Blockchain is a revolutionary technology that is likely to become a major thread in the fabric of global B2B transactions. The implications of blockchain for procurement, supply chain and supplier management may be highly significant.
Blockchain has the potential to transform all kinds of digital transactions, including in procurement and supply chain. A distributed database that holds tamper records of digital transactions, blockchain and its associated applications could usher in a new era of supply chain and source-to-pay process efficiency.
From payments and audits to tracking inventory and assets, blockchain technology in the supply chain could deliver a new level of trust and transparency while enabling the procure-to-pay process to realize huge operational benefits.
Blockchain Pilot Implementation: Gujarat Narmada Valley Fertilisers & Chemicals (GNFC)
In India, fertilizers are provided to the farmers at subsidized rates, as decided by the Department of Fertilisers (DoF). The subsidy is paid to the manufacturer of the fertilizer post the sale of the product. Fertilizer subsidy is the second-largest component of India’s subsidy program and the total outgo expected in Budget 2019 – 20 was Rs. 79,996 crores.
Gujarat Narmada Valley Fertilisers & Chemicals (GNFC) is one of the largest fertilizer manufacturing companies in India, with products sold all across the country. Owing to its scale and pan-India presence, GNFC operates over a large and complex supply chain.
GNFC claims the subsidy from DoF through the following process:
(a) Subsidy claims: The difference between the cost of production and the subsidized sales price of the fertilizer is claimed by GNFC based on the sales record of the product to the farmers. The sales record is accumulated using the invoices created by the retailers in the Point of Sales (PoS) machines. The invoice generated is stored on GNFC’s servers (which currently uses an SAP based system) and is also replicated in real-time on DoF’s Integrated Fertilizer Management System (iFMS) system. To claim the subsidy, invoices are consolidated by GNFC from iFMS system every week, authorized by statutory auditor and then submitted to DoF.
(b) Freight claims: Freight claims are for the cost incurred during transportation of the fertilizers.
Freight claims are generated by accumulating the received quantity by warehouses. On receipt of fertilizer stock at the warehouse, a zero claim subsidy is generated and submitted to iFMS. The freight claim is consolidated and sent to DoF on a monthly basis.
Due to the presence of several redundant processes and inefficiencies (including paper based legacy systems), involvement of multiple agencies, need for explicit consolidation and lack of well-defined audit trail, the subsidy received by GNFC takes 3 to 4 months – a substantial working capital cost. The pain point being faced by GNFC was the linking of the final retail sales invoice with the challan generated when the shipment leaves GNFC’s factory. An additional requirement was to maintain a unified system of record for the inventories with all supply chain actors downstream of GNFC.
NITI Aayog, in partnership with PwC and Intel, embarked on a pilot to optimise the fertilizer subsidy supply chain using a blockchain based solution. The goal of the pilot was to streamline the fertilizer subsidy supply chain by demonstrating a transparent and tamper-proof ledger for the track and trace of fertilizer movement across the value chain and reduce the turnaround time for subsidy activation by integrating the various transaction records such as challans, invoices and claims.
Analyst firm Gartner has positioned blockchain at the start of its “hype cycle,” with viability for the technology seen over the next five to 10 years. Blockchain-based innovations hold enormous promise, with a wide array of applications possible for procurement and supply chain.