Food and agriculture can realize enormous benefits from blockchain. The major uses cases can be categorized into long-term versus short-term wins for food companies and consumers alike. Over the long term, end-to-end traceability of food sources ensures food safety and promotes sustainable sourcing of ingredients. Over the short-term, food companies can immediately realize value by financing the procurement of agricultural commodities and collaboratively planning new production to suit rapidly changing consumer preferences.
Food & Agriculture companies around the world use Skuchain’s EC3 Platform to:
Finance procurement of commodities and other raw materials. Much of the supply chain improvement initiatives focused on sustainability, quality and freshness will require an incentive for suppliers to participate. Blockchain-based finance unlocks a new monetary benefit to collaborative supply chain partners. 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.
Provide food traceability and attest to quality, safety and sustainability of food sourcing. To have better control over food quality and safety, food companies need end-to-end visibility into the sourcing of their ingredients. 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 consumers that the food they are consuming is indeed safe and of the promised quality, food companies have to obtain information from each of these suppliers and piece together the picture from seed to saucepan through a costly process.
Skuchain’s EC3 allows a company to tag the bulk agricultural commodities and packaged 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 food company can therefore trace the supply chain and raw material input of a particular item of food all the way back to its origins in seconds. For companies who have pledged high quality products to their consumers and need to fulfill regulatory obligations with respect to sustainability and safety, Skuchain’s EC3 represents an enormous cost-saving measure.
Plan the production of goods with collaborative planning. While Just In Time (JIT) procurement and delivery is the gold standard for food supply chains to offer the freshest product, it is becoming harder and harder to achieve with rapidly changing customer preferences and complex supply chains.The key to minimizing risk of procurement errors and delivering food while preserving optimal freshness, 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 food 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.
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.