Electronics supply chains face greater pressure to have a completely agile supply chain that has minimal obsolete parts and is responsive to changing customer demands. With the increasing rarity of critical minerals such as cobalt and lithium, securing supply while maintaining a clean supply chain is also an urgent challenge. Finally, consolidation of contract manufacturing for subassemblies and finished goods means financial opportunities are welcome across the supply chain to improve margins.

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

Secure critical components with program buying. From cobalt to semiconductors, several components are critical for electronics manufacturing 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 months, and the supply chain has to throw enormous resources towards procuring the necessary components.

Previous attempts at instituting Program Buying to secure critical components have often failed because electronics supply chains lacked the necessary collaboration tools.

On EC3, electronics OEMs 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 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, electronics companies 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 electronics supply chains, it is becoming harder and harder to achieve with rapidly changing technologies and customer preferences. The key to minimizing risk of procurement errors, late delivery or delivery of faulty parts, 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 electronics OEM 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. Electronics companies can set up inventory finance programs for their suppliers to improve their COGS and increase the margins of their suppliers.

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 inventory, offers Buyers and Suppliers favorable payment terms, reduces the cost of financing for Suppliers and COGS for Buyers.

There are four main benefits to the BOM Buyer:

  • Lower COGS for Buyers and lower financing costs for Suppliers, compared to traditional supply chain finance
  • 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, resulting in earlier revenue recognition for Suppliers
  • Grant Buyers greater visibility and control over their supply chain with new data shared on the blockchain

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 Control & Finance (ICF) 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.

Ensure that no conflict minerals are used in the supply chain. Companies that use tin, tantalum, tungsten and gold in their supply chains must comply with regulations, such as the Dodd-Frank Act, and industry best practices that prohibit sourcing from conflict regions. In order to ensure compliance, these companies need end-to-end visibility into the sourcing of their minerals.

This traceability is currently provided by a combination of point-to-point communication between supply chain partners and the extensive use of outside inspectors. In order to certify to end customers, regulatory bodies and industry organizations, such as the Responsible Minerals Initiative, that a supply chain is clean of conflict sources, companies and auditors have to obtain information from each of these suppliers and piece together the picture from mine to OEM through a costly process.

Skuchain’s EC3 allows a company to tag the minerals at the mine and once refined 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. Importantly, Popcodes are able to transform just as the minerals transform. That means the ID of the mineral on the blockchain can be transferred, distributed, aggregate and combined with IDs from other minerals throughout the refining process.

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 company that sources conflict minerals can therefore trace the supply chain of a particular finished good all the way back to its origins in seconds.

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.