted in more complexity, not less. “We’ve seen the stories of the end of EDI and B2B for a long time,” he points out. “Even if blockchain takes off, for certain industries, it probably isn’t right for every part of the supply chain,” De Vries. “Many predicted AS2 standards would replace B2B networks. What we found with AS2 standards is that organizations actually faced more and more complexity. It’s difficult to keep up with all the changes. There are 50 different XML standards, and if I’m in a lot of different industries, how am I going to keep track? I can’t foresee the world managing their own blockchains.”
Blockchains can’t exist entirely in some virtual space, De Vries says. “Even with blockchain, we need to understand where systems of record reside,” he says. “It still has to be hosted somewhere. If you want to send an order, if you want to kick off an alert, how is that done? I can’t honestly see the world with its own blocks — there will be millions, billions of them. And securing them is another matter.”
At the same time, blockchain offers potential for easing and speeding up transactions between trading partners. “It certainly enhances the traceability of high-value items or highly regulated items such as meat, poultry and pharmaceuticals.” While the first application of blockchain has been digital money, “the physical supply chain takes it to a different level,” he continues. “If I’m in retail and I order high-value china — easily breakable stuff – with the Internet of Things, it becomes more relevant, with demand signals along the supply chain, with impact sensors, for example, in different providers, trucks, trains boats. Or, in another example if a certain item has to be kept at a certain temperature, it’s about monitoring the conditions of goods as they move through the supply chain." In current chains of custody for spoiled goods, "you really don’t have insight to what happened along the way,” he adds.
A report from IBM, issued earlier this year, agrees that there is an upside for digital marketplaces. “A blockchain-enabled digital marketplace is the one area where organizations anticipate significant disruption,” the report's authors observe. Two-thirds of executives in digitally advanced companies expect new blockchain-enabled marketplaces to spark significant disruption. "As more organizations anticipate a higher percentage of their revenues shifting into services, digital marketplaces that support blockchain-based peer-to-peer messaging and transactions could be more widely used. Smart contracts could automatically track consumption."
Corporate supply chain executives are seeing the possibilities in blockchain. A recent survey of 42 supply chain managers from Chain Business Insights finds that 43% intend to introduce blockchain into their supply chains over the coming year, and another 20% within the next two years. Advantages seen include improving supply chain visibility and transparency (cited by 46%), while 24% see potential to reduce transaction costs. 80% of respondents indicate that blockchain will play a role in tracking products moving through the supply chain. Another 60% see it as a way to share information with suppliers. A similar number see it as a way to share payment information such as purchase orders.
Adoption hurdles include lack of awareness and understanding, cited by 28%, along with lack of standards an interoperability concerns, also cited by 28%. “There is still a long way to go before the technology gains widespread acceptance,” said Sherree DeCovny, co-founder and principal of Chain Business Insights. “Still, key capabilities such as product tracing and verifying product chain of custody will likely drive to higher levels of awareness in the near to medium term.”