Supply Chain Inefficiencies In Emerging Markets: Is Blockchain The Answer?

By Max Ward, CEO and Founder of OpenPort

Emerging markets represent the largest growth centers across multiple industries, particularly within supply chain distribution and management services. Figures from the latest Agility Emerging Markets Index suggest that industry executives expect emerging markets to grow this year at the quickest rate since 2013. This growing sentiment is reinforced by the rapid sales growth we are witnessing in countries like India, China, and Indonesia.

However, the resulting increases in domestic manufacturing and distribution are straining supply chains already operating on thin margins. In addition to this, a lack of trust and transparency causes shippers, transporters, and retailers to adopt guarded business practices.

A major challenge for these supply chain players is the issue of cash flow, which involves thousands of invoices and payments reliant on a paper-based system of record keeping. Managing the risk of cash flow tied to supply chains has become a crucial task for many cash-stressed businesses, with the smallest players – the owner-operators of trucking assets – enduring most of the weight.

In a mature market such as Hong Kong, for example, Proof of Delivery (POD) is returned a day after the fact, compared to approximately two weeks in countries such as the Philippines and India. This delay between delivery and receiving proof of delivery creates a ‘shadow credit’ period that can extend up to 30 days, resulting in delayed cash flow for all parties. This system is undeniably flawed, with paper PODs often lost or disputed.

Additionally, there are more layers of subcontracting and brokers in emerging markets than mature markets, and these layers are not automated. With little accountability or traceability, and limited access to technology on the transporter end, visibility is lost and cash flow is impacted end-to-end.

These issues can be solved by the platform approach - layering and integrating technology into the supply chain that enables provenance and traceability across different parties. The power of blockchain is to provide all parties sharing the platform with equality – nothing is centralized, all data is auditable, and trust is guaranteed.

Blockchain enables us to move data in a scalable and secure manner, but it requires data sources just like any other system. So, the solution to visibility in the supply chain requires not only a blockchain protocol to secure data, or distributed applications to manipulate it, but it also requires data inputs.

These typically originate with the shipper – outputted from an ERP system as an order. Where we lose track is somewhere between the layers of third-party logistics providers (3PLs), brokers and sub-contractors.

To gain visibility, we need end-to-end tracking, an unbroken line of responsibility that is missing in the opacity of today’s emerging market supply chains. This requires the roll-out of affordable, accessible solutions that can be availed of not only by multinational shippers and third-party logistics providers but also by transporters operating beneath two layers of subcontracting, and by retailers waiting to receive and confirm receipt of their shipments.

In emerging markets, this means smartphones.

If you can build this platform and make it widely accessible to all relevant parties, then you have clear visibility and the required data sources to harness the power of blockchain technology.

By recording shipment events on the blockchain, up to and including the Proof of Delivery, you now have a document that is irrefutable, instant, and can be configured via smart contracts to automatically trigger the creation of an invoice. This instantly eliminates the shadow credit period and any possibility of the record being lost or disputed along the way. Crucially, this also confines payment terms to what is agreed upon in the contract and the facts of delivery and the condition of the goods.

Blockchain technology has the potential to fundamentally change the supply chain landscape, delivering new levels of transparency and security from which we can leverage numerous applications. A shared, immutable ledger opens possibilities that were not even conceptually on the table a few years ago.

Liquidity for Transporters, Savings for Shippers, Quality for Retailers

The applications for blockchain within logistics are immense, and it will take a great deal of creativity, and even greater execution, to uncover and implement them all. IDC forecasts that by 2021, one-third of manufacturers and retailers will be tracking goods using blockchain in anticipation of regulatory changes, resulting in an improvement in delivered product quality of up to 20%.

A future application I see building upon blockchain-enabled POD is the potential to offer liquidity to transporters by offering invoice factoring at low rates through third parties. This would allow truck operators to receive cash within days of a freight invoice, rather than months. This would be a game changer for the transport industry and would greatly improve the lives of these workers in emerging markets.

For multinational shippers in emerging markets, 1-2% of revenue is currently lost due to the inability to invoice on lost or disputed shipments. Blockchain-enabled POD serves to eliminate that loss and improve the bottom line – improving EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) by approximately the same amount currently spent on outsourced transport.

Innovation is always on the march, but blockchain-powered innovation is setting the pace.

About Max Ward, CEO and Founder of OpenPort

Previously the Vice President of Business Development APAC at Agility Logistics and the Head of Consumer Retail Asia at DHL, Max has over 10 years’ executive business development experience with leading logistics service providers in Asia, solving board-level supply chain problems for multinationals focused on the retail and consumer goods industries. Prior, Max spent approximately 10 years in the I.T. arena at multiple “dot-com” start-ups in California’s Silicon Valley, trained as a systems engineer and worked for product development software companies in the US and Europe, before entering the logistics industry as a software product manager at APL Logistics in 2000. Max is originally from the US and holds an MBA from the Thunderbird School of Global Management. Max is thus one of the few individuals in the industry with a combination of technical I.T. knowledge and commercial sales management experience, and a true passion for combining the two in this exciting time for the logistics industry.

About OpenPort

OpenPort’s blockchain logistics solutions deliver supply chain transparency for the world’s largest companies. Asia’s only multinational digital logistics provider, OpenPort provides ERP-integrated shipment visibility and electronic proof of delivery from any road freight transporter. Its logistics protocol for blockchain creates an irrefutable record of events from pickup to delivery, executed by immutable smart contracts and powered by their OPN token, providing micro-rewards to supply chain participants and frictionless payment between shippers, transporters, and retailers. In addition to blockchain-enabled proof of delivery, OpenPort is offering liquidity to transporters in the Philippines by providing invoice factoring at lower rates through third parties in an ongoing pilot program.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.