How blockchain tech can be the supply chain’s strongest link

Transcript

Angie Lau: It’s something we’ve all unwillingly become well versed in — the global supply chain — which once upon a time was just in the background, whirring like a well-oiled machine. Well, it has not lived up to the stresses of modern day pandemic realities. So how can blockchain step in? We’re about to find out.

Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast.News. I’m Editor-in-Chief, Angie Lau.

Experts around the world have warned industries must gear up for what they’re calling a sustained supply chain crisis. The digitized economy is creating higher demand more than ever before in shipping, and industries are struggling to keep up.

So, what are some technology-driven solutions that we may see in the coming months? SyncFab connects OEM parts buyers — that’s original equipment manufacturers that actually produce the parts — and the manufacturers themselves that need those parts for the goods that you and I buy, through blockchain technology.

And today, we’re joined by their chief product officer, Dennis Delgado, to explore how blockchain can smooth out, potentially, and fix even the global supply chain. That’s a big order, Dennis. Welcome to the show.

Dennis Delgado: Thanks for having me, Angie. I’m excited to be here, and there’s definitely a lot to talk about.

Lau: Well, as chief product officer, as co-founder of SyncFab, let’s talk first about what SyncFab does and where we find ourselves currently. So… supply chain — this was something that you thought early on to marry with blockchain.

Delgado: Correct, yeah. In about 2018 is when we first delved into the blockchain world and started building applications utilizing blockchain. Our company itself has always been focused on supply chain — how can we connect vendors or suppliers to companies to make things and just make that experience much easier than it was? When we came into the space, we saw a big opportunity in how blockchain can help move some of that information between those vendors and the companies that make the products that we use today.

Lau: Fast-forward a couple of years later and then the pandemic hits. And what is happening right now with the global supply chain? What’s going on?

Delgado: Well, that’s a big question to answer. We’re all trying to figure that out together, Angie. There’s a lot happening in terms of supply, as we know — unprecedented volumes going on with demand currently. We can’t keep up with the amount of things that need to be produced. 

Ourselves, the industries that we focus on are primarily in aerospace, automotive and defense. But even in those industries, we’re seeing a lot of the same impacts of just things such as materials that need to be produced and procured in order to make the items that go into some of the consumer products or even some of the OEM products that we deal with. But right now, yeah, there’s a huge backlog in the industry.

Lau: And what people are experiencing — for really the first time, that they haven’t experienced in a long time — is bottlenecks. This entire consumer class, and the manufacturing world and the global supply chain world, have trained us to get things when we expect to get them. And sometimes it’s as quick as tomorrow, or 48 hours from now, or a week from now. And suddenly, those goods are three months from now, potentially six months from now. And it’s jamming up industries, meaning that if the equipment or the supplies that are needed for construction, for automotive or appliances, or any of the things that require a supply chain frictionless and seamless experience… suddenly all of those industries are also hamstrung.

Delgado: Correct. We’ve been brought up in this Amazon Prime two-day shipping world where we want everything tomorrow or the next day. Realities are, things take time to make and produce. You can only have so much supply already at hand to be able to ship out at a (moment’s) notice. And what we’re seeing is how we can increase some of that almost ‘preactive’ analytics and preactive supply shortages to figure out what we need before the shortages happen.

So I think there’s a lot of opportunity there that we’re seeing in blockchain, as well as other new technologies like machine learning and artificial intelligence, where it can help us figure out those data points, those connections, to better prepare these companies for when those shortages are going to happen. So they can think about it months ahead to prevent that from happening when it comes down the pipe.

Lau: So, a lot of people who are watching are going to be wondering, how does blockchain fix this? Well, how does blockchain fix this?

Delgado: Totally. That’s a great question. To put it in a simple way, what we’ve kind of seen the advantages of blockchain really doing is connecting these different companies together on a data level. What we found out, through our experience working with different original equipment manufacturers and different industries over time, is that a lot of these organizations usually work in a very independent and siloed environment. And what I mean by that is that they’re very closed up and preventative of sharing information with one another.

So, I might have a requirement (for) some material for some products down the line, but I don’t really know which companies have that material at hand … And I think (how) we see blockchain being able to add some advantages here is really creating that kind of trust layer between these entities to be able to share that information with one another securely, where it’s currently not really happening in an efficient way.

Lau: So how do we create those efficiencies, then?

Delgado: This is really an opportunity for technology to kind of step up and figure out how to open up that data infrastructure. We’ve been working with several companies to this day to figure that out. How do we connect their different vendor networks into a blockchain system so they can better understand who and what their vendors have at all times, so they can procure the right things that they need in a timely fashion. I think that’s going to really speed up some of the supply chain woes that we’re facing — of demand outpacing supply that we weren’t ready for.

Lau: As I was doing a little bit of homework before our conversation, I noted a presentation you guys did three years ago, warning of almost this moment — ‘We were in the good days of supply chain right now’ — this was three years ago. ‘Now is actually the time to think about how we can update, disrupt and improve the system for a day that could come when we need it.’ Whose crystal ball were you gazing into, and can I borrow it — number one? And number two, were you successful with the people that you’ve worked with early on — were they able to navigate a little bit better what currently everybody else is experiencing right now?

Delgado: Great, thanks for bringing that up.

Definitely, we saw this impact coming from a lot of factors. One, our CEO came from a manufacturing background, primarily abroad, and seeing the demand increase there and how that can similarly happen here in the U.S. in due time. Now we’re seeing it, too, with the infrastructure bill that was just passed and the amount of manufacturing that we want to have happen in the U.S., especially in the coming years. And this is only going to get increasingly worse in terms of the amount of demand … going forward.

So, in terms of the companies that we worked with early on, yes, they were able to kind of understand what their supply chain had to offer on a much deeper level. You’d be surprised at the number of companies and vendors we work with that are still hesitant to adopt new technologies. So this was really a step towards digitizing a lot of their efforts. Many of the organizations that we worked with in the past were still very much paper-based — paper invoices, paper drawing information, assembly information. All of that is still very manual. So I think with a lot of the early organizations that we brought on (the question) was really how we digitize a lot of that manual paperwork that has to get processed and then input it into our blockchain system, which definitely helped smooth a lot of the kind of day-to-day manual processes that have to go on.

Lau: We’ve often talked about that, and I think a lot of people are aware of it if they’ve spent some time with us on our show — that especially in supply chain, even the shipping industry, when you have reams and reams and cases and boxes of paper documents that actually have to be signed, processed, versus things that can happen in a more seamless fashion digitally. Where are we in terms of where we’ve been and where we should be going in the industry? Where are we currently in the digital transformation/adoption phase for supply chain?

Delgado: I would say we’re still very early on, unfortunately. I wish we were a little bit further along than we currently are. We do have some legacy software systems that are in place that do help with some of these. You think of your large organizations like Oracle and SAP, they have some digital software that helps with logistics and shipping and things like that. But in terms of how you spread some of those software technologies to not just the top-level companies who can afford them, but also the vendors and the different manufacturers that are producing in the supply chain and the shipping organizations, that’s the bigger effort. That’s a separate conversation of getting them to understand the greater digital transformation that needs to happen and getting them to adopt it and kind of replace some of the traditional systems that they might have, of which honestly the hardest part is just showing the advantages of the new system and then saying, ‘Okay, we’re not adding an additional layer to your normal day-to-day and trying to make it more difficult, but we’re trying to add it and replace it with this system that will cause a much more streamlined experience.’

Lau: What’s the disconnect, do you think? And I note a Deloitte research survey back in 2018 that looked at digital transformation adoption across enterprises. Startups? It’s totally fine. It’s the enterprises that really were concerned with the implementation — 74% of those respondents say they see a compelling business case, but they don’t see how it can fit into their existing system. There are regulatory concerns. There are security threats, a lack of skills, understanding. We understand those things, which is why people spend a lot of time trying to figure it out. What’s the hurdle? In this day and age, three years on, why is this still a sticking point for a lot of enterprises?

Delgado: That’s a great question. We’ve worked with several large OEMs at this point that vary in terms of the processes and systems that they have in place. One of the things that we’ve seen with some of the newer companies that we work with — say, some of the space organizations that have used us — they’re more open to some of the changes that are occurring in the industry and some of the digital tools that are available now, and how they can adopt them, maybe run smaller kind of case studies or use cases with certain processes within their supply chain to see how adoption could work. 

But when you get into some of the larger organizations that have been around for decades, they have entrenched systems in place that can vary from department to department. We’ve seen that different departments can be running different software systems. Different organizations within the company might not necessarily be talking with one another. So it’s a much larger initiative that has to occur, and what we found — it really starts not necessarily from the top down, it really starts from the bottom up … these different departments working with the actual employees on the ground to understand their processes and see how these types of software solutions can help them.

Lau: So if you’re an executive at one of these more traditional legacy companies, what’s the takeaway here? You should be talking to your junior staff?

Delgado: Not necessarily junior, but just more so the staff on the ground that are running the day-to-day operations, they’re the ones that are going to be using these software solutions on a daily basis, so understanding their pain points and their needs. The current system in place is really where they’re going to be the stakeholders that drive that change within the company. And what we’re really seeing is that you can’t necessarily have the CEO come in and say, ‘Hey, here’s this new technology that we’re going to start using today. Figure it out.’ That’s just not how it works, unfortunately. You have to work with the individuals that are running the day-to-day operations to figure out how the software can really benefit them.

Lau: It brings us to a broader situation right now that we’re seeing across the board, which is manufacturing output. In the U.S., it surged 1.2% in October. Right now — we’re speaking the end of 2021, for our future audience — but essentially surging 1.2% in October is the highest level since March 2019 after falling 0.7% in September, the month before. So there’s quite a large jump here, and more economists polled forecast that manufacturing production is expected to rise by close to another 1%.

So if that’s what we’re experiencing right now with the growth that we already have — not being able to keep up and define it and characterize it as a supply chain crisis — what’s going to happen when manufacturing output continues to grow and the stress on the system continues to build?

Delgado: I’ll tell you one thing — that we definitely did not see a slowdown in during the pandemic was just U.S. manufacturing as a whole. It kept running along at full steam. And, if anything, it increased during the Covid time, because people understood the need to have local manufacturing… when you couldn’t ship abroad or factories abroad were shut down. So, how do you go through those supply chain woes that can occur during a pandemic? I think that’s what we saw during that time. But also now we’re thinking ahead to how we can make sure that it doesn’t happen again.

And I think I saw this morning actually, (U.S. Vice President) Kamala Harris tweeted about the infrastructure law and building our electric vehicles here in the U.S. going forward, including some of the battery and parts components, which is going to be a huge endeavor. And that’s only going to further increase the manufacturing output that’s required here in the U.S.

At least from what I can see, manufacturing is not going to come down anytime soon. So how do we provide the tools and support for that vendor network and that supplier network is what we’re definitely interested in — seeing how we can utilize some of the blockchain incentive models. I know with one of our partner organizations, Smart MFG Tech, they have a crypto token that we’re utilizing to see how we can incentivize the vendors that work with us to provide quotes within the system to go ahead and place purchase orders, using that as a mechanism for payment, potentially, and other features that can possibly be brought in to increase the output of the manufacturers that we work with.

Lau: Ok, I want to dive into this, because this is the exciting part of this conversation, which is disruptive technology. How do we bring in the incentivization that we see baked into tokenomics and streamline what is essentially a disincentivized supply chain? We’re hearing this. We’re hearing of the great retirement (resignation), the people who are just ‘peacing out’ on their jobs because they can get a better opportunity elsewhere, and/or they’re completely stressed out by a system that they don’t believe in supporting anymore etc, etc. I’m curious how you’re thinking about creating a new layer of incentivization through tokens that could help the supply chain.

Delgado: Definitely. Well, there’s a bunch of different use cases that we have for the token, but I think there’s a couple of things first — before we get there — that we need to address. The thing with supply chain manufacturing, as you said, is that it’s a legacy industry that has kind of supported America… brought it to where it’s been… but a lot of the individuals that work with its supply chain are either retiring or kind of growing out of it. And we’ve seen businesses shut down for that reason. So I think one part of it is, how do we increase employment in manufacturing in a way to make manufacturing cool again for a younger demographic to be interested in that industry, that’s actually very competitive in pay and benefits and has a huge demand right now for employees to come into these facilities to help produce the parts that a lot of these newer companies are requiring, as well as some of the older ones?

One aspect to go along with that is… there are a lot of pros and benefits for tokenomics, and we see that in supply chains for incentivizing a legacy industry that normally doesn’t get compensated for a lot of time spent on things such as quoting jobs, which is one huge issue that we’ve seen. We see vendors that might spend a full day trying to quote out a potential order, with no guarantee that they’re going to win that order. That’s employee time that has to go, spent quoting out that job, calling up different vendors to figure out pricing, and submitting that bid with no guarantee of payment. So that time could be spent elsewhere.

So what we’re seeing is how we can provide an incentive layer with a token, with our Smart MFG Tech partners, to essentially reward them for that time spent quoting jobs. Another area, as well, is the receiving of final parts and goods, for response times, keeping OEMs up to date, shipping things on time. Areas like that, where we normally don’t think would necessarily be paid or rewarded, we disagree. We think there are a lot of opportunities there that these blockchain tokenomics can bring, and with the added layer of getting a newer generation interested in manufacturing again.

Lau: And what part of that conversation now includes metaverse, and NFTs, and decentralized finance?

Delgado: The whole metaverse NFT craze… I think we all are aware of it at this point. At least a good majority have heard that buzz term thrown around. In SyncFab itself, we first got into NFTs back in 2017, 2018, and we were kind of interested in the intellectual property protection side. We’re looking at the industries that we work with, the organizations in aerospace and defense. IP is a very sensitive topic. And the ownership of that IP and the parts information that gets exchanged between vendors and OEMs — how can you protect that? So that’s what we were investigating. And we developed our own NFT within the platform, but we’ve since then moved to a more consumer-facing model, where we saw the art industry take off with it and really use NFTs in a different way.

And I think, honestly, NFTs right now are still very early in what they can do. There are still a lot more new and cooler technologies that can be wrapped with NFTs to make them a much more usable and viable technology for other industries outside of just mostly art right now, which is kind of the biggest one. And that’s (how) we see it for aerospace, defense and automotive — as more of a tool for IP protection… and soon, I think even exchanging certain files and information with one another, being able to track that in a more secure way.

Lau: And as we go into 2022, what would you say was the most significant development in blockchain this year? And where do you think it’s going to go? What is your one prediction for where things are going to go in your industry, in that crystal ball of yours — which we know was pretty powerful — for 2022?

Delgado: Yeah, I think we’re going to see an explosion of new blockchains coming. I think right now we have kind of the ‘big three’ or ‘big five’ that everybody that’s got into blockchain is kind of aware of — your Bitcoin, your Ethereum — and those use their own blockchains. We’re seeing now a need for different blockchains for specialized industries, and I think we’re going to see more of those come, especially outside of just metaverse and art and technology. We’re going to see it going into more traditional avenues of logistics, manufacturing, which is what we’re interested in, and maybe we’re seeing how a different blockchain can be utilized more efficiently for that. I think what we’re going to see is an increase in newer, more efficient blockchains that can help with some of the different industry pain points that we’re seeing.

Lau: Do you think there will still be a speculative nature where people will want to participate?

Delgado: I think with any new technology, there’s always a speculative nature. You think of the web boom of the late 90s and early 2000s… of all the different web companies that were popping up. It’s kind of the Wild West at first, and then soon, once the legitimate use cases come out of it, and ones with businesses that are able to operate, I think there’ll be a shakeout, and you’ll see some of the true players that are accomplishing real everyday use cases that can be accomplished. I think for a little bit longer, it’s going to be that way. It’s going to be a lot of people just trying to take advantage of a new technology and it might not be right for everyone. But I think it’s here to stay. We’re seeing that with some of the older blockchains that have been around. Larger companies are getting behind them to figure out how to incorporate those technologies, which is definitely different from when we started. We were knocking on doors and getting turned around left and right, and nobody wanted to touch blockchain. But now we go to different organizations and startups that come to us because we’re doing supply chain with blockchain, and they want to understand how that can be incorporated into their business.

Lau: What do you think is the biggest lesson that you’ve learned on behalf of supply chain participants everywhere that you think is a huge lesson for the industry moving into 2022?

Delgado: Yeah, that’s a big one. For me, personally, with SyncFab as a whole, what we’ve understood is being open to new technologies and adopting them — I think that’s the biggest lesson to go forward. We’re going to have to try things, break a couple of things along the way. But I think in the end, this is for the common good of how we can increase supply chain output and really get it ready for this Industry 4.0 that everyone always likes to tote around, and smart manufacturing. This is kind of where it starts. It’s that journey.

Lau: And it begins with just asking the folks who do it day in and out: ‘Hey, what’s your pain point. And how can we make it better?’ And I think that’s just great advice for any executive, anywhere, in any industry.

Dennis Delgado, thank you so much for your insights. I truly enjoyed this conversation. And here’s crossing our fingers for a better global supply chain situation in the coming months.

Delgado: Yeah, definitely. Thank you for having me, Angie. 

Lau: Absolutely. And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Editor-in-Chief Angie Lau. Until the next time.