Energy

The needs of energy supply chains are as diverse as supporting heavy manufacturing operations to financing commodities procurement and distribution.

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

Finance procurement of commodities and inventory across the supply chain. Both energy commodities, such as cobalt, lithium, rare earths, petroleum and natural gas, and part sub-assemblies that go into infrastructure or finished products for manufacturers and energy companies can be financed on the 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.

Secure critical raw materials with program buying. From cobalt to lithium and rare earths, several raw materials are critical for the manufacture of energy-efficient finished goods 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 to avoid further delays or order cancellations.

On EC3, manufacturers can easily manage, and energy companies can easily set up, a Program Buying campaign to ensure the optimal supply of these components at an advantageous price at all times. A buyer of energy raw materials can specify a quota they’d like to procure from suppliers at a previously negotiated price. 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 with their supply chains. While Just In Time (JIT) procurement is the gold standard for energy supply chains, it is becoming harder and harder to achieve with rapidly changing energy standards, technologies and raw material supply. The key to minimizing risk of procurement errors, late delivery or delivery of faulty finished goods, 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 a manufacturer or energy company 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.

Provide raw material traceability for quality, safety and sustainability attestations. To have better control over the quality and processing of raw materials, energy companies need end-to-end visibility into their sourcing and refinement process. This traceability is currently provided by a combination of point-to-point communication between supply chain partners and the extensive use of outside inspectors.

Skuchain’s EC3 allows a company to tag bulk raw materials and finished goods SKUs with a Popcode, a digital ID that is logged onto the blockchain. Notations about the process and corresponding documentation can be attached to this specific Popcode. Because Skuchain’s EC3 integrates Popcodes with Brackets smart contracts, we are able to tie transactions and paperwork with a specific product across the supply chain. Popcodes may be logged onto the blockchain through the Skuchain smartphone app or industrial scanners of choice. Transactions and records may be submitted to EC3 through an API integration with ERP systems, Excel spreadsheets or other existing technology, or directly into our CRP.

A manufacturer or energy company can therefore trace the supply chain and raw material input of a particular product all the way back to its origins in seconds. For companies who have pledged high quality commodities and sustainable practices to their customers, Skuchain’s EC3 represents an enormous cost-saving measure for providing this attestation.