Solving 4 Core Issues within Enterprise DLT Supply Chain Projects
The eDLT (enterprise Distributed Ledger Technology) sector is thriving: according to IDC latest research, 2019 global investments in eDLT will double to US$ 3b, then grow 76% per year until 2022
Over the past few months, the cloudyBoss team has directly interacted with hundreds of eDLT clients, partners and peers around the world, gathering many useful insights about their eDLT projects directly from the front line, with a particular focus on supply chain.
The use cases for supply chain, a top-tier eDLT investment area, encompass provenance, warranties, recalls, chain optimisation, real-time transparency, certification and much more.
It is however very early days with most implementations at either business case or PoC (Proof-of-Concept) stage. Many real-life hurdles are emerging from these very first PoC projects. These case studies highlight where the main challenges, solutions and opportunities are for the supply chain eDLT sector with valuable lessons for others to learn from.
Aside from trivial needs such as more education on eDLT and related techs, pioneering industries experimenting with supply chain eDLT use cases are facing 4 main challenges:
1. The complexity issue
2. The wrong ROI perspective
3. The “node asymmetry” challenge
4. The “power node” interoperability problem
Wr are describing below each of these issues, including their root cause analysis derived from our discussions with market stakeholders (client side, major ERP vendors and IT implementation providers), and our views about best practices and tangible solutions.
1) The complexity issue
A recurring theme with many large enterprises across all industries is the daunting complexities faced with eDLT implementations in supply chain, especially in the area of permissions and risks mitigation. Upon deeper root cause analysis, there seems to be one common denominator to these implementation difficulties: solution architecture.
Most large enterprises already run sophisticated ERP legacies that they’ve heavily invested on and refined over the years. Any organisation that has undergone the monumental effort of successfully implementing an ERP system would reluctantly ever let go of these platforms. Fiscal depreciation inhibiting factors would further strengthen such hesitations.
Subsequently, when attempting to materialise supply chain eDLT ecosystems, the choice of a suitable DLT architecture is biased toward “connecting” fabrics rather than DLT protocols built at the core. Most of the time, the choice itself is nonexistent: to fulfill their clients’ eDLT requests, existing ERP vendors are opting for the fastest route of a “connecting” fabric which easily augments their preexisting ERP technology with DLT features.
“Connecting” protocols manifest themselves as additional layers between already highly complex legacies and other external nodes composing the attempted DLT ecosystem. This approach proves difficult to implement even at PoC level for 3 reasons.
First, it inevitably increases the risk exposure surface introduced by additional layers. The scope of potential points of failure and vulnerabilities extends beyond cyber-hacking or code quality defects to inadvertent data disclosure risks breaching GDPR-like regulations.
In addition, it creates technical and performance headaches in relation to the on-chain vs off-chain data debate.
Lastly, irrespective of the on/off-chain hurdle, the “connecting” layer approach increases the complexity of multi-lateral permissions across all participating nodes in the ecosystem.
Solution to the implementation complexity issue:
SKYE, cloudyBoss NEXT+ native eDLT protocol, is built at the core, fully interlaced with NEXT+ KEYSTONE data storage technology. This means that issues such as DLT permissions, performance, privacy or on/off-chain are already addressed by design.
SKYE DLT ecosystems and smart contracts are integrated/embedded into all NEXT+ transaction and workflow functions: they can be instantly and intuitively activated in a code-less off-the-shelf manner.
While start-ups and g/local SMEs are adopting NEXT+ in droves, the decision to migrate to a new platform such as NEXT+ is more complex for any larger established organisation (institutional or enterprise) already locked into a conventional cloud or on-premise ERP.
However, because NEXT+ has a built-in universal API engine across all modules, large enterprise clients are asking to connect their ERP via API to their NEXT+ account. By doing so, they use NEXT+ in a way we had not considered (and open our eyes on a new USP we had not thought of before), NEXT+ becomes their core DLT node, while they keep on operating their main legacy ERP: this off-the-shelf solution is cost-effective, decreases risk exposure and simplifies, by way of delegation, matters related to eDLT permissions, on-chain/off-chain data, ecosystem performance, security, implementation and maintenance.
2) the wrong ROI perspective
Nearly all large enterprises we’ve met over the past few weeks surprisingly mentioned their difficulties in justifying business case and ROI for their supply chain eDLT projects.
The above-mentioned implementation complexities certainly compound costs and make it harder to justify ROI. However, another issue with ROI appears to be one of perspective.
Large enterprises tend to look at possible returns on their eDLT investment from the narrower point of view of their own single node: this wrong perspective unlikely works as it negates the value brought by a DLT ecosystem of independent nodes as a whole. Most importantly, attempting to justify ROI from a single node’s perspective (no matter how big the node is, such as a large multinational) masks or might omit collateral benefits, as well as alternative economic models for implementation and ongoing operations of the ecosystem.
Solution to the ROI issue:
A neutral, node-independent, whole-ecosystem, at sector or industry-level perspective, shall be adopted when analysing the ROI of any eDLT project.
A best approach to such decentralised ROI perspective is to start with the final end-user in the chain and the benefits a DLT ecosystem would bring them, then work backwards all the way to upstream actors (be it services, OEMs, raw material providers and anyone in between irrespective of size) uncovering along the way benefits for each of the nodes involved.
Only then a comprehensive set of benefits derived from an eDLT approach will emerge, including alternative sustainable economic models to structure investment and operational costs of the entire eDLT ecosystem, but also unleash ecosystem-wide efficiencies.
3) The node asymmetry problem
A stumbling block faced by DLT supply chain PoC projects is the node asymmetry problem, which might fail to appear until implementation is well underway, especially when ROI analysis and business casing weren’t conducted with a fully decentralised perspective.
What large enterprises, major large ERP vendors and project implementation teams are highlighting is the difficulty to engage and on-board smaller nodes into their proposed supply chain DLT ecosystem, for example a small logistics enterprise such as a one-person single-truck operation, or a small producer, or any other small size organisation anywhere along the chain. This issue potentially compromises the original project goals.
There might be many reasons for smaller nodes to resist a DLT ecosystem project, including change management gaps unaddressed by the implementation team, competitive fears, reluctance in sharing data, system gaps, inability to justify costs and effort in adopting expensive node-level solutions, such as those proposed by major ERP vendors, typically tailored toward the large enterprise segment rather than the small-scale operator.
4) The power node “interoperability” road block
Another significant stumbling block faced by supply chain eDLT projects is the “power node” conundrum. In complex supply chain ecosystems, a “power node” is a node with high levels of authority, typically regulated, such as for example a Port Authority or a Tax office.
The issue that arises with such “power nodes” is one of protocol interoperability: such nodes rightly question ecosystems proponents (such as a large enterprise implementing their own eDLT supply chain project and requiring a “power node” to join their ecosystem) about why they would implement one specific eDLT protocol rather than another, suggested for example by another ecosystem proponent in another industry.
This is not a mere question of industry standards, projects coordination, ecosystems size, or levels of protocol adoption as there are often international regulative considerations, critical supply aspects whereby the ecosystem size becomes almost irrelevant compared to the nature of the supply, but also fundamental technical incompatibilities between consensus-based open blockchain protocols vs permission-based consensus-less eDLT ones.
Some of the prevalent views in the eDLT industry are influenced by last century SMTP case with email protocols; however, current market signals are pointing toward an expansion rather than a consolidation in the number of blockchain protocols: blockchain is not email, and all attempts to solve blockchain interoperability with a tech solution (meta-chains or chain of chains) have so far been rather inconclusive.
Solution to the power node and interoperability problem:
In cloudyBoss, we believe that the solution to the “power node” road block will be a market-driven regulated one rather than a purely technology driven solution.
This view on blockchain interoperability diverges from mainstream opinions on the topic. We acknowledge the existence of meta-chains initiatives, similarly to the multiplication of new baseline DLT protocols; we believe that these solutions will co-exist and hybridise but ultimately will prove insufficient to solve alone the interoperability problem, and therefore the conundrum faced by “power nodes”.
Our view on interoperability is that, similarly to the way ICO/STO exchanges currently function and have been evolving via the maturing of adaptive regulations designed to bring stability within the “token” industry, a similar approach will inevitably occur for the “eDLT data” industry with “power nodes” ultimately becoming regulated “eDLT data exchanges”.
In other terms, the blockchain interoperability challenge has in our view already been solved (albeit yet to be implemented on a broad scale everywhere) and “regulated exchanges” (be it for tokens or eDLT data) ultimately constitute the simplest and most flexible solution.