The Digital Supply Chain is Operating Below its Potentials

Although the growth of the Internet has been fairly constant over many years, it has in fact been driven by profound changes in usage patterns. One such change was the advent of social technology platforms like Facebook, LinkedIn and WeChat that for the first time have brought shared identities and interactions to the public web. And another is the rise of mobile as the most used platform to access the Internet.

While these developments have revolutionized the technology, financial and social spheres for consumers and B2C, the B2B sphere seems strangely unaffected by them. Close to two billion people are connected in social networks, and social networks have completely changed the demography of the Internet. For the first time, mobile-based Internet access has overtaken access through laptops and desktop machines, driven by the change in usage patterns brought about by the social networks.

Meanwhile, businesses remain fundamentally unconnected.

If we look at invoicing as one of the most widely digitized B2B process, the adoption of electronic invoicing is assumed to be ~8 percent; for EU it’s ~24 percent. However, if we look at the numbers for Europe, only 7.2 percent of the EU volume is true touchless e-invoicing. If we extrapolate that proportion to the global number we arrive at a total global touchless e-invoicing penetration of just 2.4 percent of the total volume.

The reality is that the majority of e-invoicing is driven by large enterprises and government. If you look at the proportion of small to medium-sized enterprises (SMEs) to large companies, more than 99.9 percent of all companies in the world are small and medium-sized. The digital supply chain is something only ever realized by a small elite – 0.1 percent of the largest companies and governments in the world. The 99.9 percent of all companies in the world are simply not connected. The map of the connected world has a blank spot, and this is it.

The opportunity

Yet, once connected, the opportunities for all participants of the supply chain are massive. Consider Alibaba, the Chinese internet trade giant with the largest initial public offering (IPO) in history. It started life as a B2B listing service connecting suppliers in the East with buyers in the West. And while the company’s model was extremely simple, they were still successful at providing new opportunity for both buyers and suppliers.

Connecting companies in digital supply chains takes this idea even further. Buyer and suppliers can take advantage of straight-through processing, fewer exceptions, increased transparency, and the opportunity to bring cheap financing options to the global supply chain via working capital solutions.

Speaking of global supply chains, there are more than 260 million small and medium size enterprises (SMEs) worldwide trading within and beyond borders and most of them find it to be a struggle. Several World Bank studies point to three major growth constraints for SMEs: (1) lack of access to finance (2) lack of access to market access (most SMEs without links to larger enterprises have a hard time getting access to a bigger market) and; (3) corruption and political instability.

If we just look at one aspect – financing – this study recommends alternative strategies such as trade receivables securitization to help fill part of this gap. If a social technology based approach is taken then securitization takes place in the context of identities, relationships and past transactions, allowing risk and hence the cost of finance to be lowered dramatically.

But these opportunities for suppliers, buyers and society at large depend on connected, digital supply chains where data is liquid and supports real-time insight, data-driven risk assessment, signals of demand and supply, ability to discover new opportunities and markets, and much more. To achieve that, we need to unlock the data from the ERP and make it liquid to derive value from it. And it requires a dramatic lowering of barriers to participate in digital supply chains.

Today, most company data is locked up in the silos of the ERP. Between that data, paper, PDF, email, phone calls and other unstructured or semi-structured communication paths are prevalent. To successfully achieve any of the benefits described above, we need to be able to pierce the walls of these silos and change our view on how data can be used to improve the competitive position of a company through strengthening the supply chain.

With a penetration rate of just 2 percent to 4 percent after 30 years of EDI and integration work, none of these notions will be realized at large unless we change our current thinking on connectivity. The introduction of social technology platforms, cloud and mobile have demonstrated the ability to connect people at vast scales and in very short amounts of time. All in all, close to 2 billion people today are using social technology in one shape or the other.

In order to change some of the patterns of business and bring business software and processes into the Internet age, we need to adapt some of the key learnings from social technology and apply these to the B2B sphere.

Lessons from social technology platforms

The world has known many social networks in a very short time. However, those that have persisted and become successful are not just networks but social technology platforms. As such a platform, Facebook features interfaces and protocols for third-party software vendors to tap into their systems and transform it all into opportunity and economic value.

Since Facebook’s inception, third parties have flocked to offer social technology powered applications to users. Kink famously launched ‘Candy Crush’ for Facebook in 2012 and created a sensation by reaching 10 million daily active users within four weeks. When the company went public in 2014, they were valued at over $7 billion, demonstrating the value of the platform to those who build applications on top of it.

While Farmville might be amongst the “50 worst inventions” as claimed by Time magazine in 2010, the vision that lay behind it and the platform technology will have wide implications for the B2B space and the digital supply chain. Social interactions which now exist in a world of structured data and relationships are thus made liquid and enter a value flow in the network – returning in the shape of applications that are qualitatively different from pre-social network applications. The network itself becomes the distribution mechanism for the apps. This is frictionless distribution and six degrees of separation converted from theory into real-world user acquisition and revenue.

Gert Sylvest is a co-founder and CTO of Tradeshift, the fastest growing supplier collaboration platform. Gert draws upon years of technical experience to ensure Tradeshift's platform itself is right at the cutting edge of what’s possible in the areas that will be most important to users in the near and long term. Having spent time in consulting roles at Accenture and Avanade, Gert met Tradeshift's co-founders while leading the technical implementation of the EasyTrade project for the Danish National IT and Telecom Agency. His technical philosophy revolves around the democratic principles that drive the internet itself — free, easy, open.