Blockchain Technology in Procurement and Supply Chain Management

Speaker:

Mr. Ajaay Kapur is a businessman with a track record in procurement and supply chain management, driving, strategic planning, logistics, and warehouse management, value engineering, vendor management components sourcing and in many more fields. Mr. Ajaay Kapur is currently working with HSBC group as head procurement, he is also six Sigma black belt certified.

 

On introducing, Ajaay Kapur delights everyone with his virtual appearance by saying good morning to all of his friends and colleagues and thanking all the viewers. He is glad to be here as a participant while thanking Mr. Mohan Deshpande, Dr. Nitin Shankar Nagrale, and Mr. Sanjay Goyal for creating a strong foundation on HPMF, saying “you people are just working to nurture the skillset of hospitality, procurement, and thanks to Mr. Anand Kishor for creating a great platform where suppliers and the buyers are connected through digital platform in order to explore business opportunity and narrow down the gap so that it should be a win-win situation for buyers as well as suppliers.” 

Now, Ajaay Kapur will start his blockchain presentation. He exaggerated people are working on cord of the Garland where beautiful or a variety of the flowers in terms of the supplier, buyers or the customers are, sitting or maybe connected through digital cord.

“Now I will just start or give more insight about the blockchain technology, how the blockchain technology has started. And before starting the blockchain technology or getting more insight about the blockchain, first, I will just share about the sourcing function, how the sourcing function was evolved. See, sourcing function or the procurement function was adopted and the more management focus was on the cost-cutting. After nineties, it was a decentralized and the Excel-based and there was a no separate function. Business was managing the sourcing function or the procurement function. And the objective was cost reduction. And in 2019, and between 2000. A different thought where the industry was thinking, can we have some mechanism where we can just focus on the processes and they start exploring a separate function and warehouse logistics, or maybe purchase order, or maybe the commitment through some distal mode. And the focus was on the cost-saving, just see cost-cutting cost reduction and the cost saving. After 2000, when there was a Y2K problem and where every industry was thinking to go for the technology, it was called as a technology era where Oracle ERP, sourcing strategy and the focus was cost optimization, alternate sourcing, global sourcing or the spend analysis. Now we are in the phase of that digital era where cloud artificial intelligence, RPO, e-catalog e-commerce, e-suppliers, e-invoicing, e-contract management, barcoding, or RFID kind of warehouse mechanism. And the focus was on the value chain. It is called the distal area and the blockchain is also one of the elements in the digital era.”

 

Why Technology Is Important – Briefly Explained by Ajaay Kapur

“Just to give some brief background, if you see in eighties’ or nineties’ where the core focus was in order to execute any job, focus was to deploy more and more manpower. But the operating cost was very high and the higher error rates & low control and the compliance and the low productivity. And then people will start looking for the processes so that they will able to standardize the process and to have more control, to optimize the cost also, and to have more productivity. And after 2000, everybody was talking about the technology. So that we will be able to have less operating costs, more compliance, more productivity, and the faster execution and the efficiency in the system.”

“In every sourcing, there are three stakeholders are involved. One is a business. Second is a procurement and the third is a partner. For CAPEX or OPEX, if all the three gears are not aligned, there will be some knocking in the system which creates customer dissatisfaction, delay or maybe you can have overhead cost. Also, it is called the overrunning cost. Also, we need to understand what is the expectation of our customers? Our customer is expecting more value, more innovation, timely delivery, competitive price, and the consistency in the quality. The role of the procurement function is very important where if you see procurement resource has to manage, it is a kind of manage multiple things. One thing is a timely delivery. Second is to understand the business requirement and translate in a very well manner. And the third is vendor management where if you see, it is a kind of procurement resources or working as a bridge between the partners and the business to narrow down the gap in terms of the deliverables, in terms of the payments, in terms of the innovation and the parallelly We have some governance policy. Also. I will just say it is a “Laxman rekha.” Where We need to have more audits, reviews, approvers, and policies, or. And the last one is a cost optimization and we need to focus on the new product and the innovation, so that we will be able to compete. And we will able to create an impact on the organization strategy.” 

“In the organization strategy, there are three principles, one is a customer – which is a very important element and with the help of the customer, there is a generating a top-line and parallelly we need to see how to meet the expectation of the customer. Second is a cost also. In the cost, we need to create as more value and parallelly - we need to see in an optimal manner or in a very less operating costs, we need to manage the show. And the last one is how the competitors are doing and we have to be a differentiator and parallelly we need to establish our brand.  The role of the procurement function, or maybe the sourcing department has to align with the organization's objectives so that we will able to create the space in the orientation. Otherwise, they will treat as a support function.”

Mr. Ajaay Kapur have created a “Flow diagram” of the sourcing process. “One side, we have the suppliers, the people are just creating components. And then there is a transportation, logistics, planning team and parallelly, in other side, you will find there are customers who are just generating demand and the business owner, there is an order management and the information is flowing in the backward direction and the material is flowing in the forward direction in order to meet the expectation of the customers.”

“There is the complete chart I created in order to understand the weak links in the sourcing process. Like at the supplier side, you will find lack of traceability of the raw material, because all of us are from the hospitality industry where the raw material, or maybe the food, or maybe the kind of equipment we are purchasing for our organization.

“There should be a complete visibility of the raw material. And second is an insufficient control of the parameters because sitting in the offices is very difficult for us to understand how the partner or the vendor, or maybe tire one or two partners created or manufactured the component. And now everybody's just going for the manual process. Still, we have some processes where people are managing through Manuel and the lack of information in terms of change management, specification, or maybe there is, I will not say it's a robust process in order to understand the complete flow of information from an organization to the supplier, or maybe retired to partner and somewhere we are facing some challenge. That is why, if you see, I have written is a weak link and there is a no real time information, flowing from organization to partners or the tier-2 partners. And the other side also in the warehouse logistic also same. And I've highlighted some of the key points, no real-time information about the carrier or transportation in case of any reversal of their transportation, people are facing lot of problems. And some of the materials are lying in our warehouse, or maybe the supplier warehouse where we don't have mechanism or understanding how to dispose of. In the warehouse also in terms of the river, or maybe lack of control about the obsolete product.  In the manufacturing side, there is a PPC department where the information is flowing from our sales and marketing department, where people are executing and creating as a production plan. And accordingly, the people are just sharing their production plan to the different departments of the sub-departments and accordingly people are just sharing their, uh, plan with the suppliers so that we will able to create, but it is a kind of manual process and still industry is struggling hard in order to have robust process.  In the quality check also where we are just working and trying to create, quality assurance function type of a mechanism where vendors or the suppliers sharing their reports. And we are just giving the confirmation. Yes, the people are checked, but there is a new strong, or is a, technology-based a mechanism where we will get some insurance. Yes. The people have checked the parameter and there is no tampering or maybe the manipulation in the reports.”

“And the last in the same distinguished distribution also, where if you see, we don't have the complete visibility about the product manufactured by the supplier. And when they will receive the product at our premises, maybe there are different channels in between transportation has to face is a kind of ideals or maybe the interstate transport, also paperwork, also GST requirement - all these things are the weak link where we need to see how to stand on our supply chain process so that we will able to create an ecosystem in the supply chain domain”

“Further, Mr. Ajaay Kapur explains the overall crux in the last slide where the explanation relies on information primarily, the traceability secondarily, and the third is trust. “These are the three components where it is creating a weak link in our complete supply chain domain. Now how we can address all of these? If you see blockchain is a technology where we can address all these issues. Initially, blockchain technology was used for cryptocurrency by Satoshi Nakamoto in 2008 years, presented one paper's earlier name was block and the chain, and there was two different names. And later on, he has decided to name in one word as blockchain. And it was used for cryptocurrency and the industry leaders, they thought, can have some mechanism or where we can use this blockchain technology in the supply chain domain so that we will have the complete ecosystem or we will able to address is the information problem, traceability, and that trust. It is same as blockchain is nothing. It is same as a book where if you see every book has some content is a title chapter page number, in the same manner, we will have in the blockchain technology. Also, we will have some blogs and that information is written on the blog automatically. And so that we will have the complete insight about the information trust. Already, I had just discussed how the blockchain technology was evolved. And now industry's thinking, can we use this technology in the different domain of the supply chain?” 

“Before going for the blockchain technology. First, we need to understand what are the different data people are using databases? One is a centralized data. Second is a decentralized and the third is a distributed database where the blockchain technology is based on that distributed ledger of the distributed database. First, we need to understand what is a centralized database? With some examples, I will share my thoughts.”

“ If you see, we all are from the hospitality industry or hotel industry in the hotel industry, all the data is residing in the hotel database we used to say it is a centralized data where if you'll see, we have the terminals, all the data is moving from a centralized database to other terminals. And it is called a single point where everything is back up - everything is taken at a single point and they are. It is a highly unstable and chances of data security is very high and difficult for us to, and is a high cost in terms of scalability.”

“The second example is a decentralized data where if you see, we have a hotel industry, airlines, industry, customer database, and if all three data are well connected with each other, but they have their own servers or maybe other things, it is called a distributed ledger where data is distributed amongst all the different domain and they are connected with their own terminals.”

“And the last reason air traffic control system is based upon the distributed ledger, where all terminals are well connected with each other. And it is very difficult for us or maybe the, anybody to temper the data or end up in case of any failure, we have some mechanism or it is a kind of a backup of the data from once a terminal to another terminal. That is why, if you see it is called a distributed database, see the difference between the decentralized and distributed, where it will see the nodes. It is called a node in blockchain technology. One terminal is called a node and they are well connected with each other so that we will have more trust in that.”

“In a nutshell, the blockchain technology works on the shared ledger, where if you see all the records and other things are shared with the some selected partners or with the some terminals. And other one is a cryptography where the ensuring the secure and authentic and the verification of the transaction because initially, the people have started. Mr. Nakamoto has started this blockchain technology for cryptocurrency where it was planned or it was decided that we will have more authenticated transactions. And the third one is a network is based upon the consensus where multiple stakeholders are connected with the nodes. And there is a mechanism in the blockchain where more than 50% people give the consent, then only the transaction, or maybe the data will share from one node to another node. And the third which is a last one is a smart contract where industries, most of the industries are using the smart contract in order to enhance their efficiency productivity. Now, I will just share some of the application of the blockchain in the supply chain domain, so that we will have more insight of the blockchain.”

 

Why Blockchain Technologies Is Not Tempered?

If you see anybody who is looking to change the some transaction from 74 blocks, it is difficult for him because he has to change all the blocks from 71 to 91. That is why it is saying we'll have more trust in the blockchain technology where data is not able to temper. 

Here's one of the example, as we all are from the hospitality industry. If you see in the juices, uh, if you are, we are just giving to our customer in the customer is looking to understand the complete process, In this case, it is called a farm to fork where is the farmer is a one of the node and the customer is also one of the node. In between, we have the warehouse, transportation, distribution, storage, these are all notes. They are well-connected with each other. So that the complete ecosystem is there where customer have the complete insight about the which plant. Let us take the example of the mango. If the customer is looking the mango juice, he has the complete inside, location of the plant. And when the people have like the plan from the mango, from the trees and then the people have gone for the next process is a processing, what temperature they be able to use and what are the ingredients David blow use. All these things are of liberal with the customer. Even the transportation, everything is available to the customer with the helper because they are well-connected with each other, with the help of the nodes being as a distributed ledger.

And the second example where if you see buyers, suppliers, and carriers, they are well-connected under the thumb off shared with anywhere in the manufacturing sector, like in the auto oil industry because there are multiple variants and other things also because of the business, on their demand from the sales or the marketing team. Maybe every week people are refreshing their inventory level or to understand the different components. Now in the present scenario where the manufacturers, these palaces are checking their inventory level and parallelly, people are communicating their suppliers in order to have. Components on-time delivery, sometimes components are not available.

And now with the help of the shared ledger where suppliers, buyers tire to partners, or maybe the carrier, or maybe the dealer distributor are well-connected. So that in case of any demand from the customer for the different color or different way, where manufacturers, suppliers tire to partners or warehouse logistics - they will have the same kind of information and flow of information where People will able to understand which kind of component or maybe the material is required accordingly. They will start processing, or they will try to find out what is the kind of inventory level at their end. And with these people are able to optimize our inventory level also because in the current scenario. Every inventory manufacturing, most of the OEM, people are not keeping the inventory at their end.

“People are requesting their partner to keep the inventory at their rent and the based upon the fluctuation or the increase or decrease in demand, they will request partner to manage there. And with this, I think we'll be able to optimize the inventory level. Also under the smart contract with the help of the blockchain, we will have a complete insight also right now, if you see in case of, LOC, where we are getting some imported goods and the vessel is coming, in the current scenario, once we will receive the vessel, then only we certified the invoice and then the bank disburse, the payment to the manufacturer in the current, in the proposed scenario with the help of the blockchain, where Custom department or maybe the daily delivery trade. Every people are on the blockchain technology and with the help of the blockchain technology, if the vessel or the material received in the warehouse, quickly bank will trigger for the payment so that whereas a buyer, we have the opportunity to negotiate the better pricing, because if you see, in terms of the payment terms, there is also one of the key elements in the negotiation process and with the help of the blockchain, we are able to shorten the payment time payment like a shorter span of the payment, and we, people are able to get the benefit in terms of the pricing while negotiating with the partners.”

“Other application like if with the help of the blockchain in the pharma industry, a lot of people are doing the research and they are thinking or doing some pilots on the blockchain technology in order to counter file their medicine or the fake medicine so that people will able to understand as a customer also, I have the complete visibility if we are going and in medical store and people are purchasing some medicine right now, we don't have any mechanics. To check whether the medicine is genuine or is a fake, but with the help of the blockchain technology, where there will be some barcoding where you have some app in your mobile, where you can just scan and you will able to get the complete insight of the lot control of the medicine so that you will get that trust or maybe confidence about the medicine. Yes, it is a genuine medicine, and the same manner we are some different in terms of the second-hand car. Again, industry, just thinking, can use the blockchain technology in the second-hand car also? Well, we are right now, if you are planning to buy a second-hand car and you don't have insight about the complete lifecycle of the car in terms of the accident services and major fault in the cars, see the car, drive the car. And the based upon that we are taking some calls, but with the help of the blockchain technology like dealers, suppliers, or as a customer, also, we all are on the blockchain technology where you will have complete insight about the insurance service record and the claims also, and accordingly you can just take the decision and accordingly you can just plan once again, quickly.”

 

How Technology Has Played A Critical Role In Sourcing Process? 

Technology has played a crucial role in sourcing process - maybe it’s in the manufacturing processes or another domain. Mr. Ajaay Kapur has discussed about the technology is a kind of role of the procurement process in every CAPEX and OPEX, three stakeholders are involved. One is a business government and the partner, if all the three gears are not aligned, there will be some knocking in the system.

And we need to see how to meet the expectation of the customer. Our customer is expecting more value, innovation, timely delivery, and competitive price – the consistency. Those are one of the slide where if you see pre-code, my team has to balance multiple tasks. One is a cost optimization deliveries, business meetings, and a business requirement.

“Now, Ajaay Kapur is going to share his presentation through the video conferencing. It will give more insight about the, how the procurement function and the purchase function is aligned with the orientation strategies. One side you have the customer, second is the cost and the, how the competitors are doing very busy. Most of the time buyers are connected with the suppliers and they are getting more into. From the suppliers, how the industry's moving, what kind of new product and how the other competitors are doing so that you, we, people are able to replicate the same thing in our orientation. Also. This is a forward supply chain process, how the suppliers and the flow of information and the flow of material is flowing from supplier to customer and the how the information is flowing backward from customer to suppliers, with the help of the PPC department and order management, process.”

As discussed, the weak link in the supply chain, domain, lack of traceability, insufficient control of the para manufacturing parameters. There is no real-time information and suppliers, buyers, and the PPC departments are not aligned with each other. And the flow of information is not going the real-time.

And if you see a weak link, these are the basically main headers. One is the information traceability and the trust already out shared. What is the meaning? I think we all are from the supply chain domain, or maybe the procurement people are able to understand the terms already discussed with the blockchain, how the blockchain technology is working, how the blockchain technology was evolved by a Satoshi Nakamoto in 2008 and different types of debts. Centralized data currently, we are using the hotel industry where all data reside in our server and time to time, it is just all the terminals are connected with the server, but there are some limitation or maybe some problem or challenge with the centralized data and is a decentralized data like hotel, airline industry, customer database, and the railway database.

Link with each other, but they are connected with some of their own terminals and it is called the decentralized data. But blockchain technology works on the distributed ledger where air traffic control system works on the distributed ledger, where all terminals in this mechanism is called a nodes and they are well-connected with each other.

These are the four big blocks of the blockchain technology. One is a shared ledger, cryptography consensus, and the smart contract. This is basically why blockchain technology is saying is a more trust with respect to the other, uh, database because in blockchain technology. Every block has some information and people are not able to change until, or unless they should have some different mechanism to wipe off the block information from the blockchain.

And that is why, if you see it is saying it is a more trustable mechanism in the financial sector, as well as now is thinking, can we use this mechanism in our, uh, other domain? Also, these are the basically application of the blockchain I shared with. It is called a farm to fork where as a customer who is just consuming the product and he has the complete visibility about the mango, location of the mangoes also. And when they people have blood from the plant and what are the temperature, the people are just process and who the person was and which location they, people are just manufacturing, which date, all this information is of liberal with the customer. And the recently Walmart has started this, uh, blockchain technology in their domain. And the people are just extending to other partners also, and presently, these people are planned with some of the few suppliers. Now they are expanding to other partners. This is a shared ledger where suppliers is more towards the planning stage and the PPC stage where demands is fluctuation in nature, where the buyer suppliers and the other tire to partners, or maybe the distributors, all these things are all our partners are on the common platform are well-connected with the blockchain technology. So that flow of information, the communication is the real time and people are able to plan their activities. And with the help of this, people are able to optimize the cost, optimize the inventory. It is a LOC process in the smart contract domain, where in case of the imported goods where the current scenario is, once the goods is received, based upon the confirmation where bank is disbursing the payment to importer in the same manner, if all the stakeholders like custom department, one thing that is real-time information is coming to all the stakeholders and accordingly people are just getting the confirmation. Yes. Delivery reached to X location, or maybe the Y location. Even the customer department, they have the complete visibility about the all the papers right now.

If you see it is a manual process and people are just like lot of clarification, a lot of the manual work is required, but with the help of the blockchain people, our custom department, they will able to understand the complete, uh, the requirement at the initial state and the ones that people have received the confirmation weekly.

These are the, some of the other than the hospitality industry. These are the other applications of the blockchain. Like blockchain technology has the capability. And the recently over India government is also thinking to start the blockchain technology in the land registration process also, because if you see right now is a manual process and slowly, slowly, they are thinking, can we have some mechanism where we will go for the distal or discoloration of our block is a registration process.

Uh, and so that right now there are gray area where people have. When people can exploit the registration land, registration process, and they can just impact the other people also other owner also, but with the help of the blockchain technology with. People are not able to temper the data like fake medicine already.

I've shared import duty shipments example already. I will discuss auto well second hand car. I just discuss how people are able to get the comfort while purchasing the second end car and in the automobile industry, if you have book any Mercedes Benz and you are looking the real information about your vehicle, when you will get the vehicle progress of the vehicle or during the manufacturing, in case of any problems during the purchase, you will have the complete insight about the, any defect or replacement of the part, uh, OEM has done during the manufacturing process so that the people are able to correlate in case of any warranty.

“There are some criticism and the challenge also in the blockchain technology, it is a new technology where everybody is. Doing or exploring or doing some experiment also. And the secondary is not regulated. Right now, if you see a government is also thinking because, and the third one is a large energy consumption because multiple nodes or multiple terminals are connected with each other and the flow of information is going from one terminal to another. And that is where if you see it is consuming the high electricity or in the. Integration is a concern like. I'm just taking the example of the auto mobile industry. One supplier is ready to go for the blockchain technology, maybe another supplier - he has some challenge. He doesn't want to go for the blockchain. Then we are not able to create an ecosystem. Second, I'm just giving another example like in the insurance industry, I have taken the policy from max life insurance. Now I'm planning to take the policy from the LIC also, but. LIC is not on the blockchain, then we will not able to create the ecosystem. Objective is all the notes are well-connected and give the consensus. Then only we are able to create the blockchain technology because objective is in case of going for a new policy from max life. So that in case I have taken the policy from the life insurance, I will have the complete visibility from the life in LIC also. And again, I will not go for credential verification or maybe medical and the other formalities or due diligence of the customer because. In the past customer has taken the policy from LIC. Now I need not to go, but the thing is that there are some challenge where people are not comfortable and not ready to share their data.”

And that is why if you see, integration is a challenge and the cost is also associated, cost is very high in the blockchain technology. And thank you very much. 

Now I'm ready to take questions. We are five minute. Thank you for taking us through the presentation again, really? Sorry for not intimidating you before.

 

Question: how do we apply blockchain technology in our hospitality industry? What are the ways, basically? I'm trying to understand what you'd say. There's one more. Uh, as we all know, blockchain technology has been in line in any industry in India. How can we do in our hospitality industry?

Answer: I think both the questions are related each other. I will just, I think in my previous slide I have shared, uh, some of the examples. I'm just because today you just either kind of, as always just creating a supplier buyer, a space where people are well connected with each other, I will just give one example, any manufacturer who is supplying some equipment to, uh, any hotel.

 

Let us take the example of any hotel and in case of any fault in the ma a bit of a first time. In case of any fault right now, if you see the processes, once you will receive the good and during the operating or the execution of the equipment, you'll find there is some challenge in terms of operation.

And then you will realize there is some fault in the motor and now. That's part of the process. Maybe your business team will connect with the procurement function and they will say your equipment is not working. And then you will just connect with the supplier. Viewpoint is not, he will come and he will verify, and then he will go to his own manufacturing.

Uh, supplier, and then he will realize, and he will do some root cause analysis and let you know, try to understand right now the flow of information is going from business to procurement supplier, or maybe a tire one tire to supplier in the sequence, shell manner. We don't have, if we all are on the blockchain technology, definitely we, people are able to connect with each other and we will have that real time information about and quickly people are able to resolve the problem or maybe replace the problem because, in the present scenario, the information is flowing in the sequential manner - not a distributed with the help of the blockchain. The information will flow in the distributed manner. All the people will start working in case of any problem and quickly we will, are able to resolve the problem. Because we'll get them. Most of the time I've seen it is related to lot control.

Sometime we will are taking a lot of time and the supplier is also taking data. They can give out, but, accordingly they will see the similar problem was observing the other component also. And accordingly, they will just share their thought process and they will replace the component in case of any warranty.

So this is. In terms of warranty in the hospitality industry, especially in the equipment, a domain, a CAPEX item. And the second example, I'm just sharing - It's a kind of a smart way of planning also like in the hospitality industry, it is based upon the customer driven organization. Hotel industry is a customer where every time customer is asking - maybe if you, I'm just taking some jam where the demands. Apple Jam is very high. All of a sudden there is some change in the demand of strawberry jam where buyers has to connect with the supplier and they need to find out the supplier for arranging the strawberry jams as a part of the sourcing process, because, and the manufacturer, they are not manifesting the strawberry jam. They are manufacturing the appellant. Then he has to just change the process because now the intimate. From your chef to buyers, buyers, to suppliers, and then it is going to the tie to partner, or maybe some other people also with the help of the blockchain technology, the information will flow same time with the suppliers as well as the buyer also. 

There is some demand and accordingly they will start working on the requirement. And so that we get the quickly people are able to deliver the things. And the third thing in terms of, because if you see, uh, in the hospitality industry, in case of any problem related to some food, and then it is very difficult for us to do some root cause analysis, in case of, some taste or maybe some get the expiry of the goods, or maybe some people are given that temper, goods or maybe food. Then we, people are able to understand how to kill this problem or replenish the lot in the fast manner.

 

Speaker: 

Mr. Ajaay Kapur is a businessman with a track record in procurement and supply chain management, driving, strategic planning, logistics, and warehouse management, value engineering, vendor management components sourcing and in many more fields. Mr. Ajaay Kapur is currently working with HSBC group as head procurement, he is also six Sigma black belt certified. 

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