The post-COVID-19 world re-emphasized one of the key shortcomings of how we have been operating our supply chains: you are only as strong as your weakest link (partner). The reality is such that the way supply chains have been constructed so far exposed pretty much every single party.
The biggest reason is lack of information sharing. While there has been a strong push by larger counterparts in the supply chain to force information sharing from smaller players, the smaller players haven’t been incentivized enough to engage in such practices. The “carrot and stick” approach doesn’t work in the environment where the smaller companies are struggling to survive, lack technical and financial resources, and simply are not enabled to comply with all the requirements from the upstream counterparties. Sharing information is largely perceived to benefit larger counterparts and often times comes with a set of penalties if not enacted. This, in its turn, weakens the entire supply chain, especially if that small company is a critical supplier. Vulnerability of one participant puts everyone at risk, and we learned that lesson a very hard way earlier this year.
WHAT’S THE SOLUTION?
We believe that existing supply chains contain a tremendous amount of data that hasn’t been utilized for collective benefits. Sharing supply chain data has been a topic of conversations for decades, starting with EDI (which pre-dated the internet); however, even today there is no efficient way to engage in secure, permission-based and event driven data sharing. While portals, EDIs and other mechanisms exist, they are all based on 1:1 relationships and require either an involved integration or yet another manual process. This is the principal reason EDI has yet to scale.
Moreover, current data sharing mechanism are limited in nature because they don’t easily allow for multi-tier visibility. New technologies, such as blockchain protocols, are emerging, but not able to support practical applications within supply chains – because there still exists the need for an independent party to build the transaction layer. Some larger organizations are building this for use with their own supply chain. But that just punishes suppliers who have to interact with multiple such platforms. We are back to the portal days.
At Enspan, we built a fully independent protocol and transaction layer that has the ability to combine three flows across your entire ecosystem:
- Data/Information flow
- Physical object flow
- Financial flow
HOW DO WE GET THERE?
The only way to get everyone to participate is to create a set of incentives that will drive the desired behavior. And these incentives need to be aligned in order to deliver outcomes for the customer.
The concept of digital twin (convergence of physical and digital flows) has been around for some time, however, it is a hard sell to an organization that lacks technical support (and let’s be honest, some companies still don’t even have ERP).
Any attractive incentive comes from getting access to increased capital - whether it is in a form of shortening cash conversion cycle or securing additional financing. Combining the three flows gives us the ability to deliver not only mentioned incentives to our customers but to also pave the way to generating additional benefits.
· Physical + Financial = Financing
· Information + Financial = Investments
· Physical + Information = Analytics
But at the intersections lies tremendous power of business operations.
· Physical + Financial + Information = NEW BUSINESS MODELS
So where does this leave our incentive model?
We are starting by using ecosystem data to help companies 1) Improve operations by digitizing certain supply chain processes (see our blog on Accelerated Invoicing), and 2) Optimize working capital by expanding borrowing capacity (see our blog on Performance-based Supply Chain financing).
Get in touch with us for a demo or to discuss how we can support your business in more details. We are also welcome feedback on the content of this post.