All posts by Bertrand Maltaverne

Ignore Supply Chain Risks… At Your Own Peril!

Despite the general consensus that risk management is important, recent studies have found that many companies still have a long way to go and a lot of work to do…

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“The Supply Chain stuff is tricky!” – Elon Musk at Code Conference in 2016.

When someone like Elon Musk says that something is tricky, it means something! The examples that Musk mentions in the video show that modern supply chains are becoming more global and more complex. This complexity also leaves organisations exposed to more risks because the current business environment is characterised by VUCA (Volatility, Uncertainty, Complexity, and Ambiguity).

The uncertainty surrounding Brexit aside, other recent events, like growing tensions with China and Iran, are daily reminders that today’s global business ecosystems are precarious. And it’s not just the potential for international conflict and instability that is making business riskier. Many countries have also introduced new regulations on sustainability (modern slavery, conflict minerals), or diversity, which add new risk factors in terms of compliance.

Make Risk Management Part of DNA

Between business continuity aspects, legal or normative aspects, and protection against a public backlash whenever malpractice is discovered in an organisation’s supply chain, there are more than enough reasons to make risk-management part of a company’s DNA.

Despite the general consensus that risk management is important, recent studies have found that many companies still have a long way to go and a lot of work to do.

Some of this work should include building better relationships with suppliers and colleagues. As I mentioned in a previous article, these relationships can play an important role in helping companies identify and mitigate certain types of risk — but not all. In addition to being on good terms with suppliers, companies will need to cover many other aspects to manage risk effectively and protect themselves.

These days, procurement organisations cannot afford to ignore leave risk management off their list of top priorities. There are many reasons for this. Here are three of the most important ones.

Reason #1: Risk is everywhere

I don’t want to sound alarmist, but we live in a troubled and complex world. There is no shortage of events that could jeopardise and/or disrupt a business, potentially impacting their profitability, business continuity, image, and reputation.

Protecting your business from these disruptions is challenging, because they can originate from so many different sources. Natural disasters, accidents, social events, changes in regulations, intellectual property infringement, quality issues, and attacks on cybersecurity are just a few examples.

“Governments are also taking action by engaging in an escalating global competition to maintain and improve national competitiveness in the 21st-century digital economy. […]. While such cross-border competition is by no means new, the geopolitical undertones in this battle for dominance raise the risk that the digital economy will continue to fragment, complicating global supply chains and the operations of international companies, and acting as a drag on economic growth.”

A.T. Kearney in Competing in an Age of Digital Disorder

Another key factor is that our world is changing faster than ever. Just look at the political, technological, and societal changes that have taken place in the past few years; many of them fuelled directly or indirectly by the impact of digitalisation.

As a consequence, the lifespan of companies is shrinking, year over year, as illustrated by the evolution of lifespan of companies in the S&P 500 index. All organisations are in danger, not just the large ones, and that includes your company and the companies you buy from.

Survival Through Prevention

Despite this reality, risk management has been a relatively passive domain for a long time, and it has frequently (and problematically) been equated with crisis/incident management. People were looking into risk management after an event had already happened; i.e., too late!

This was because the world of yesteryear was more stable and pretty predictable. In today’s world and in the future, the accelerating pace of change and the expanding globalisation of the economy mean that anticipation is crucial.

The risk management of today and tomorrow is about survival and making the right procurement decisions, which requires procurement to think about what “comes after” and how certain choices can make a company more or less safe in the long run. Prevention is better than cure!

“[An] enterprise is facing increasing danger that key sourcing decisions will prove uneconomic sooner, and with more damaging consequences than would normally have been anticipated by risk equations that presumed the older supply chain model. Starkly put, the odds of supply chain disruption are growing and will grow even greater in the future.”

CSCMP’s Supply Chain Quarterly

Obviously, what represents a risk depends on many factors and varies from one company to another:

  • Companies in B2C may be more vulnerable to risk related to their image and their reputation. If something happens that jeopardizes either of these, their brand could suffer.
  • Companies or organizations from the public sector and/or selling to administrations may be more vulnerable to regulation changes.
  • Standards/regulations regarding fraud and ethics may also vary from one sector to another.

Reason #2: Black swans are not an excuse to ignore risks

“Everybody has plans until they get hit.” -Mike Tyson

Anything can happen, even a shootout at the Mexican border, as told by Musk in his interview. Such “black swans” exist, and planning for the seemingly impossible is another lesson learned from “Best in Class” organisations regarding risk management: being prepared for problems enables companies to react faster to unforeseen events. They become anti-fragile!

It’s true that, by definition, risks reflect potential future disruptions. The goal is to foresee them and define ways to reduce the probability that such events ever happen and/or to reduce their impact if they do happen. Unfortunately, there is no crystal ball for Procurement; no one knows for sure what the future holds.

The only solution is to imagine different scenarios for potential problems. These scenarios can either be based on experience (problems that already happened to other organisations) and based on brainstorming (a.k.a. risk identification).

This may sound like daunting work, but it’s worth it. Organisations that have invested time and energy into identifying risks, assessing them, and defining ways to mitigate them are better at managing incidents they did not anticipate.

Reason #3: Supply chain issues are costly

There is no universal “best practice” recipe per se; only best practices in a certain context. But, what is certain is that not taking care of risk can be costly.

A 2018 study by the Business Continuity Institute and Zurich Insurance Company examined the financial impact of supply chain disruptions. The findings revealed that not only disruptions have a cost when they occur, their effects can do lasting damage. It takes months to recover and, in many cases, there is no full recovery!

So, in the war against risk, being prepared, defining various scenarios and recovery plans/actions, having the right skills, and the proper technology makes an organisation more resilient and more agile when something unexpected happens because:

  • they can re-use a predefined recovery plan
  • they have the processes and governance in place to act and decide fast
  • the people in the organisation have risk management in their DNA

Want to get your wheels turning towards a supply chain career one could only dream of? Then don’t miss our upcoming Career Boot Camp with IBM – a free 5-part podcast series with some of the very best of the best. Check it out here: https://www.procurious.com/career-boot-camp-2019

What Is The Cure To The Side Effects Of KPIs?

If there is one topic in business literature that has been covered exhaustively, it is Key Performance Indicators (KPIs). But if you’re not careful, the indicators you set might inadvertently encourage behaviours that can be dramatically damaging…

By Josep Suria/Shutterstock

“In 19th-century India, the city of Delhi had a snake problem. A rather large population of cobras slithered the streets with impunity. The British government decided to get rid of the snakes through crowdsourcing. Officials offered a bounty for every dead snake that locals brought in.

But something unexpected happened.

Soon after the British started to pay for every dead cobra, they realized that local entrepreneurs had begun to breed snakes in order to get paid.

The government canceled the program. So, the cobra farmers released their worthless snakes into the streets.

It turned out the British didn’t want dead snakes; they wanted fewer live snakes. By incentivizing the wrong thing, they inadvertently doubled their problem.”

The Biggest Threat To A Growing Company’s Culture, By incentivizing the wrong thing, growing companies can create more problems than they solve.

If there is one topic in business literature that has been covered exhaustively, it is Key Performance Indicators (KPIs). In procurement it’s no different; just do a Google search on “Procurement KPIs.”

KPIs have become an integral part of business, but they should still be approached with caution. Because business is human by nature, there are many pitfalls to consider when defining KPIs. If you’re not careful, the indicators you set might inadvertently encourage behaviors that can be dramatically damaging, and lead to a very different outcome than the one you expected.

KPIs can have negative side effects

The story at the beginning of this post is the origin of the term “Cobra Effect” and illustrates the potentially negative impact that poorly designed KPIs and incentives can have.

In the world of Procurement, some KPIs may create similarly problematic situations. For example, the following two KPIs are used or mentioned quite often:

  • Number of suppliers per £/$/€ million third-party spend
  • Number of Procurement FTE per £/$/€ million third-party spend

First of all, both KPIs are useless without context and, what’s more, they can also foster dangerous behaviors and outcomes. For example, spend consolidation or supplier reduction programs are quite common in Procurement, and they can lead to over-dependencies by creating situations of quasi-monopoly. Therefore, such a leading indicator (supply base concentration serves an objective, it is a means, not an end) should be considered in a broader context and need to be counterbalanced with other corresponding leading indicators, such as, for example, the impact on savings and on risk exposure (dependence, single-sourcing, etc.).

Another classic example is related to payment terms. Whenever organisations try to improve their cash management/flow, they also question whether or not to extend payment terms with suppliers, even though it has been proven time and time again that the impact of extending payment terms is minimal. Despite bringing some short term benefits, choosing to extend payment terms could create long-term issues, as suppliers will not consider such procurement organisations as a “customer of choice.” In that specific scenario, it would be much more beneficial and valuable to improve Source -To-Pay processing times. This would improve the management of liabilities and cash by, for example, using supply-chain finance, which is a more effective way to improve cash management and, at the same time, relationships.

Purpose is the most effective way to influence behavior

The science of motivation is a complex topic and there are numerous studies in the field of behavioral economics that demonstrate how people are biased and often unconsciously make irrational decisions. Therefore, organisations must use caution when designing KPIs to avoid the folly of rewarding A, while hoping for B.

Luckily, there is a well-known and proven safeguard against pitfalls like these: create a sense of purpose and give actions meaning.

Rather than just focusing on a target, this approach focuses on outcomes (‘why’), which will facilitate adoption and alignment across the organization. Then, people will be able to define the ‘how’, and engage in the appropriate activities (‘what’) based on the context they are in. This form of “commander’s intent” also gives collaborators and suppliers more autonomy (the topic of KPIs and  their impact also applies to contracts as a measure of the deliverable or outcome). They need this autonomy to adapt their actions in a dynamic and volatile environment.

“When a measure becomes a target, it ceases to be a good measure.” –Marilyn Strathern, British anthropologist

What Can Yoda Teach Us About The Kraljic Matrix?

The Kraljic Matrix revolutionised Procurement in 1983. Now the world looks very different. Is it time for an upgrade?

By Yuri Turkov/ Shutterstock

The year was 1983. This was the year that the Internet was created. Bill Gates unleashed Microsoft World on the market. Star Wars Return of the Jedi was playing in the cinema. I was nine. And a director at McKinsey in Dusseldorf wrote an article that would change Procurement forever. The author was Dr. Peter Kraljic. The article, published in the Harvard Business Review, stated: “Purchasing Must Become Supply Management“.

A Procurement Transformation

Kraljic recognized that the world was changing fast. He saw that if Procurement continued business as usual, it would expose itself to competitive pressure. If it was to survive, it would have to move into strategic supply management. This was the dawn of the Kraljic matrix. It would have a transformative effect on Procurement. The philosophy (that remains valid today) is that not all spend, all suppliers, all customers & are the same. So, Procurement needs to build tailored and differentiated strategies, notably taking into account profit impact and supply risk.

Fast forward to 2019. A lot has changed. The Cold War is history, and the Internet dominates the globe. The iPhone in my pocket has way more computing power than my first computer, a Commodore 64, also from 1983. Since Kraljic published his famous article, world trade has quadrupled and globalization has exploded. Procurement is operating in a much faster, bolder world than it was in 1983. It faces new challenges like Corporate Social Responsibility and ethical supply chains. In short, our current environment today is more “VUCA” (Volatile, Uncertain, Complex, and Ambiguous) than it ever was.

The Next Evolution Of The Kraljic Matrix

“Since the early 1980s, pioneering individuals and companies such as Peter Kraljic, Michael Porter, and A.T. Kearney have pushed procurement professionals to think more strategically about the art and science of strategic sourcing. […] But times have changed. Today’s environment is more dynamic and is filled with greater uncertainty. The tried and true tools and tactics adopted over the last 30 years as the “gold standard” are not as effective as they once were.” Strategic Sourcing in the New Economy: Harnessing the Potential of Sourcing Business Models for Modern Procurement by Bonnie Keith, Kate Vitasek, Karl Manrodt, and Jeanne Kling

In some ways, the Kraljic matrix still works well. The segmentation at the heart of it remains valid. But the world is so complicated now, the matrix becomes more like a Kraljic Rubik’s cube. There are many more dimensions and parameters to take into account than there were back then.

Procurement now needs to win the Holy Grail of strategic supply management: value. Take Total Value of Ownership (TVO), for instance. Before, sustainability and risk were considered as nice-to-have, but not necessary. The TVO model places non-price information firmly within calculation of cost. This is a concept of sourcing in which the buyer has all the cards in their hand. But more than that, TVO enables the buyer to create bonus-penalty systems. In effect, it is a calculation of value that enables Procurement to identify how they can increase value after the award has been made.

Evolve Or Stay In The 80s

“My colleagues developed [the matrix] further and experimented with a nine-box version that allowed more flexibility. But always it must be adapted to the characteristics of the company where it is being used.” Dr. Peter Kraljic

The evolution of strategic supply management is challenging. Seeing the Kraljic Matrix as a Rubik’s cube is one thing. Solving the cube is something else entirely. Collecting the enormous amount of information and data that you need for this is almost impossible on your own. However, the change that makes the world so complicated also gives us the tools we need to keep pace: technology. Procurement must have a digital transformation strategy.

Also, and beyond tools like Purchasing Portfolio Analysis matrixes (that needs to evolve to be subtler), it is critical for Procurement organizations to look beyond the technical aspects of the profession. Procurement activities encompass more “soft” activities that require interpersonal skills. It is all about relationships and, even if tools help in defining the right type of relationship to build in a specific context, they fall short in delivering the “human” dimension. Also, that same dimension should be integrated in the tools and models we use.

The “experience” of working with procurement (for suppliers and for stakeholders) is as essential. Procurement delivers a service in a human-to-human context and becoming the supplier/customer of choice requires more than just tools. Digital transformation is not just about tools!

Therefore, just like Yoda “burns” the Jedi Books in “The Last Jedi” to teach Luke a last lesson by symbolizing the need to be able to move forward while being mindful and even respectful of the past, it may be the time for Procurement professional to “burn” the matrix.


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Lessons In Risk Management: Unity Is Strength

In a digital future, relationships will continue to matter when it comes to risk management…

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I recently attended a procurement event, and, over lunch, I had an interesting discussion with other procurement practitioners about supply chain risk management (SCRM). One of the people at the table stated that his organisation was not looking into increasing its SCRM capabilities because technology cannot help in preventing issues to happen. To reinforce his theory, he told us what had recently happened to his company. The factory of one of his key suppliers was reduced to ashes by a fire. That incident led to disruptions that, according to him, technology could not have helped preventing or mitigating the impact.

Even if it is true that SCRM technology cannot have a direct impact on the cause of incidents, it is not a reason to ignore potential threats and behave like an ostrich, sticking its head in the sand. The story above is one of the many examples demonstrating that organisations don’t learn and reproduce the same mistakes, again and again.

“Insanity Is Doing the Same Thing Over and Over Again and Expecting Different Results.”

Albert Einstein

SCRM technology together with SRM and Category Management can have an impact on reducing exposure by, for example, highlighting sensitive areas (single sourcing of critical components, suppliers in dangerous zones…). They also can help in reacting faster than the competition when problems occur. And there are many examples of that. However, there is more to it…

Being the customer of choice helps

During that same conversation, I mentioned another story I had read about as it was to some extent similar but with a very different outcome.

A buying organisation using a SCRM solution had received a notification that an incident had happened at one of their supplier’s factory. Therefore, the buyer in charge was able to

  • immediately contact the supplier to discuss with him
  • build a business continuity plan.

The immediate action was to have the supplier produce the component in one of his other factory that had some free capacity.

In addition to the speed advantage that technology provided, the buying organisation benefited from the good relationship he had built with the supplier. Because they were considered as a customer of choice, the supplier gave them access to possibilities that less preferential customers probably would never have had.

Get help from bigger than you

The story above reminded me of another one, with a different twist. I heard it a few months ago at a procurement conference in Czech Republic. A buyer (I will call him John) had in his portfolio a certain raw material. He was buying modest quantities of it but the material was nevertheless critical. Also, only a handful of suppliers were selling it. John knew that, in case of peak in demand, he would never be the one served first. In order to prevent shortages, he developed a clever alliance strategy.

John attended a fair where he knew that the major sellers and buyers of that raw material would be. Using the research he had done before the event and his observation skills, he connected with the big players on the buy-side of the market because he knew they would have better contracts and conditions that his. Conditions that would most probably integrate capacity agreements.

Months later, when demand peaked John did not contact his supplier to try to convince him to deliver to him; he knew it would be a vain effort. Instead, John reached out to a buyer (Bill) who he had met at the fair and with whom he had built a good relationship. He explained his situation to Bill. After listening, Bill explained that he could help because he had a contract that stipulates that the supplier must cover his needs as long as they vary within a certain range. As John’s needs were small in comparison to his, adding them to his would remain in the contract’s terms. After agreeing on the condition of this deal, Bill called his supplier to inform him that he would need larger deliveries. The supplier agreed and delivered the requested quantities to Bill who then forwarded what John needed.

In a digital future, relationships will continue to matter

John’s story has a particular resonance for me as I had lived a relatively similar situation when I was a buyer. But, I hadn’t done my homework like John, so I could not seek the help of a larger customer to help me. It took months and lots of efforts to recover.

These stories illustrate that Procurement professionals have to prepare for the worst and hope for the best. The fact that black swans exist is no excuse for not being ready! It also means that having the people, process, technology, and data to:

–                 identify weaknesses and risks

–                 build contingency and mitigation plans

–                 constantly monitor risk sources

These are the conditions for being proactive and not passive with regards to risks. Also, they should not forget the importance of nurturing relationships as business is human-to-human, H2H, (and no more B2B or B2C). At the end of the day, organisations having a competitive advantage are the ones that get the best out of their relationships with technology AND people; augmenting/enhancing each other.

After Saving Costs, Now Is The Time To Save The World!

We, as procurement professionals and as citizens, have a responsibility to take action to tackle the challenge of working sustainably.

By Malchev/ Shutterstock

August 1, 2019: this could be when we reach the “Earth Overshoot Day” this year. For the rest of the year, we will be living on credit. When it comes to natural resources, that is.

“Earth Overshoot Day marks the date when humanity’s demand for ecological resources and services in a given year exceeds what Earth can regenerate in that year.” Source: OverShootDay.org

At the time of writing of this article, the actual date for Earth Overshoot Day is still unknown, but for several years in a row, we have reached the limit in early August. Based on this precedent, we can safely assume that it will be very similar this year. We may even reach it in July—a first! The situation also varies greatly by country. Some countries already reached it in February/March!

In short, this means that we would need 1.7 Earths to sustain our current level of consumption of natural resources.  Considering that we only have one Earth to go around, this is a very preoccupying statistic, and even more worrying is the trend and speed at which the day is arriving earlier and earlier each year:

This situation is clearly not sustainable and we, as procurement professionals and as citizens, have a responsibility to take action to tackle this challenge.

The end of the tragedy of the commons?

 “The tragedy of the commons is an economic theory of a situation within a shared-resource system where individual users acting independently according to their own self-interest behave contrary to the common good of all users by depleting that resource through their collective action.” Source: Wikipedia

To exit the tragedy of the commons, there is an urgent need for us to mobilise and act on a global scale. All economic actors have a role to play.

Governmental institutions can foster sustainability in two major ways. Firstly, by investing in businesses, research, and infrastructure and secondly, by creating regulations and policies to develop and promote socially- and environmentally-friendly practices. By adopting the right mix of carrot and stick, governments can steer behaviors and economic growth towards more favorable and sustainable outcomes.

Investors/shareholders also have an essential role to play, because by exercising their influence, they can push organizations to make sustainability a top priority. In fact, many green companies go beyond legal/governmental requirements and make sustainability the heart of their business model.

“[T]he next phase of business sustainability, what we call “market transformation,” is founded on a model of business transforming the market. Instead of waiting for a market shift to create incentives for sustainable practices, companies are creating those shifts to enable new forms of business sustainability.” The Next Phase of Business Sustainability in The Stanford Social Innovation Review (SSIR)

These companies and investors understand their obligations and interests, because the long-term survival of an organization depends on the health of its surrounding ecosystem. The concept of “Creating Shared Value” explains why a new type of investors is becoming more visible and active:

“Impact investing has become a broad umbrella that includes all investing with a focus on both financial return and social impact, but in its best form, impact investing prioritizes impact over returns and achieves outcomes that traditional investing cannot.”Jacqueline Novogratz, founder, and CEO of Acumen, a non-profit global venture capital fund whose goal is to use entrepreneurial approaches to address global poverty

Consumers represent another powerful force. Not only do they drive demand, their buying decisions also have the power to influence what products companies produce and, to some extent, how they produce them. The growth of the “business of sustainability” and of the “circular economy” are indicators of this shift.

So, when we ask ourselves who has the power to create a more sustainable future, the answer is really:  all of us. We can all exercise our influence as voters, investors, collaborators, and consumers to drive sustainable policies and practices forward.

And, when it comes to sustainability, procurement professionals have even more power than most!

Sustainable Procurement

Procurement plays a central role in transferring value from the upstream supply chain to the downstream of the chain. This means that, Procurement is the key player that enables a business to also “walk the walk” when it comes to sustainability by looking beyond prices and costs. Concepts like total cost/value of ownership (TC/VO) are not new, but they are still not commonly used, especially when integrating the impact on the ecosystem into TVO models.

For any sustainability efforts to be effective, businesses need to take a holistic approach. This is why truly “sustainable procurement” encompasses aspects related to the environment, labor & human rights, business ethics and, community development.

Many mature procurement organizations have already started to incorporate some of these aspects into their procurement approach, but the goal of these sustainability measures is often limited to “risk prevention.” Brand/reputation protection has long been a key motivating factor for organizations that have considered integrating sustainability into their approach.

And, as mentioned earlier, there is more to it than that. Sustainability can also be an engine for growth. So, to harness the full potential of sustainable procurement, procurement organizations must first understand and be aware of their role/duty, and then act accordingly to embed sustainability in all their activities. For example:

  • Sourcing decisions: Include sustainability in TVO models (e.g. CO2 footprint, use of best available techniques, supplier diversity, etc.)
  • Contract Management.: Incorporate sustainability clauses (e.g. reduction of waste/energy consumption, recycling, supporting disadvantaged or marginalized groups in the community, reporting on sustainability aspects, etc.)
  • Supplier evaluations: Integrate quantitative and qualitative criteria into scoring models and develop real-time scorecards that also leverage 3rd party data and public sources of information

“The obligation, and the self‑interest of every company is to build a robust society.” Tim O’Reilly

Sustainability is a challenge that requires the urgent attention of all of us. As Procurement professionals, our responsibility is even greater. Therefore, we should embed sustainability in everything we do and, as much as we are able, we should become the consciences of our organizations by ensuring that sustainability is not just an empty vision, but a practice. To do this successfully, we must ensure that suppliers

  • behave correctly in terms of Corporate Social Responsibility (CSR)
  • use performance indicators related to Environmental, Social and Governance criteria (ESG)

Only then can we play a role similar to an investor by following SRI (Sustainable, Responsible and Impact Investing) principles when making decisions and assessing options. This represents a much better purpose and meaning than just cost savings!

Transparency In Supply Chains And Blockchain: What Is The Most Common Trap?

Becoming aware of blockchain’s weak spots is an important first step towards taking full advantage of what the technology really has to offer.


By Billion Photos / Shutterstock

Is Blockchain coming of age in 2019?

Judging by the first half of 2019, it seems that the blockchain hype is finally deflating and there is an overall consensus that it will not save the world (at least not this year…). The growing trend towards pragmatism, which is now beginning to temper people’s expectations, is the best thing that could happen to blockchain. . .  A more down-to-earth approach is welcome because, like any technology, blockchain is not perfect, nor the solution to all problems. It is important to be realistic about its potential and limitations.

In particular, blockchain has limitations that threaten to jeopardise many recent high-profile initiatives to increase traceability and visibility in the supply chain. Despite seeming like the ideal technology to address growing concerns about these aspects, most (if not all) blockchain implementations have an Achilles’ heel: the initial digitisation of data to bridge between the physical and the digital world.

Becoming aware of these weak spots is an important first step towards taking full advantage of what blockchain really has to offer. Blockchain’s real value proposition

There are many potential and valuable use cases for blockchain, especially in Procurement and Supply Chain Mgmt.  

“If you talk to supply chain experts, their three primary areas of pain are visibility, process optimisation, and demand management. Blockchain provides a system of trusted records that addresses all three.” Brigid McDermott, vice president, Blockchain Business Development & Ecosystem, at IBM (source Blockchain and Supply Chain Finance: the missing link!, Finextra)

The most valuable characteristic of blockchain is that it serves as a backbone for “convergence”:

  • For better insights and actionable intelligence: Blockchain is the missing link in Big Data initiatives and the convergence of the Internet of Things (IoT), Artificial Intelligence (AI), and blockchain represents a breakthrough.
  • From an integration perspective: Blockchain-based supply chains allow three different supply chains (physical/informational/financial) to converge into a single digital one.

Blockchain has the potential to converge the two main ecosystems involved in trade finance — the financial ecosystem, which includes banks and suppliers, and the supply chain ecosystem. At the same time, the technology can provide a unified platform for multiple stakeholders, potentially avoiding difficulties that slow down operations” Béatrice Collot, Head of Global Trade and Receivable Finance at HSBC quoted in Blockchain’s Main Strengths Are Transparency and Instantaneity on Cointelegraph

While these features will certainly contribute to improved supply chain transparency, there is still a critical challenge that needs to be addressed: the digitisation of data at the beginning of the process. This crucial step constitutes a fundamental weakness of many current digital supply chains.

Blockchain’s Achilles’ Heel: Mind the Gap!

Traceability and transparency along the supply chain, from raw materials to final products, is a growing concern for organisations. New regulations from governments & institutions, customer expectations, and company’s self-interest in issues like sustainability, incident management, and efficiency, have created the need for an infrastructure to track, trace, and store data in the supply chain.

At first glance, blockchain may seems like the ideal solution. It creates a permanent record of all transactions at all levels of the supply chain, guaranteeing full traceability and establishing trust. So, many companies started to provide blockchain-based means of collecting information in their supply chain with the goal of making it accessible to customers as irrefutable proof about the origin of products and components.

A typical story goes like this: “Thanks to our application, you can take a picture of the QR-code on your product and view the entire supply chain of all components/elements that contributed to the final product you have in your hands.”  

This sounds great in theory, but there is an important caveat:

 “At the interface between the offline world and its digital representation, the usefulness of the technology still critically depends on trusted intermediaries to effectively bridge the “last mile” between a digital record and a physical individual, business, device, or event. […] And if humans […] manipulate the data when it is entered, in a system where records are believed ex-post as having integrity, this can have serious negative consequences.” What Blockchain Can’t Do, Harvard Business Review

The use of blockchain technology gives people a false sense of security because it relies on cryptography and various mechanisms to ensure that information stored on it can be trusted (identity, immutable record, etc.). But, as illustrated above, the digitization step when the information is recorded (a block added) is not protected by this same “guarantee.”. So, it is not because blockchain technology supports and enables a better transparency that it should be blindly trusted by customers or by procurement or supply chain pros.

The solution?

It is undeniable that blockchain is a form of digital trust. Much of the hype surrounding it has been driven by a broader trend in society: the erosion of trust in people and institutions. Blockchain is playing a major role in shifting that trust to technology and software. This explains, in part, why compliance and transparency are the use cases that are priorities for procurement and supply chain pros.

However, it is important to remember that blockchain’s reputation as “trustworthy” can be misleading, especially in the case of supply chain transparency. Manual operations are still part of the initial process of digitizing the data. Therefore, trusting data stored in the blockchain also means trusting that initial step that relies on human activities.

For this reason, building trust in business partners will continue to be a vital part of the procurement function’s role in the future. Introducing digital initiatives will not entirely remove the human element of the job, and Procurement practitioners will need to continue working on establishing trust and nurturing it with suppliers and stakeholders.

Also, from a technology perspective, there are already initiatives to close the gap between physical and digital as much as possible. Interestingly, they focus on physical objects (crypto-hardware) and not just on software. These objects are the child of RFID, connected devices, and blockchain, with the intent to create a convergence between the Internet of Things and the Internet of Value (blockchain) to create the Value Internet of Things (VIoT).

In addition to the human and technological answers that will both contribute to creating a truly integrated supply chain (physical + informational + financial), a third component will remain essential: critical thinking.

Trust and verify!

But wait, the blockchain action doesn’t stop here! Join us on October 15 with blockchain experts Shari Diaz, Innovation Strategy and Operations Program Director, IBM Watson Supply Chain and Professor Olinga Ta’eed, Director of the Centre for Citizenship, Enterprise and Governance in this webinar brought to you by IBM and Procurious. Click here to register for Blockchain: Supply Chain’s 21st Century Truthsayer.

AI and Procurement: Boldly Going Where No Team Has Gone Before?

The battle of “human vs. machine” is raging in Hollywood and, increasingly, in the workplace. What does the future hold for AI?

By Willrow Hood / Shutterstock

2001: a space odyssey… Terminator… The Matrix…

If you were to believe some of the sci-fi blockbusters, you’d think our future as humans is pretty bleak. They all offer a dystopian view of the future where, if the machines don’t kill us, they enslave us.

The battle of “human vs. machine” also seems to be raging outside of Hollywood, and we humans seems to be losing more and more ground to machines each year. Some of this ground has been lost in the world of gaming. Over the past decade, machines have been beating us at increasingly complex games more and more often. Looking back at these “wins” for the machines, we can see some key stages in the evolution of Artificial Intelligence (AI):

•    Deep Blue won against Kasparov at chess in 1997. It was rather dumb but powerful. With brute-force & human-created logic, Deep Blue was able to test and evaluate every possible sequence of moves at every turn and choose the best one.

•    Watson defeated Jeopardy champion, Ken Jennings, in 2011 and was smarter than Deep Blue. It had to understand natural language and find the relevant knowledge from various sources like encyclopedias, dictionaries, thesauri, newswire articles and literary works.

•    Google’s Alpha Go won against Go’s world champion Less Sedol in 2016. To achieve this result, it had to learn from humans from thousands of past games. This is because, unlike chess, which has a limited number of moves, Go is one of the most complex board games in the world, with more possible moves than the number of atoms in the universe. The second generation of Alpha Go learned by itself by playing against itself millions of times to discover what works and what does not.

•    Libratus beat four expert players of Texas Hold ‘Em poker. It also learned by itself and was able to understand behavior because poker is a game of luck, deception, and bluffing!

While very impressive, these victories also show that machines are still dumb when compared to everything that people can do. Machines excel at one thing and have the intelligence of a two-year-old or less for everything else.

What we can learn from sci-fi movies and the battles being waged on the gaming front, is that AI has many faces:

Today, despite all the hype and buzz, computers are still only at the narrow intelligence level. But even at this level, the potential applications of AI are endless.

As far as Procurement is concerned, the same applies: machines are far from being able to replace Procurement teams. Instead, new technologies have another purpose: augment people to achieve better outcomes.  This is a definite shift from the last waves of technologies, which were mostly focused on automation and staff reduction.

Machines in procurement get a promotion: from admins to colleagues and consultants

AI, in short, is all about learning from data to develop new insights and using this new knowledge to make better decisions. It is also about continuous learning and improvement. AI is a master of the “Kaizen” philosophy! This makes it a precious ally for Procurement and AI should therefore be considered as a team member within the broader Procurement ecosystem. Experience shows that “people + machines” get better results than people alone or machines alone.

Of course, in Procurement and in general, it is undeniable and unavoidable that AI will impact the future of work and the future of jobs. Work will continue to exist, despite potentially significant job displacements. While some jobs may disappear, new ones will come to take their place, and most will be transformed by the imperative of cooperation with smarter machines. Procurement jobs will also be impacted and future procurement professionals will require a new set of skills. For example, data analysis and modeling will become a core competency next to more traditional business and relationship management skills. This is because the “data analyst” component in activities will grow due to the collaboration with AI in order to:

•    Train AI and ensure that data is relevant, complete, and unbiased

•    Monitor outputs (recommendations, actions, insights, etc.) of the AI system to ensure relevance, quality, take more contextual / soft aspects into account, and safeguard against AI shortcomings.

Space: the final frontier. These are the voyages of the starship Enterprise. Its five-year mission: to explore strange new worlds, to seek out new life and new civilizations, to boldly go where no man has gone before.

To conclude on a more positive and optimistic note than where this article started, I have taken inspiration from another sci-fi classic.  I believe that the future lies in a new type of cooperation between humans and machine.

The duo Dr. Spock and Captain Kirk illustrates, to some extent, how such cooperation is possible and can offer the best of both worlds. By combining Captain Kirk’s instinct and emotional intelligence with Spock’s logic and reasoning skills, they were able to successfully tackle any challenge they encountered.

New developments like explainable AI (XAI) and “caring AI” will make machines of the future even more human and will allow them to take an even more active role in our personal and professional lives. AI will continue to augment us, not replace (or kill or enslave) us.

So, Procurement people, live long and prosper!

Could RPA Make Procurement Jobs More Human?

The new “hot” technology generating hype in 2019 is Robotic Process Automation (RPA). Here’s how it can help procurement…

By Viktor Gladkov / Shutterstock

Procurement is, by nature, in the business of relationships. Whether it’s managing suppliers or stakeholders, the success of any procurement organisation relies heavily on building relationships between people.

Despite this, many procurement professionals do not have the time to focus on the human side of their job. Data collection, reporting, transactional activities, urgencies, etc. are all tasks that eat up their precious time and prevent them from focusing on relationships that could generate more value and better outcomes.  This problem isn’t new and is the main driver behind the constant, growing interest in procurement technologies that automate processes and increase efficiencies.

What is new, though, is the pace of innovation and the hype around some of the latest technologies.

Emerging technologies have begun to dominate discussions in the procurement space, and it has become impossible to avoid debates, articles, publications, etc. on artificial intelligence (AI) or blockchain. The new “hot” technology that has been generating a lot of hype in 2019 is Robotic Process Automation (RPA).

Before jumping on the RPA bandwagon, it is critical to look beyond the features to understand the bigger picture. In the case of the latest RPA technology that has integrated AI, it is about making procurement jobs more human by offloading even more mundane, robotic tasks to… robots!

The goal is to augment, not replace, people by combining the best qualities and capabilities of both human and machine to achieve better outcomes.

RPA: Copy/paste on steroïds…

“[RPA is] a preconfigured software instance that uses business rules and predefined activity choreography to complete the autonomous execution of a combination of processes, activities, transactions, and tasks in one or more unrelated software systems to deliver a result or service with human exception management.”

Source: IEEE Guide for Terms and Concepts in Intelligent Process Automation (whose purpose is to provide standard definitions of concepts, capabilities, terms, technology, types, etc. for emerging process technologies)

This technical definition of what RPA is and how it works can be summed up with a simple analogy. Imagine that you have to repeatedly copy data from one Excel file to another to produce a monthly report. One way to eliminate these mundane, low-value, tedious tasks would be to create a macro that would do all the copy/paste for you. In addition to saving hours of your precious time over the course of the year, it would also reduce the risk of errors. This is, essentially, a simplified definition of what RPA is about. It’s a way to automate repetitive and scripted actions that are usually performed manually by users (not just copy/paste!). It is a form of business process automation.

The typical benefits of RPA are:

  • efficiencies to free-up resources usually spent on manual tasks and re-focus them on core business (efficiency fuels effectiveness)
  • better consistency and compliance in data entries by reducing errors
  • from a system/IT perspective, RPA is a valuable workaround to break data silos. It avoids the costs (investment, change mgmt.) and risks associated with replacing an existing system or creating interfaces. RPA solutions sit on top of the existing infrastructure and simply simulate user actions to take data from system ‘A’ and put it in system ‘B’.

RPA has limitations and it is important to be aware of them and consider if the trade-offs are worth it. Some of them are:

  • RPA can do one thing and only one thing. If there are changes in the source or in the destination systems, then it will stop to work correctly
  • It requires extensive programming to ensure that the RPA solution takes all cases into account. If not, it will not work or, even worse, it will create even more issues as it is very consistent in executing rules. If something is off, the same error(s) will be consistently repeated
  • For the same reason, it is vital to ensure that processes are running well before implementing RPA

If RPA only Had a Brain…

There’s no getting around it: RPA is a very dumb technology.  It does exactly what it’s told, blindly executing whatever set of rules it’s given. Such technology has been in use for years but on a limited scale. However, with the advancement of other, smarter technologies opening up new opportunities to make RPA more useful and less “dumb,” it is experiencing a revival. AI is one of the emerging technologies revitalising RPA, and stirring up hype. These days, it’s rare to see RPA without an AI component, which has also lead to a lot of confusion between RPA and AI.

“[AI is] the combination of cognitive automation, machine learning (ML), reasoning, hypothesis generation and analysis, natural language processing and intentional algorithm mutation producing insights and analytics at or above human capability.”

Source: IEEE

By nature, RPA and AI are very different technologies:

Because most business processes require a combination of “DO” and “THINK,” newer generations of RPA solutions integrate AI components to:

  • Understand input via natural language processing, data extracting and mining, etc.
  • Learn from mistakes and exceptions
  • Develop/enrich rules based on experience

It is this new, smarter generation of “RPA+AI” solutions that has broader applications as a valuable tool for Procurement.

RPA Applications for Procurement

“It is not the type of business process that makes for a good candidate for RPA, but rather the characteristics of the process, such as the need for data extraction, enrichment and validation.”

The Hackett Group on Procurious

RPA is particularly well-suited for operational and transactional Procurement because these areas are characteriSed by countless manual activities. Here are some examples:

  • Automation & elimination of mundane tasks
    • Invoice processing: It is possible to drastically reduce efforts and cycle times to extract essential information from an invoice and perform an m-way match by using a combination of RPA and AI (Optical Character Recognition + Natural Language Processing)
    • RFx preparation: Tasks related to data collection (quantities from ERPs, specifications from PLMs or other file sharing systems, etc.) and even the drafting of RFXs can be streamlined by using RPA.
  • Data compliance and quality
    • Supplier onboarding: RPA can automatically get more supplier data or data needed to verify registrations or certifications by crawling the web or other data sources.
    • Data mappings and deduplication: RPA can be a great support in Master data Management (MDM) by normalizing data (typos, formatting, etc.) and by ensuring that naming/typing conventions are respected.
  • Support to gain better insights
    • Supplier scorecarding: This is an activity that requires thorough data collection. RPA can be leveraged to collect data from various sources and integrate the information into one system either for internal purposes and/or for the preparation of a negotiation or business review
    • Contract analysis: RPA can crawl file sharing systems, network disks, and even emails to collect and gather contracts in one central location. Then, it can extract key terms and store them as metadata in a contract management solution.

Conclusion

RPA, in combination with other technologies, is an efficient way to connect silos (from a data perspective) to win back valuable time and remove the “robot” work from the desk of procurement teams so they can focus on the human side of their job.

On top of that, procurement organisations can gain tremendous insights from implementing RPA because it can make new data digitally accessible and more visible.

However, it is important to keep in mind that RPA is only a workaround; it does not break silos like an end-to-end procurement platform would do.

Best Of The Procurious Blog – “Hey, Procurement…” The Rise of Chatbots in Supply Management

Procurement tech guru Bertrand Maltaverne explores the benefits, limitations and pitfalls of chatbots in procurement – with some animated examples!

“Hey, Siri,…”

“Alexa,…”

“OK Google,..”

Digital assistants are ubiquitous. We talk to them (Siri, Alexa, Cortana, etc.). We chat with them (Twitter, Facebook Messenger, Skype, WeChat, etc.). They are in our phones, in our computers, and even in our homes. Now they are also making their way into our offices!

Procurement professionals need to start taking notice, because chatbots present a valuable and unique opportunity to provide better services and experiences for internal customers and suppliers. They can also support and assist procurement professionals with their daily activities, becoming virtual colleagues or consultants.

Of course, as with any new piece of technology, it is important not to succumb to the hype and to be aware of the technology’s limitations and constraints before deploying bots everywhere.

Value = Outcomes AND Experiences

The term “Conversational Commerce” was coined by Chris Messina in 2015. In his article, he focused on how messaging apps bring the point of sale to you. He first introduced the idea of assistants that people could interact with to buy things from a company. This is precisely what Amazon did and has popularized with Echo (the hardware) and Alexa (the AI-based assistant that “lives” inside Echo).

The idea of voice or text-based interactions with a bot can be extended to much more than B2C and to “buying things”. The value proposition of such technology is to digitise interactions and conversations while also making technology more accessible.

Here are some of the benefits:

  • Gains in efficiency and effectiveness because of tailored and context-aware interactions. Chatbots remember everything, they know where you are, and can tap into data from all your other applications.
  • Less time and effort needed to learn how to use Procurement technology: conversations replace graphical user interfaces (everybody knows how to type or speak; no need to use explicit and codified instructions).
  • Interoperability and accessibility: users chat in the application or channel they prefer (SMS, Instant Messaging, Skype, Facebook Messenger, Alexa, Twitter, etc.). All bots leverage one common robust back-end system that processes and interprets natural language.

All in all, chatbots contribute to the creation of omni-channel and replicable but unique user experiences for stakeholders, suppliers, and for the Procurement teams themselves. Improving experiences is one of the pillars of the digital transformation of Procurement. In addition to delivering business benefits (savings, risk reduction, innovation, growth, etc.), it contributes to making procurement a supplier/customer/function of choice.

“Every time [customers] interact with a product, a service, a person, or an automated system, they judge how well the interaction helped them achieve their goals, how much effort they had to invest in the interaction, and how much they enjoyed the interaction.” Outside In: The Power of Putting Customers at the Center of Your Business by Harley Manning, Josh Bernoff, and Kerry Bodine

Use Case 1: Guided Buying (Chatbot as an Admin.)

This is a use case that is very close to B2C: a Procurement assistant is deployed to handle demands from the rest of the organisation in order to replace or “augment” traditional eProcurement solutions. Requesters interact with a bot that proposes solutions based on:

  • the needs identified during the conversation,
  • the Procurement strategy (preferred suppliers, preferred items, contracts in place),
  • other factors (purchasing history, real-time availability of products, context, etc.).

The approval process also happens via chat. If available, the chatbot adds the approver to the conversation, creating a group chat. Or, the Procurement Assistant opens a new one-to-one conversation with the relevant approver. Approvers can then ask the chatbot how much of the budget is left and then immediately approve/decline the request without leaving the chat. The same can happen for other process steps (order confirmations, goods receipts,etc.). The assistant initiates discussions to ensure the process is compliant and efficient.

Use Case 2: Operational Support (Chatbot As a Colleague/Consultant)

Chatbots can also be invaluable assistants in operational support. The most straightforward and immediate application: query management. A chatbot can become the single point of contact for internal and external queries about purchase orders, invoices, and much more. Several companies are already successfully using such capabilities in their Procurement portals to provide quick answers to a vast amount of queries, which leaves their teams with time to focus on  more complex requests and value-adding tasks.

It can even go further as the following scenario demonstrates:

Now, let’s compare what happened above with a scenario in the context of siloed organisations and where such technology wasn’t used. The purchaser would probably have learned about the earthquake on his way to work while checking the news on his smartphone. He would only have been able to assess the situation and prepare contingency plans once he arrived at work, losing valuable time. In may organisations this would take hours or even days because access to information is spread across multiple systems. This would result in a very different reaction time compared to the example above, where the cognitive agent reacted almost immediately after the event and prepared recommendations during the night.

Pitfalls and limitations

Relying on conversations instead of graphical  user interfaces has many benefits, especially for the mobile worker or casual user. However, there are limitations and challenges.

Voice-based conversations are the most natural ones and are also the most challenging from a technological perspective, especially in a B2B context. This is due, in part, to the international nature of business. For example, names of people or companies are not familiar words that a chatbot can quickly recognise, and to make things worse, they are often not in the same language as the one used to converse with the bot.

In addition to technical challenges like these that will likely be solved someday, there is a more human challenge: the conversational paradox. It explains why chatbots are still not widely used.  The paradox is that something very natural (a conversation) is done with another unusual counterpart (a machine), which turns the experience into a very unnatural one. So, when asking a chatbot something, the first questions people are confronted with are:

  • what instructions can “it” understand?
  • what words should I use to make sure I will be understood?

This represents  both a significant barrier to usage and a risk for adoption. It is therefore important to design and deploy chatbots with that in mind and:

  • not to use them as the only communication channel (it should be one among many others),
  • not to oversell the technology as being human-like (it inflates expectations and is a guarantee for failure),
  • to provide cues and guidance (like the menus/lists in the examples above)
  • to have a smooth and almost transparent hand-over to a real person if the machine fails to understand a user.

Conclusion

“By 2020, 30% of web browsing sessions will be done without a screen.” –Gartner

Conversational user interfaces are still a novelty, especially in B2B. However, they will become more widely used as technology makes further progress and people get more used to it. So, for Procurement, now is the time to investigate their potential as an additional way to provide a streamlined and personalized user experience both inside and outside of the function.

In addition to  delivering the right outcomes, experiences are also a crucial component of the value that the rest of the organisation gets from Procurement. Customer satisfaction is at stake.

The implementation of chatbots, like any other technology, has to be pragmatic, defined by clear use cases, and should not be viewed as a solution in itself. Chatbots will not solve all of an organisation’s problems, , but they can be used as a means to an end!

Time to learn how to say: “Hey, Procurement…”

Blockchain Will Not Save The World (At Least Not This Year…)

Blockchain hype has spread like wildfire… But it’s time for a reality check…

Don’t—

Don’t—

Don’t—

Don’t—

Don’t believe the hype

Don’t Believe the Hype” is a song by Public Enemy that dates back to 1988 and (if loosely interpreted) carries an important message that can be applied to blockchain technology. Blockchain is almost everywhere, and—let’s face it—it’s getting a lot of hype.

It is very surprising that  such a new and relatively obscure technology like blockchain has received so much  exposure so fast, even in mainstream media. Blockchain hype has spread like wildfire, and this is largely because blockchain is the underlying technology behind Bitcoin, a digital currency (a.k.a. as cryptocurrency) that received a lot of coverage in the media.  In the wake of the cryptocurrency craze, blockchain has continued to attract more and more attention.

Time for a reality check

The response to blockchain exemplifies many of the issues that are commonly  associated with introducing new technologies. Firstly, the market’s inflated expectations do not match the reality of blockchain’s current applications and actual capabilities (see for example: “187 Things the Blockchain Is Supposed to Fix”). Secondly, many consider blockchain as an end in itself when it is actually just a tool that serves an objective or purpose. These are probably the two factors that are doing the most damage to the credibility and future of this technology, despite the very promising applications of blockchain.

At its core, blockchain is a form of digital trust, which has a number of potential uses and applications in business because trust is one key component in such a context. However, some of the characteristics of this technology that make it so valuable are also limiting the scope and possibilities of blockchain’s real-world applications beyond trials and prototypes. As with many other things, it is a matter of trade-offs. There is not a single, universal, and magical solution to every problem. So, before blindly jumping on the blockchain bandwagon, it is crucial for Procurement and Supply Chain professionals to know what blockchain is, understand its value proposition, and to be aware of what challenges and issues may be associated with using it.

Limitations and challenges of first-generation blockchains

You can trust data contained in a blockchain because of the way records (blocks) are added and managed. Unlike other methods of data management, blockchain is a decentralized (peer-to-peer) network composed of nodes. There isn’t a single “party” managing and owning the data, but rather a network of independent nodes that operate the network. This removes the risk and temptation of manipulating data. Even if someone was tempted to tamper with the data ,  they would need to find a way to  change it at all “n” nodes of the network simultaneously, which is more or less impossible, or, at the very least, extremely difficult.

A second aspect of blockchain that makes it such a secure data management option is its unique form of record keeping. “Miners” verify every new record and they must reach a consensus to allow a new record to be added to the chain. On top of this, each new record (“block”) contains a link to the previous block, meaning that it is impossible to change or remove a record without editing the entire chain. This is why data in the blockchain is immutable, which is one of the key value proposition of blockchain (although immutability and the new GDPR do not really work well together…).

Looking at the process above, it is easy to imagine that adding a new record in a system like blockchain takes more time than it would in centralized databases. This is because many actors (nodes) are involved and they have to perform tasks (mining) to verify the transactions (and that also serve as prevention against hacking and attacks). So, in its current form, blockchain is a somewhat slow technology when compared to what already exists. For example, Visa processes and verifies transactions more than 7,000 times faster than what happens on the bitcoin network.

Another issue is that, all the nodes of the network store all the data contained in the blockchain. This drastically increases the size of the blockchain, making it slower as it grows and more and more difficult to manage. In short, a blockchain network would explode and become  unmanageable very quickly in a number of real-life scenarios, such as, for example, if blockchain was used to track the origin of materials and parts across all tiers in a company’s supply chain.

There are also other potential threats related to security. Blockchain technology  relies heavily on cryptography and peer-to-peer networks that make it very robust and resilient. However, history has shown that almost nothing is unhackable. The blockchain may be incredibly difficult to hack but someone with the right motivation, tools, and probably a lot of time could, one day, hack it. And, as the blockchain’s popularity grows, so does the potential pay-off for successful hackers! Also, even if we were to assume that the blockchain is  totally unhackable, the systems around it are not. Systems and programs connected to the blockchain may be vulnerable to attacks and/or to bugs.

All in all, the blockchain technology is not a magic solution for every problem. Like any other technology, some trade-offs make it a more or less viable solution. For the blockchain, the trade-off is between three properties: scalability, decentralisation, and security. Today, you cannot get all three!

New and future  generations of blockchain could make it a viable option

A lack of scalability is probably the most serious limitation of blockchain, and it will probably determine the life or death of the technology. The first generations of the blockchain network, like Bitcoin, do not scale at all and are even incredibly dangerous if you look at sustainability issues and energy consumption. Newer generations are addressing this issue by introducing new designs and concepts.

For example, they are moving away from the consensus/mining mechanism that older generations use, which is based on the “Proof of work” concept (miners must perform more and more complex calculations and need more and more computing power and energy to complete them). “Proof of Stake” (PoS) is a newer and much more energy conscious algorithm that will address the “cost” of blockchain and make it a viable option.

Another example of how blockchain technology is being updated can be seen in the radical changes being made to the blockchain’s design. In new conceptualizations of blockchain, the design is moving away from linear models, where one block is only linked to the block before and after it (like links in a chain), and are instead moving towards networks of blocks, where one  block is connected to n other blocks. The benefit of this model is that operations on records can occur simultaneously on several branches of the network.

Too bad to be true?

It is true that there are essential trade-offs (scalability, decentralization, and security) to be aware of and to consider before adopting blockchain technology and moving towards a form of digital trust (which means trusting the software more than other parties). However, in many situations, the benefits offset the challenges and make blockchain the best alternative. A recent real-world example of this is the use of blockchain in a refugee camp as a means to address identity challenges and issues. As Houman Haddad, the UN executive behind the introduction of blockchain technology in a refugee camp in Jordan explains:

“Of course we could do all of what we’re doing today without using blockchain,” he says. But, he adds, “my personal view is that the eventual end goal is digital ID, and beneficiaries must own and control their data.” From “Inside the Jordan refugee camp that runs on blockchain” published in the MIT technology Review in April 2018

Another way to look at the trade-offs/dilemma is to consider what can be achieved with blockchain that was previously impossible. An interesting example in the Procurement / Supply Chain sphere is Productivist a service provider that wants to address the “manufacturing surplus” by connecting, , manufacturing companies and their customers via the blockchain.

Some say I’m negative,

but they’re not positive

But what I got to give,

(The media says this?)

So,  don’t believe the hype…

Instead, proceed cautiously and be aware of what blockchain can and can’t do. Blockchain is undoubtedly a powerful and exciting technology, but it is not yet fully mature and has several limitations, which explains why it still is far from being widely adopted, despite all the hype surrounding it. However, the newest (and future) generations of blockchain (that will probably part ways with “blocks” and “chains”) will make blockchain a more viable application than what is readily available now. These new generations, just like the older ones, will not save the world, but they represent a real and unique opportunity to create a platform/protocol which (new) businesses can build on, and which can help them grow.