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How supply chains become Gordian knots?

Connecting the physical and financial supply chains for greater resilience, automation, and value creation

June 21 2023Markus Zscheile

The need for a new supply chain strategy

All too often, today's supply chains are vulnerable to disruption. They continue to suffer from a lack of transparency, human error, fragmented data in silos, and limited or no automation. They are often (too) costly and labor-intensive and sensitive to factors such as inflation, the political climate, wars, and natural disasters.

A strawberry yogurt supply chain

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Let's take strawberry yogurt as an example. After all, even this simple product clearly demonstrates the complexity of supply chain management.

A pot of strawberry yogurt comprises many elements. The corn for the label comes from China, the wood glue from Canada, the tinplate from India, the milk from Germany, and the strawberries from Poland. As many as 10,000 small farmers can be involved in supplying natural products like these.

The manufacturer must transport the yogurt quickly to the refrigerated supermarket shelf – chilled the entire way there and protected in break-proof, cost-effective packaging.

Complicated? Not by a long way. A far more complex supply chain becomes evident when the financial transactions of all parties and companies involved in the shipment, from the strawberry field to the supermarket, are considered. The Boston Consulting Group estimates that a single transaction can involve more than 20 companies and financial services dealing with up to 20 paper documents.

Now, instead of yogurt, imagine a more complicated use case, such as a car made from up to 10,000 individual parts.

Musical chairs in international trade

Moreover, recent crises have placed significant pressure on supply chain operations and supply chain leaders. High shipping costs, sharply rising prices, and increasingly uncertain cash flows along global supply chains have created a game of musical chairs in international trade.

This is because trade routes are no longer operating as usual, and minimizing supply chain risk has become paramount, overtaking "just-in-time" production in importance and focus.

The result: production sites are relocating, inventories are increasing, and new supply chains are being created. These changes do not only demand high liquidity; they require optimizing entire supply chains’ financial and physical processes from procurement to delivery and payment.   

Digitalization and automation of financial processes

T-Systems and Commerzbank have combined their technological and financial expertise to solve the daunting challenges around procurement, payment automation, inventory management, and end-to-end supply chain visibility.

The technology group and the financial institution have taken steps to automate all processes involving financial transactions or services and ensure that payment targets are met on time. Thanks to Supply Chain 4.0 digital solutions, including IoT and blockchain, they have connected the physical and financial supply chains.

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IoT-Based Automated Finance: data triggers for supply chain planning

Internet of Things (IoT) Based Automated Finance (IBAF) is an industry and product-agnostic solution for modern digital supply chains. It is based on smart contracts, distributed ledger technologies (blockchain), and an open ecosystem.

IBAF connects the financial supply chain with the physical supply chain to provide error-free process automation, greater resilience, and time and cost savings. This unique approach extends far beyond standard automation and track and trace solutions for incoming and outgoing goods.

IoT Based Automated Finance can read various types of data triggers from any point in the digital supply chain to make them usable, whether these are IoT signals from multiple IoT devices and sensors, data collected from the goods management system, or information from digital delivery slips and thus also contractual information.

IBAF – IoT-powered with blockchain at its core

At the heart of the IoT-enabled Automated Finance solution is the IBAF core based on distributed ledger technology blockchain, which brings together all relevant information from various data triggers.

Blockchain is where smart contracts come in – intelligently linking all data points and digital supply networks together. When all the predefined data points are available, a predefined banking action is automatically triggered. For example, a payment based on the payment terms defined in the smart contract or other agreements between the contracting parties.

Standard interfaces such as APIs are a central aspect of communication between systems. These interfaces ensure a flexible, simple connection to the customer's ERP systems, for example, as well as to other partners in the digital supply chain ecosystem.

In the future, it will also be possible to customize and personalize these smart contracts very easily using low-code or no-code applications.

Nagel Group: Logistics 4.0

The Nagel Group is a German logistics company that has successfully piloted the IBAF solution. The pilot’s goal was to automate the invoicing process between the group and its transport subcontractors to reduce manual invoicing processes significantly. Considering that this involves an average of 120,000 transport orders daily, with a volume of approximately 500,000 delivery slips, you can get an idea of the potential that IBAF offers the Nagel Group.

"If we can implement our smart contract idea, it would be game-changing. All agreements are defined with all parties and documented on the blockchain. Once all triggers are satisfied, everything is executed automatically, from assigning an order to a subcontractor right through to invoice payment," says Michael Lütjann, Nagel Group's CIO.

Digital supply chain transformation  

Anyone hoping to untie the Gordian knot along the entire digital supply chain now has all their options in the palm of their hand with IBAF.

This first-ever linkage of the physical supply chain with the financial supply chain not only reduces time, cost, and risk but also offers numerous other benefits:

  • More sustainable processes thanks to the transparent calculation of CO2 emissions along the E2E supply chain.
  • Workflow automation for executing routine processes, giving Industry 4.0 employees greater capacity for more demanding tasks.
  • A 50-80% reduction in trade finance operating costs.  
  • Turnaround times for each trade finance product can be improved by a factor of three to four.
  • Thanks to highly secure blockchain solutions, greater transparency,  security, and knowledge of your customer processes.

Would you like to learn more about digital supply chains, blockchain technology, the digital transformation of logistics, and IBAF? Put us to the test in a workshop!  We work with you to identify your relevant business processes to adapt the capabilities of our IoT and blockchain-based supply chain solution to your needs. Contact us today.

About the author
Markus Zscheile

Markus Zscheile

Digital Presales Expert, T-Systems International

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