IBM and Sichan Hejia Co Ltd (Hejia) have launched a blockchain-based platform for pharmaceutical procurement. Known as the Yijian Blockchain Technology Application System it is a permissioned blockchain platform built on the Hyperledger Fabric. This will allow suppliers to get paid faster by providing greater visibility into the supply chain.
According to Mr Leng Tianhui, Board Chairman of Hejia, said, “The launch of the supply chain financial services platform marks a milestone for the cooperation between Hejia and IBM on the innovative application of blockchain technology. In the future, the platform will expand to include more industries to provide participating companies and financial institutions with transparent and efficient financing services built on blockchain-based innovation in a business model that will contribute to China’s economic development.”
Why the pharmaceutical supply chain?
The key issue here is about supplier payment, transparency and fraud reduction. The average payment terms for small suppliers in China, as in other countries, is 60-90 days after the goods are delivered. Supplier disputes are often around what was delivered and when. They can tie up large amounts of money and take a lot of time to resolve. For small businesses this can leave them not only out of pocket but out of business.
Using blockchain to validate each step of the process means that small manufacturers can prove when they delivered goods to shippers and distributors. Those same shipping and distribution companies can then agree the goods were delivered and when the goods moved through the supply chain. Should the goods go missing or be replaced with fakes, the blockchain solution will show where the chain of trust was broken.
This allows financial institutions to pay suppliers while goods are still in transit through the supply chain. It also reduces the cost to small suppliers of invoice factoring. Long payment periods and a high risk of disputes means that factoring companies charge higher fees. With blockchain there is no issue over disputes.
This system is similar in design to that put in place by Indian conglomerate Mahindra earlier this year. That system is also being made available to Mahindra Finance. They will monitor the blockchain and offer early payment to small businesses. Both India and China are heavily reliant on small businesses. This means that this is more than just a solution for the supply chain. It has the potential to deliver a major economic benefit to SMEs.
Supply chain and finance have both jumped aboard the blockchain express. Importantly, without the Hyperledger Fabric and its permissioned model this would have been much harder. There is now a serious movement behind this use of blockchain and it will only get bigger. The question for developers is “how quickly can they incorporate this into wider systems?”
One of the surprises is how slow the traditional supply chain and ERP solutions have been to adopt blockchain. Many of the solutions that are coming to market are new applications and solutions. Recently SAP ARIBA announced that they are adopting a Hyperledger-based blockchain solution.
We are beginning to see the first signs of permissioned blockchain beginning to disrupt established businesses. It took a while for ERP, CRM, Accounting and other solutions to adopt to the threat from born-on-the-cloud companies. Supply chain software and some finance businesses need to look at the disruption blockchain is bringing. If they don’t they could find themselves outmanoeuvred very quickly.