Automotive

As automotive technology cycles become more and more dynamic, it is important for automakers and their suppliers to secure critical components, ensure an agile supply chain and optimize the financial opportunities available in the production and distribution processes. Increasingly advanced smart cars, the advent of self-driving cars and consumer expectations for more customized car features make these supply chain goals all the more urgent.

Automotive companies around the world use Skuchain’s EC3 Platform to:

Secure critical components with program buying. From cobalt to semiconductors, several components to a car are critical for its manufacture and have the ability to significantly delay or even shut down an assembly line if not available at the right time and in the necessary quantities.By the time such a shortage is discovered, production plans have to be adjusted by weeks, or even months, and the supply chain has to throw enormous resources towards procuring the necessary components.

On EC3, automakers and their suppliers can easily manage a Program Buying campaign to ensure the optimal supply of these components at an advantageous price at all times. Companies specify a quota of raw materials they’d like to procure from suppliers. As this quota is fulfilled by mid-tier suppliers downstream, the appropriate amounts are debited, and the buyer is automatically notified so it can make an informed decision about whether to adjust or replenish the quota. This data and the decisions that result from it can be shared and implemented across supply chain partners in real-time as part of a secure distributed ledger. To go one level deeper, automakers can track the inventory itself on the blockchain and know exactly which items were used to fulfill their particular quota by a given supplier.

Collaboratively plan across supply chains. While Just In Time (JIT) procurement is the gold standard for automotive supply chains, it is becoming harder and harder to achieve with rapidly changing technologies and consumer preferences. The risk for an automaker is that parts on hand will either be too high or too low, leading to excess inventory in danger of becoming obsolete or massive additional procurement expense if there is an unforeseen spike in demand.

The key to minimizing these risks is to plan in a collaborative manner by sharing critical information across the supply chain. Any blockchain platform will allow for this data to be distributed in a decentralized way across supply chain partners. Not all data can be shared, however, and some data may be used in an algorithm but cannot be revealed in its raw form. That’s where EC3 comes in to make collaborative planning a practical reality. Using our smart contracts system and cutting-edge zero-knowledge technology, EC3 is able to

  • Hide sensitive data from specific users on the blockchain
  • Store sensitive data in the EC3 system without logging it to the blockchain
  • Use encrypted data in computations without ever decrypting the data

When an automaker knows that its sensitive information can be used by supply chain partners to plan without compromising confidentiality, they are finally able to share this information and enable a much more efficiently planned supply chain.

Finance suppliers all the way upstream with the lowest rate in the supply chain. Automotive companies can unlock new financial opportunities in the production and distribution processes of their supply chain using blockchain. Traditional invoice factoring or receivables financing is a post shipment invoice-accepted model.

In this model:

  • The financier provides 80% or 90% of the face value of the invoice to the seller and the remaining on final payment by the buyer (minus a discount fee).
  • The financier needs to ensure that (a) The receivables are ‘perfected’ (i.e. do not have any liens, etc. and (b) The buyer has ‘accepted’ to pay the invoice and there are no disputes.

Our BOM Buyer is a completely different way of freeing up capital in the supply chain that turns inventory into financeable assets. A special purpose vehicle governed by a smart contract takes ‘title’ to the underlying good.

There are three main benefits to the BOM Buyer:

  • Lower COGS for Buyers and lower financing costs for Suppliers, compared to both traditional supply chain finance and inventory finance without blockchain
  • Can offer all Suppliers access to the Buyer’s cost of capital, without affecting the Buyer’s credit or having to draw from the Buyer’s credit facilities
  • Ensure a much more financially healthy supply chain with minimal excess inventory on balance sheets

What does a typical BOM Buyer deal look like?

  • Four parties: a Buyer, a Supplier, a Special Purpose Vehicle (can be owned by Skuchain, a bank or by the Buyer) and a Bank
  • Five steps:
    • A Special Purpose Vehicle enters into a JIT sales agreement with the Supplier, and the Buyer assigns their right to make payment and receive title to the inventory from the existing Master Purchase Agreement with the Supplier.
    • A Buyer offers a payment guarantee for any inventory that is part of this deal, subject to quality control, performance, etc.
    • A Bank will fund the SPV at the Buyer’s cost of capital in anticipation of a deal.
    • The SPV will buy inventory from the Supplier at a discount equal to the financing rate, and pay at terms advantageous to the Supplier.
    • The SPV will sell the inventory to the Buyer, possibly at a lower price than the face value of an invoice, and receive payment at terms advantageous to the Buyer.

What does blockchain bring to this deal?

  • Secure attestations allowing for ease of transmission: By placing agreements and trade documentation on the Blockchain, we provide a secure and trustable medium to transmit the details of a trade to various parties. This allows for portability of transaction information.
  • Reduced operational friction: The investment to make any change in supply chain process is small. Supply chain partners are still able to hide information they don’t want to share with others. The ecosystem can have transparency and visibility to the extent necessary to get the best risk profile and lowest cost for financing.
  • Significantly reduced workload: Operators who had to search for, compile and share the same information over and over again to banks, credit insurance companies and transaction participants are now able to streamline the process while adding security. The transaction process is standardized. There is no need to do an in-depth evaluation of each new transaction.
  • Scalability and additional profit opportunities: Allows for buyers and suppliers to participate and run transactions of any size on the same platform. Multiple tiers of suppliers can now be included in the same inventory financing program, whereas only single tiers could participate before because of the expense and lack of visibility.
  • Perpetual audit system: All aspects of the trade are now available to be audited in real time by the appropriate parties.
  • Traceability: Applicable SKU level traceability can be made available to relevant parties in real time.

Obtain distribution financing. To recognize revenue earlier in the sales cycle and ensure the most optimal distribution of goods that can fast become obsolete, a complex and process and diligence-heavy distribution scheme is necessary. The BOM Buyer dramatically reduces the cost of executing distribution financing arrangements between OEMs, VMI services, dealers and end-buyers, democratizing a previously obscure and unavailable form of capital.

What does a typical BOM Buyer deal look like?

  • Four parties: a Buyer, a Supplier, a Special Purpose Vehicle (can be owned by Skuchain, a bank or by the Buyer) and a Bank
  • Five steps:
    • A Special Purpose Vehicle enters into a JIT sales agreement with the Supplier, and the Buyer assigns their right to make payment and receive title to the inventory from the existing Master Purchase Agreement with the Supplier.
    • A Buyer offers a payment guarantee for any inventory that is part of this deal, subject to quality control, performance, etc.
    • A Bank will fund the SPV at the Buyer’s cost of capital in anticipation of a deal.
    • The SPV will buy inventory from the Supplier at a discount equal to the financing rate, and pay at terms advantageous to the Supplier.
    • The SPV will sell the inventory to the Buyer, possibly at a lower price than the face value of an invoice, and receive payment at terms advantageous to the Buyer.

What does blockchain bring to this deal?

  • Secure attestations allowing for ease of transmission: By placing agreements and trade documentation on the Blockchain, we provide a secure and trustable medium to transmit the details of a trade to various parties. This allows for portability of transaction information.
  • Reduced operational friction: The investment to make any change in supply chain process is small. Supply chain partners are still able to hide information they don’t want to share with others. The ecosystem can have transparency and visibility to the extent necessary to get the best risk profile and lowest cost for financing.
  • Significantly reduced workload: Operators who had to search for, compile and share the same information over and over again to banks, credit insurance companies and transaction participants are now able to streamline the process while adding security. The transaction process is standardized. There is no need to do an in-depth evaluation of each new transaction.
  • Scalability and additional profit opportunities: Allows for buyers and suppliers to participate and run transactions of any size on the same platform. Multiple tiers of suppliers can now be included in the same inventory financing program, whereas only single tiers could participate before because of the expense and lack of visibility.
  • Perpetual audit system: All aspects of the trade are now available to be audited in real time by the appropriate parties.
  • Traceability: Applicable SKU level traceability can be made available to relevant parties in real time.

Automate the reconciliation of their chargebacks. Chargeback and rebate programs help ensure efficient pricing and distribution of critical raw materials and part subassemblies for automotive supply chains. In order to successfully implement such a program, a company has to perform an audit on goods sold and match specific POs and invoices to the inventory itself. This reconciliation process is currently a labor-intensive endeavor that puts companies at risk of error and missing deadlines for claiming and receiving chargebacks.

By using a combination of our Popcodes and Brackets systems, companies are able to automate this audit and reconciliation as inventory makes its way across the supply chain. A real-time audit not only saves on the cost of manual reconciliation, but also unlocks new revenue optimization opportunities due to immediate visibility into how inventory is moving and resulting in sales and chargebacks.

Ensure traceability of their parts. Having greater visibility into your supply chain means greater agility and, more importantly, control. Automotive companies use EC3 to track the real-time movement of their parts so they can optimize inventory procurement, production planning, quality control and delivery to the end-buyer. Our Popcodes are crypto-serialized identifiers that can track goods on the SKU level. Once logged onto the blockchain, Popcodes provide bank-grade traceability to track physical value in the supply chain.

Our patented Popcode technology is sophisticated in its ability to track the transformation of sub-assemblies, parts and raw materials used to make a finished product so there are no gaps in visibility throughout the product life cycle. Using Popcodes, an enterprise can gain just-in-time data across the entire supply chain ecosystem, enabling optimal agility and planning.

Obtain valuable feedback and facilitate brand engagement for one-to-one marketing and more accurate demand forecasting.  In the same way that Popcodes has been widely adopted as unique digital identifiers in the supply chain for tracking goods down to the SKU level, they can be used as a tool for distribution and retail down to the individual customer level. In production, a factory worker scans a Popcode with her mobile phone to log information about a part.

In distribution, a customer scans a Popcode with her mobile phone to participate in her chosen brand’s activation campaign and engage on a deeper level.

Brand activation with Popcodes solidifies customer relationships and feeds crucial data on customer behavior back to the brand. The result is a dependable channel for one-to-one marketing with customers and feedback that will be valuable for more accurate demand forecasting and, ultimately, production planning.