Are businesses doing enough to leverage their data residing on multiple technology platforms? Are they able to monetize their data flow?
With the advent of better technology that has steadily become integrated with multiple business processes, operational efficiency has seen dramatic changes. Changes that are being driven by better information flow. Notwithstanding the gains made, I believe entrepreneurs are still missing out on the ability to mine the information contained in their transactions across technology platforms to improve liquidity and reduce working capital requirements.
I believe that supply chain platforms can be used by businesses to improve their working capital management by identifying and addressing inefficiencies. For instance, a facilities management company that we have worked with was growing faster than its banker’s working capital limit. The Company started resorting to short term business loans that came at a high interest rate. By demonstrating its strong payment track record with its IT customers, the Company was able to obtain sales bill discounting at a much lower rate thereby reducing the need for ad-hoc borrowing.
However, the benefits of relying on supply chain data come with some risks and one of the immediate risks is the authenticity of data flowing on these platforms. It is incumbent upon lenders and their technology partners to develop solutions to mitigate these risks.
Supply chain finance involves extensive amount of manual inspections and paper-based transactions. This process also involves a large number of intermediaries and hence there are high risks of inaccurate transaction data, duplicate or missing data, modification without adequate notice etc. It is for all stakeholders to ensure that risks do not overpower the larger benefits of data-based supply chain finance. These risks can be mitigated by the advent of new age technologies like blockchain. Blockchain can potentially transform financial services, including, bringing about innovation in how supply chain data is exchanged.
Blockchain is a distributed database. It can be imagined as a network of computers (nodes), each running a copy of the database. Changes made in each node is broadcast and replicated in every other copy. The business rules for modification of data is realised through a mechanism known as smart contracts, which are a-priori agreed by all parties, this ensures that any change done by any one party is as per agreed terms and conditions. Since the changes are logged in an authenticated manner and broadcast to all nodes, the database has an immutable and non-repudiable log of all changes done by all parties, thus increasing trust in the shared data. In use cases, where multiple organisations need interaction in a workflow and common records need to be updated by more than one organisation, the technology is quite useful in achieving a secure, trusted and a scalable solution.
My team and I are very excited by all that blockchain has to offer to financial services, particularly to our supply chain platform solutions, which we are completely re-engineering to utilise the irrefutability and security features that are an integral part of the technology.