Recognizing the emerging global interest in blockchain, OpenText has partnered with BlockEx, a leading provider of blockchain digital asset exchange services, to jointly explore how global supply chains can leverage blockchain technology.
OpenText operates the world’s largest Business Network. More than 600,000 companies connect to our network to exchange more than 24 billion business transactions a year. Many companies connecting to our Business Network are exploring use cases for blockchain across their respective supply chains. Blockchain, as with the Internet of Things and Machine Learning, is a disruptive technology that is beginning to be embraced by global CIOs as part of their digital transformation initiatives.
“BlockEx is pleased to partner with OpenText,” said Adam Leonard, CEO of BlockEx. “Teaming up with OpenText to develop a blockchain-based trade finance marketplace is truly exciting. Our partnership allows some of the world’s largest supply chains connected to OpenText™ Business Network to simply opt-in to blockchain-based trade finance.”
The BlockEx (Digital Asset Exchange Platform) DAxP is a digital asset creation, issuance and trading platform. With toolkits for asset creation servicing, trade settlement, permissioned trading and automated reporting. BlockEx works with trading firms, institutions and governments, providing managed services for its toolkits as well as bespoke blockchain implementations and proof of concepts. Many financial institutions are already using the BlockEx platform and integrating this platform with OpenText Business Network will allow any company connected to the network to access the BlockEx DAxP.
Solutions that OpenText and BlockEx jointly develop could provide increased visibility of the end-to-end supply chain information flows. This can help financial lenders:
- Monitor supply chain events such as disruptions, or late delivery of shipments to evaluate vendor risk more effectively, informing future discount rates
- Identify when assets have been pledged already
- Extend offering to pre-delivery financing
- Provide a way to prevent fraudulent invoices entering the supply chain
“This partnership will offer any company connected to OpenText Business Network a unique and secure way to manage the supply chain finance process for their supply chain operations,” said Marco de Vries, Senior Director Product Marketing, OpenText Business Network. “Blockchain is an exciting technology and we are pleased to work with BlockEx on this initiative.”
In the longer-term, OpenText will be working with BlockEx to explore other supply chain-focused solutions that complement the EDI-based transaction flows being exchanged across our global network.
Blockchain is ideal for traceability use-cases within the supply chain, especially where raw materials need to be tracked from source to final destination. Born out of the financial services sector, blockchain stands to transform the way in which companies engage with trading partners across a supply chain.
What is blockchain?
A blockchain is simply a method of structuring data that allows a digital ledger of transactions to be created and shared amongst the participants of the network, via a distributed network of computers. Using public/private key cryptography (a method of secure communication), network participants are able to add data to the online ledger without the requirement of a central authority to authenticate or manage users and data.
Users can append additional data to the end of the blockchain ledger in what is known as a ‘block’. It is extremely difficult to change or remove data from the ledger once encoded into a block. When data gets added in this manner the network participants (all of whom have copies of the blockchain) validate the new data via a series of automated computer processes. If the majority of network participants successfully validate the new data against the blockchain history, then the newly added data will be approved and the new block will be appended to the chain. This process forms what is known as a “consensus mechanism”.
Although in most use cases the term blockchain is used to refer to a publically distributed ledger with a distributed consensus mechanism, this is not the case with all blockchain technologies. There are a range of distribution options and consensus mechanisms which will depend on the particular use case. The example that most people know is called bitcoin. Bitcoin is public and permissionless, in that anyone can view the blockchain ledger information and anyone can interact with the network and add valid transactions to the ledger. There are also permissioned blockchains in existence, in these systems the network is comprised only of known or permissioned participants. This may be desirable in some cases where users must be authenticated and/or verified.
In the context of digital assets, blockchain technology provides a powerful accounting system that can track ownership of assets. The immutable (unable to change) nature of a blockchain lends itself towards the issuance of digital assets thanks to the ability to quickly audit data and track ownership in a secure manner. The ability to granularly track ownership allows companies to undertake other useful activities like the automation of corporate actions. In the case of bonds this might be the automation of coupon payments or assigning voting rights. In fact, the blockchain may facilitate the actual vote itself.
Blockchain in the supply chain
The globalization of many industry sectors in recent years, especially to emerging markets located in East Asia, has led to many supply chains being geographically dispersed and lenders find it increasingly difficult to obtain end-to-end transparency of financial transactions relating to global shipments. Larger buying organizations are much more sensitive to the inherent risks and resilience of their supply chains, especially as critical components are sourced from third-party suppliers.
For the CEO focusing on profitable growth, the control of working capital has become a key metric by which many companies are measured. Working capital represents the amount of day-by-day operating liquidity available to a business.
Supply chain finance, also known as supplier finance, or reverse factoring, helps to optimize cash flow by allowing businesses to lengthen their payment terms to their suppliers while providing the option for small and medium sized suppliers to get paid early. This means that the buyer has the option to optimize working capital and the supplier generates additional operating cash flow, thus minimizing risk across their entire supply chain.
Supply chain finance is a great use case for blockchain as the process needs to effectively manage the orchestration of transactions between buyers, suppliers and lenders, as well as other businesses such as third-party logistics carriers involved with shipping goods across the supply chain. A blockchain in this case could store details of the goods being shipped across the supply chain, the details from the lender on the financial agreement relating to this particular shipment, and any other information from the supplier or carrier that would need to be written to the block as well.
The distributed and secure nature of blockchain makes it ideal for managing the end-to-end supply chain finance process as every participant involved with the movement of goods across the supply chain can append the block with information and more importantly, it brings a new level of transparency to supply chain processes, something that lenders have typically struggled to achieve to date, especially for shipments moving across multiple country borders.
In future blogs we will explore other use cases for blockchain in relation to the supply chain and we believe this technology will complement existing B2B infrastructures and bring a new level of transparency and traceability across today’s global supply chains.