Lots of people tend to equate blockchain with bitcoin, but the technology in fact means a lot more than that and has tremendous potential to bring improvements to a wide range of industries.
Much like the situation cloud technology encountered a few years back, there is currently a lack of understanding of how blockchain works and the specific benefits it can offer. There are also limited real cases people can draw inference from.
A group of companies are now actively exploring the possibilities of the blockchain technology, among which is OpenText.
OpenText started to look more closely into blockchain opportunities about two years ago. Leo Yeung, Vice President, Business Network Sales, Asia Pacific at the Canada-based enterprise information management firm, shared with EJ Insight some of his thoughts on how blockchain can change supply chain management and supply chain financing. Excerpts:
Q: What triggered OpenText’s interest in exploring blockchain technology?
A: We have always been following the major trends in the information technology. In the meantime, we also got some enquires from customers. So we started to think about how we can use blockchain to improve the business process and create value.
Q: What are the industries that could benefit from blockchain?
A: Businesses that have a lot of B2B trading partners, such as retailing, manufacturing (especially those involving lots of components sourced from multiple suppliers, such as car makers and handset makers), logistics and banks.
Q: Specifically, how would they benefit?
A: Traceability is one of the things blockchain can vastly improve. Let’s use the case of Kobe Steel scandal to illustrate the importance of traceability.
(Editor’s note: Kobe Steel, a century-old industrial giant, has admitted to falsifying data on products sold to top customers like Boeing and Toyota).
Suppose from material to final product, the entire supply chain can be recorded with the blockchain technology, including the iron ore used, the steel batch number, the parts number and the final product, the problematic quality issue can be more easily identified.
If there are defects and affected products need to be recalled, makers can pinpoint precisely which ones they are.
This traceability feature is going to be relatively important to products with higher value. Premium fruits and diamond are some other examples.
Q: What about applications in financing field?
A: Supply chain financing based on blockchain is definitely one of them. To optimize working capital and release funds for the next order (suppliers need to pay for materials, labor and other costs with their own money first), suppliers often wants to get paid sooner. Instead of waiting, say 90 days for their buyers to settle the bill, they can resort to services like factoring.
If all the related information confirming the fulfillment of an order and shipment details, such as bill of landing can be written on the blockchain, it can again speed up the process so that suppliers can get their funds quickly, compared to the traditional factoring.
It would also be easier to carry out secondary market transactions if the financial institution decides to resell the account receivables to another counterparty, because all the related information is transparent and traceable.
But OpenText is not in the finance business; we will only provide a platform to facilitate buyers, suppliers and financiers.
Elsewhere, the nature of doing away with intermediaries also makes blockchain a potential technology to revolutionize financial transactions like the issuance of bonds.
Q: What’s so unique about blockchain technology?
A: A blockchain is basically a digital ledger of transactions created and shared among certified participants, via a distributed network of computers, and participants can keep adding data to this online ledger.
A key feature is the difficulty to change the record, technically known as immutable. As a decentralized system, thousands of copies of the same information are being kept in the so-called nodes, you have to change them altogether in order to alter the record, that is simply too costly.
Supply chain events happen from time to time, like late or missed delivery, or delivery of the wrong goods. Participants can quickly find out if there is a problem somewhere in the supply chain if each step of the process is being recorded in the block and entities involved can all easily search for the information.
More importantly, knowing the records cannot be easily changed, such data can be trusted and there is no need to validate the information.
By enabling users to detect problems much faster and saving the validation time, remedy actions can be taken swiftly if there is a problem.
Q: Are you optimistic about the future of blockchain technology?
A: At the moment, most of the people are largely testing the technology on a small scale. There are still lots of questions unanswered, and only by trying can we find out.
Some of the challenges come from issues like the legal responsibility. For example, if a blockchain-based transaction goes wrong, who should take responsibility? Or how should the responsibility be shared?
Despite all that, blockchain has a good potential to drive down the transaction costs, and improve the efficiency and transparency. Hence, it is good for the economy. There should be a lot of room for its future development
Q: What is holding back customers from jumping on the bandwagon?
A: One thing is the return of investment, an important consideration for a company. The other is the lack of knowledge and, thus, confidence in the blockchain technology.
Q: What are the major costs of adopting blockchain technology?
A: First of all, there would be consultancy costs. Most companies typically have no idea where to start. So they have to hire someone to study the industry, find out how the process can be improved, how the benefit of blockchain can be realized.
After identifying the areas the blackchain technology can be applied, a solution has to be developed and tested.
Regarding the lack of knowledge, most companies simply don’t know what it is. Which is why people like us have to explain to potential users, help them find out what is blockchain and what it can do for them, and offer user friendly blockchain-based applications accordingly.
Q: You have recently partnered with BlockEx. Can you tell us a bit more about the tie-up?
In addition to in-house development, we are also driving growth through acquisitions and partnering with alliances to save time.
BlockEx is a UK firm that specializes in blockchain technology. OpenText has a large client base, so we have complementary strengths.
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