What CFOs Need To Know To Reach Financial Analytics Success

Elizabeth Milne

If yours is like most finance and accounting organizations, you’re probably hearing a lot about the need for finance to become a better, more responsive business partner. In the financial close, it means not just creating the board report pack and external reporting, but also modeling and analyzing the data to identify risks, variances, and understanding how the results are tracking to different forecast scenarios across the dimensions of the business that matter.

One of the biggest issues most finance organizations face is that much of the resources allocated around reporting go into producing and checking reports, and often little is left over for analyzing them. For example, one recent study (The Future of the CFO, Forbes/KPMG Survey, 2015) found that 32% of CEOs are frustrated that their CFOs don’t have the resources to assist in interpreting and explaining financial results. With the growing expectation of finance business partnering, providing decision support, and acting as a business adviser, it’s time to flip the equation away from back-breaking management and financial report production at the end of the close, to value-added analysis.

What the reporting and analysis end game looks like

For organizations that move finance from tactical reporting to a more strategic and analytical approach, what does success look like? We asked SAP customers who identified as best-in-class, and they conservatively quantified the core benefits in three areas:

  • Process benefits: Through automation, they typically saw 15%–40% cost savings on key reporting processes. Many achieved up to 90% automation of standard financial and non-financial reports.
  • Improved cycle times: They saw an 80%–90% reduction in time spent maintaining reports, and a 50%+ reduction in planning processes.
  • Reduced IT burden: Using self-service technology takes the pressure off IT, resulting in 15%–25% reduction in IT support calls and 30% reduction in IT resource costs devoted to data.

Four pillars of financial analytics success

So how did they get there? They typically followed a minimum of three of the four pillars of financial reporting and analytics success:

  • More automation and self-service: Typically organizations start with the basics – freeing up time in board report production by focusing on automation, e.g., scheduling, running, and formatting reports automatically. They then shift gears to analytics – providing visualizations and dashboards without adding overhead by moving to a self-service – slicing and dicing finance data without having to iterate with IT. These are all key facets of a strong business intelligence platform.
  • Improve forecasting and planning: In terms of planning, they’ve often closed the gap between financial results and planning by using the same system to manage both sets of data. On the leading edge, FP&A teams are using predictive modeling to explore alternative business outcomes, scenarios, and plans with simulation modeling, and beginning to explore technologies like machine learning to build more accurate forecast models. Enterprise performance management (EPM) suites provide a range of capabilities to conduct what-if analysis, compare scenarios, and reduce planning-cycle times, while the latest predictive analytics provides a range of prebuilt machine learning and statistical tools to apply to financial forecasting.
  • Upgrade to real-time performance: With an elevated focus on analytics and timeliness of insight, leaders often looked closely at upgrading their existing transactional and data-warehouse infrastructure to ensure it is responsive and scalable enough to keep pace with their goals around self-service, real-time, and predictive analytics. Technologies like in-memory processing can deliver 80% efficiency improvements in key business functions by running queries without having to wait hours for results.
  • Strengthen governance and controls around reporting: Finally, they ensured their automation and self-service efforts were surrounded by a governance framework. Approaches include centralizing metrics, calculations, report definitions, traceability and auditability of data, and reducing spreadsheet usage and data sprawl, which can all contribute to creating multiple versions of data or losing the provenance of where data has come from.

Demonstrating leadership with data

With CEOs and the board looking to finance to lead with data, surfacing financial insight the right way in a digital boardroom is a powerful way to demonstrate success. IDC defines a digital boardroom as “providing business leaders with a unified and trusted view of their organizations. Most importantly, business metrics are available both at a high level and with the ability to drill down deep into the far corners of the organization to look at the detailed functions of any given line of business (LOB) or division.”

A digital boardroom eliminates spreadsheets and static presentations, and all the manual preparation behind them for the boardroom meeting. Instead, it becomes an interactive experience based on the latest data.  A typical digital boardroom provides stakeholders with a clear view of all the critical metrics, including revenue, expense, growth rate, geographical, product, and entity breakouts. Rather than “I’ll get back to you later” on business questions, decision makers can instantly explore predefined metrics more quickly and easily – down to the line-item level if needed – to understand business performance more fully and address questions as they arise in the meeting.

Using financial data more strategically is one of the biggest opportunities for finance organizations. As stewards of some of the most important data assets in the company, and with an increasing expectation around business partnering and analysis, there has never been a better time to cut out manual report production and focus on the areas that really add value – analysis, planning, and forecasting.  In the next post, we’ll drill down into disclosure management – meeting external reporting needs, while reducing risk and manual effort.

Technology like SAP HANA provides the performance to provide answers on the spot in the boardroom, rather waiting on long-running (or perhaps never-ending) reports.

Learn how organizations are gaining instant financial insights and using them to make better decisions—both now and in the future. Register now for the 2017 Financial Excellence Forum, Oct. 10-11 in New York City.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube



Elizabeth Milne

About Elizabeth Milne

Elizabeth Milne has over 20 years of experience improving the software solutions for multi-national, multi-billion dollar organizations. Her finance career began working at Walt Disney, then Warner Bros. in the areas of financial consolidation, budgeting, and financial reporting. She subsequently moved to the software industry and has held positions including implementation consultant and manager, account executive, pre-sales consultant, solution management team at SAP, Business Objects and Cartesis. She graduated with an Executive MBA from Northwestern University’s Kellogg Graduate School of Management. In 2014 she published her first book “Accelerated Financial Closing with SAP.” She currently manages the accounting and financial close portfolio for SAP Product Marketing. You can follow her on twitter @ElizabethEMilne

Think Bigger: Two Strategic Wins For Implementing Continuous Accounting

Elizabeth Milne

Part 4 in the “Continuous Accounting Action Plan” series

Welcome to the fourth post in our series on how to reinvigorate your finance and accounting processes to make them more responsive, agile, efficient, and trusted.

We kicked off the series introducing the concept of continuous accounting. In a nutshell, it’s taking activities like the financial close and providing better access to real-time data by applying more automation. The goal is to free up accounting teams to focus on the quality of the process, rather than repetitive, mundane manual tasks. Teams can now spend more time partnering with the business instead of being crunched at month’s end. The same applies to FP&A, moving from infrequent forecasting, which often becomes an academic process, to rolling, continuous forecasts that improve accuracy.

In the previous blog, we tackled three examples of quick wins because, like any initiative, it’s important to get some rapid successes under your belt and show value back to the business. Now we’re going to focus on some examples around larger-scale wins, specifically within the corporate and entity close. Here again, your specific big wins might be different. These are examples; depending on your organization, big and small will vary. Intercompany, for example, may be a huge issue at a company with large volumes of intercompany transactions; here, automating and improving the process could be a big win. On the flip side, if your company has fewer intercompany transactions, automating that process may be a quick win. The important takeaway is that you plan your journey in steps and discrete chunks of increasing value.

In the last blog, we defined a “quick win.” But what makes a win a “big win”?

  1. It delivers significant improvements in strategic areas like financial and accounting efficiency, reduces risk and exposure, or measurably enables the business to better meet its strategic goals. Since the initiative is larger-scale, the timeline in which it should deliver value to the organization would be significantly longer than a “quick win.”
  2. The initiative, while complementary, may replace existing investments.
  3. While finance and accounting should own the initiative and manage the new process, it may initially require support from IT or DevOps, to create a deeper integration with the finance application landscape.

With that, let’s start with some examples.

Renovating your financial consolidation processes

Financial consolidation is the nexus of complexity and risk in the financial close process. This is because when there are numerous entities, ERPs, local accounting rules, currencies, and people in play, there’s often substantial room for error. A survey by EY of 1,000 CFOs and heads of reporting of large organizations found that one in five has 20 or more reporting systems. And about two-thirds (63%) said that they’re seeing a rise in the number of reporting standards.

So how can you know if your financial consolidation process needs an upgrade? We talked about the importance of benchmarking earlier, and it turns out that the top 20% of organizations in terms of financial close maturity spend about a day to complete their consolidation process. The least mature 20% spend about three days, with an additional day quarterly, and six days more for annual reporting. In terms of risk, a study by Audit Analytics found that nearly 20% of restatements over a 15-year period were due to areas related to financial consolidation, including acquisitions, mergers, disposals, re-org accounting, foreign party-related transactions, subsidiaries, intercompany accounting, and overall consolidation.

So, we’ve established that financial consolidation meets the benefits-improvement criteria around a strategic win. But what does a project look like?

The objective of any consolidation initiative should improve how the organization can meet different financial reporting requirements; automate the consolidation process across GLs, currencies, and entities; and improve audit trials. It should also shift tasks like intercompany eliminations, minority interest, and currency translations away from spreadsheets.

From a continuous accounting perspective, financial consolidation renovation can also play a significant role in providing information to the business faster. Moving to a virtual close, and performing more consolidation tasks in real time, can provide a consolidated perspective of the business at any point in the period. If consolidations and planning are brought together into a single application, it provides the perfect vehicle to drive rolling forecasts for real-time consolidated results.

Options include renovating your current process and/or technology or perhaps replacing it altogether. In terms of integration, because a corporate financial consolidation system can touch multiple ERPs in the financial landscape, the project should include attention to data governance, integration, and master data management.

Financial close task orchestration

Within the financial close, another significant area of opportunity is ensuring stronger collaboration, sequencing, approvals, and level of detail in the close processes. If your organization uses a spreadsheet-based task list to manage the timing and sequencing of things like journal entries, accruals, intercompany reconciliations, or gathering data from different apps for consolidation and/or validation, then you’re not alone. While task management can improve speed, for example, a recent Wall Street Journal article cited PwC research finding that the top quartile of closers using technology was able to close the books in 3.5 days, while the bottom quartile, who often were more spreadsheet-centric, took 7.5 days or more. Think of it this way: the best closers require less than half the resources versus the bottom-quartile to close the books.

But task orchestration isn’t just about speed and resources. It’s about ensuring that everything is complete and approved at the right level of detail in the closing checklist to reduce financial reporting and regulatory risk. In fact, a recent survey by FSN found that the reporting process is what keeps most CFOs awake at night. An unmanaged process creates both risk and stress. The problem is that a close checklist at a high level is likely to leave too much of the close process to chance, while too much detail can overwhelm accounting teams, causing accounting to get even more bogged down.

Financial close task orchestration enables “detail at scale”; that is, ensuring that everything is checked off on the checklist, while effectively acting as a traffic cop. A central collaborative environment manages what needs to be done, who needs to do it, what the blocking tasks are, and even going as far as kicking off tasks that can be handled without human intervention. The goal is to improve collaboration and monitoring across the entire entity closing cycle for all companies within the group. This approach also helps accounting teams collaborate more effectively, know what to work on next, report their status, and ensure that they perform their work on time and in the proper sequence, resulting in fewer errors and delays. Task management is essential to move to continuous accounting, where close tasks don’t all occur at the end of the period; they occur throughout, which makes tracking what can occur “now” versus period-end, particularly important.

Getting a task management and orchestration project rolling means working to understand what your entity checklist should ideally look like, understanding what approval processes should look like for the various close tasks, knowing which ones can be scheduled robotically, and training the team to move towards checking off tasks using an application rather than using emails or verbal sign-offs. Done right, the results can yield significant efficiency and risk benefits.

In our next post, we’ll jump into controls, and how to use continuous accounting to reduce exposure.

Ready to deploy continuous accounting? Click the button in the banner on the top right to learn more.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube


Elizabeth Milne

About Elizabeth Milne

Elizabeth Milne has over 20 years of experience improving the software solutions for multi-national, multi-billion dollar organizations. Her finance career began working at Walt Disney, then Warner Bros. in the areas of financial consolidation, budgeting, and financial reporting. She subsequently moved to the software industry and has held positions including implementation consultant and manager, account executive, pre-sales consultant, solution management team at SAP, Business Objects and Cartesis. She graduated with an Executive MBA from Northwestern University’s Kellogg Graduate School of Management. In 2014 she published her first book “Accelerated Financial Closing with SAP.” She currently manages the accounting and financial close portfolio for SAP Product Marketing. You can follow her on twitter @ElizabethEMilne

How Newton Can Help Manage And Change Strategy In FP&A

Brian Kalish

Part 16 in the Dynamic Planning Series

I think it has to do with being formally trained as an engineer (or maybe I’m just a geek), but when I see the words “manage” or “change,” I immediately jump back in time to my undergrad physics classes and ponder Newton’s first and third laws of motion.

Newton’s first law of motion (also known as the law of inertia) states, “an object at rest stays at rest, and an object in motion stays in motion with the same speed and in the same direction unless acted upon by an unbalanced force.” Newton’s third law is, “for every action, there is an equal and opposite reaction.”

It is important to keep Newton in mind when you have to manage or change strategy in FP&A, because there will be some force that causes a change to be required, and there will be reactions to the change you implement.

Planning for change

One of best tools one can use to maximize the likelihood of implementing change to a strategy successfully is to plan, plan, and plan some more. Developing a change management strategy for FP&A provides purpose and direction.

Every FP&A change-management strategy must include an understanding of the unique characteristics of the change, a supporting structure to implement the strategy, and analysis of the risks and potential resistance to the change.

When implementing a change to FP&A strategy, it is important to keep in mind “ADKAR” (awareness, desire, knowledge, ability, and reinforcement). Can the organization answer the following questions in the affirmative:

  • Is there the Awareness of the need for change?
  • Is there the Desire to participate in and support the change?
  • Is there the Knowledge about how to change?
  • Is there the Ability to implement the required skills and behaviors?
  • Is there Reinforcement to sustain the change?

The process of change can be broken down into three parts:

  • Preparing for change
  • Managing the change
  • Reinforcing the change

Preparing for change incorporates defining the FP&A change-management strategy, preparing the change management team, and developing the sponsorship model. Managing the change involves developing the plans and taking action to implement them. Reinforcing the change means collecting and analyzing feedback, diagnosing the gaps and managing any resistance, and implementing corrective actions and celebrating success.

Start at the top

In my experience, there are a number of actions an organization should take to maximize the likelihood of success when there is a need to change FP&A strategy and then manage that change.

An organization needs to lead with its culture. The organization needs to address and overcome any cultural resistance and leverage cultural support for change. As Lou Gerstner, former CEO of IBM famously stated, “culture is everything.” To be successful, the organization needs to start at the top, where almost all successful change originates. The advance work must be done to ensure that everyone agrees about the case for the FP&A change and the particulars for implementing it.

Every layer of the organization needs to be involved in the change and take ownership. Often, it is the midlevel and front-line people who can make or break the effort.

Engage employees

The organization needs to make the rational and emotional need for change at the same time. To truly engage employees, in addition to presenting the business rationale, management needs to connect with staff in a way that generates genuine commitment to the change.

The organization should leverage both formal and informal solutions. Formal solutions include structure and compensation, while an informal solution is more reflected in the culture of the organization.

Organizations must also focus on assessing and adapting to what is and isn’t working throughout the entire change process, just like the argument we have made about adopting dynamic rather than static planning. The world is moving too fast, and the velocity and magnitude of change are too great not to be constantly monitoring the situation and making adjustments in real time.

To learn more about how dynamic planning lets you update your financial forecast to react to events, click the button in the banner on the top right to download the research paper from Aberdeen Group.

We will be addressing these issues and more at the many FP&A roundtables and conferences we will be hosting in 2018. We hope to see you at the SAP-Centric Financials conference in Plano, Texas (Dallas area) March 19-21, and at SAPPHIRE NOW in Orlando June 5–7.

2018 will be a busy year with FP&A Roundtables in Chicago, Boston, San Diego, Atlanta, San Francisco, Dallas/Fort Worth, Las Vegas, Jeddah, Hong Kong, London, Denver, Charlotte, Raleigh, New York City, Singapore, Bahrain, Kuwait, Frankfurt, Dubai, Kuala Lumpur, Prague, and many other locations around the world to support the global FP&A community.

Follow SAP Finance online: @SAPFinance (Twitter)  | LinkedIn | FacebookYouTube


Brian Kalish

About Brian Kalish

Brian Kalish is founder and principal at Kalish Consulting. As a public speaker and writer addressing many of the most topical issues facing treasury and FP&A professionals today, he is passionately committed to building and connecting the global FP&A community. He hosts FP&A Roundtable meetings in North America, Europe, Asia, and South America. Brian is former executive director of the global FP&A Practice at AFP. He has over 20 years experience in finance, FP&A, treasury, and investor relations. Before joining AFP, he held a number of treasury and finance positions with the FHLB, Washington Mutual/JP Morgan, NRUCFC, Fifth Third Bank, and Fannie Mae. Brian attended Georgia Tech in Atlanta, GA for his undergraduate studies and the Pamplin College of Business at Virginia Tech for his graduate work. In 2014, Brian was awarded the Global Certified Corporate FP&A Professional designation.

The Blockchain Solution

By Gil Perez, Tom Raftery, Hans Thalbauer, Dan Wellers, and Fawn Fitter

In 2013, several UK supermarket chains discovered that products they were selling as beef were actually made at least partly—and in some cases, entirely—from horsemeat. The resulting uproar led to a series of product recalls, prompted stricter food testing, and spurred the European food industry to take a closer look at how unlabeled or mislabeled ingredients were finding their way into the food chain.

By 2020, a scandal like this will be eminently preventable.

The separation between bovine and equine will become immutable with Internet of Things (IoT) sensors, which will track the provenance and identity of every animal from stall to store, adding the data to a blockchain that anyone can check but no one can alter.

Food processing companies will be able to use that blockchain to confirm and label the contents of their products accordingly—down to the specific farms and animals represented in every individual package. That level of detail may be too much information for shoppers, but they will at least be able to trust that their meatballs come from the appropriate species.

The Spine of Digitalization

Keeping food safer and more traceable is just the beginning, however. Improvements in the supply chain, which have been incremental for decades despite billions of dollars of technology investments, are about to go exponential. Emerging technologies are converging to transform the supply chain from tactical to strategic, from an easily replicable commodity to a new source of competitive differentiation.

You may already be thinking about how to take advantage of blockchain technology, which makes data and transactions immutable, transparent, and verifiable (see “What Is Blockchain and How Does It Work?”). That will be a powerful tool to boost supply chain speed and efficiency—always a worthy goal, but hardly a disruptive one.

However, if you think of blockchain as the spine of digitalization and technologies such as AI, the IoT, 3D printing, autonomous vehicles, and drones as the limbs, you have a powerful supply chain body that can leapfrog ahead of its competition.

What Is Blockchain and How Does It Work?

Here’s why blockchain technology is critical to transforming the supply chain.

Blockchain is essentially a sequential, distributed ledger of transactions that is constantly updated on a global network of computers. The ownership and history of a transaction is embedded in the blockchain at the transaction’s earliest stages and verified at every subsequent stage.

A blockchain network uses vast amounts of computing power to encrypt the ledger as it’s being written. This makes it possible for every computer in the network to verify the transactions safely and transparently. The more organizations that participate in the ledger, the more complex and secure the encryption becomes, making it increasingly tamperproof.

Why does blockchain matter for the supply chain?

  • It enables the safe exchange of value without a central verifying partner, which makes transactions faster and less expensive.
  • It dramatically simplifies recordkeeping by establishing a single, authoritative view of the truth across all parties.
  • It builds a secure, immutable history and chain of custody as different parties handle the items being shipped, and it updates the relevant documentation.
  • By doing these things, blockchain allows companies to create smart contracts based on programmable business logic, which can execute themselves autonomously and thereby save time and money by reducing friction and intermediaries.

Hints of the Future

In the mid-1990s, when the World Wide Web was in its infancy, we had no idea that the internet would become so large and pervasive, nor that we’d find a way to carry it all in our pockets on small slabs of glass.

But we could tell that it had vast potential.

Today, with the combination of emerging technologies that promise to turbocharge digital transformation, we’re just beginning to see how we might turn the supply chain into a source of competitive advantage (see “What’s the Magic Combination?”).

What’s the Magic Combination?

Those who focus on blockchain in isolation will miss out on a much bigger supply chain opportunity.

Many experts believe emerging technologies will work with blockchain to digitalize the supply chain and create new business models:

  • Blockchain will provide the foundation of automated trust for all parties in the supply chain.
  • The IoT will link objects—from tiny devices to large machines—and generate data about status, locations, and transactions that will be recorded on the blockchain.
  • 3D printing will extend the supply chain to the customer’s doorstep with hyperlocal manufacturing of parts and products with IoT sensors built into the items and/or their packaging. Every manufactured object will be smart, connected, and able to communicate so that it can be tracked and traced as needed.
  • Big Data management tools will process all the information streaming in around the clock from IoT sensors.
  • AI and machine learning will analyze this enormous amount of data to reveal patterns and enable true predictability in every area of the supply chain.

Combining these technologies with powerful analytics tools to predict trends will make lack of visibility into the supply chain a thing of the past. Organizations will be able to examine a single machine across its entire lifecycle and identify areas where they can improve performance and increase return on investment. They’ll be able to follow and monitor every component of a product, from design through delivery and service. They’ll be able to trigger and track automated actions between and among partners and customers to provide customized transactions in real time based on real data.

After decades of talk about markets of one, companies will finally have the power to create them—at scale and profitably.

Amazon, for example, is becoming as much a logistics company as a retailer. Its ordering and delivery systems are so streamlined that its customers can launch and complete a same-day transaction with a push of a single IP-enabled button or a word to its ever-attentive AI device, Alexa. And this level of experimentation and innovation is bubbling up across industries.

Consider manufacturing, where the IoT is transforming automation inside already highly automated factories. Machine-to-machine communication is enabling robots to set up, provision, and unload equipment quickly and accurately with minimal human intervention. Meanwhile, sensors across the factory floor are already capable of gathering such information as how often each machine needs maintenance or how much raw material to order given current production trends.

Once they harvest enough data, businesses will be able to feed it through machine learning algorithms to identify trends that forecast future outcomes. At that point, the supply chain will start to become both automated and predictive. We’ll begin to see business models that include proactively scheduling maintenance, replacing parts just before they’re likely to break, and automatically ordering materials and initiating customer shipments.

Italian train operator Trenitalia, for example, has put IoT sensors on its locomotives and passenger cars and is using analytics and in-memory computing to gauge the health of its trains in real time, according to an article in Computer Weekly. “It is now possible to affordably collect huge amounts of data from hundreds of sensors in a single train, analyse that data in real time and detect problems before they actually happen,” Trenitalia’s CIO Danilo Gismondi told Computer Weekly.

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials.

The project, which is scheduled to be completed in 2018, will change Trenitalia’s business model, allowing it to schedule more trips and make each one more profitable. The railway company will be able to better plan parts inventories and determine which lines are consistently performing poorly and need upgrades. The new system will save €100 million a year, according to ARC Advisory Group.

New business models continue to evolve as 3D printers become more sophisticated and affordable, making it possible to move the end of the supply chain closer to the customer. Companies can design parts and products in materials ranging from carbon fiber to chocolate and then print those items in their warehouse, at a conveniently located third-party vendor, or even on the client’s premises.

In addition to minimizing their shipping expenses and reducing fulfillment time, companies will be able to offer more personalized or customized items affordably in small quantities. For example, clothing retailer Ministry of Supply recently installed a 3D printer at its Boston store that enables it to make an article of clothing to a customer’s specifications in under 90 minutes, according to an article in Forbes.

This kind of highly distributed manufacturing has potential across many industries. It could even create a market for secure manufacturing for highly regulated sectors, allowing a manufacturer to transmit encrypted templates to printers in tightly protected locations, for example.

Meanwhile, organizations are investigating ways of using blockchain technology to authenticate, track and trace, automate, and otherwise manage transactions and interactions, both internally and within their vendor and customer networks. The ability to collect data, record it on the blockchain for immediate verification, and make that trustworthy data available for any application delivers indisputable value in any business context. The supply chain will be no exception.

Blockchain Is the Change Driver

The supply chain is configured as we know it today because it’s impossible to create a contract that accounts for every possible contingency. Consider cross-border financial transfers, which are so complex and must meet so many regulations that they require a tremendous number of intermediaries to plug the gaps: lawyers, accountants, customer service reps, warehouse operators, bankers, and more. By reducing that complexity, blockchain technology makes intermediaries less necessary—a transformation that is revolutionary even when measured only in cost savings.

“If you’re selling 100 items a minute, 24 hours a day, reducing the cost of the supply chain by just $1 per item saves you more than $52.5 million a year,” notes Dirk Lonser, SAP go-to-market leader at DXC Technology, an IT services company. “By replacing manual processes and multiple peer-to-peer connections through fax or e-mail with a single medium where everyone can exchange verified information instantaneously, blockchain will boost profit margins exponentially without raising prices or even increasing individual productivity.”

But the potential for blockchain extends far beyond cost cutting and streamlining, says Irfan Khan, CEO of supply chain management consulting and systems integration firm Bristlecone, a Mahindra Group company. It will give companies ways to differentiate.

“Blockchain will let enterprises more accurately trace faulty parts or products from end users back to factories for recalls,” Khan says. “It will streamline supplier onboarding, contracting, and management by creating an integrated platform that the company’s entire network can access in real time. It will give vendors secure, transparent visibility into inventory 24×7. And at a time when counterfeiting is a real concern in multiple industries, it will make it easy for both retailers and customers to check product authenticity.”

Blockchain allows all the critical steps of the supply chain to go electronic and become irrefutably verifiable by all the critical parties within minutes: the seller and buyer, banks, logistics carriers, and import and export officials. Although the key parts of the process remain the same as in today’s analog supply chain, performing them electronically with blockchain technology shortens each stage from hours or days to seconds while eliminating reams of wasteful paperwork. With goods moving that quickly, companies have ample room for designing new business models around manufacturing, service, and delivery.

Challenges on the Path to Adoption

For all this to work, however, the data on the blockchain must be correct from the beginning. The pills, produce, or parts on the delivery truck need to be the same as the items listed on the manifest at the loading dock. Every use case assumes that the data is accurate—and that will only happen when everything that’s manufactured is smart, connected, and able to self-verify automatically with the help of machine learning tuned to detect errors and potential fraud.

Companies are already seeing the possibilities of applying this bundle of emerging technologies to the supply chain. IDC projects that by 2021, at least 25% of Forbes Global 2000 (G2000) companies will use blockchain services as a foundation for digital trust at scale; 30% of top global manufacturers and retailers will do so by 2020. IDC also predicts that by 2020, up to 10% of pilot and production blockchain-distributed ledgers will incorporate data from IoT sensors.

Despite IDC’s optimism, though, the biggest barrier to adoption is the early stage level of enterprise use cases, particularly around blockchain. Currently, the sole significant enterprise blockchain production system is the virtual currency Bitcoin, which has unfortunately been tainted by its associations with speculation, dubious financial transactions, and the so-called dark web.

The technology is still in a sufficiently early stage that there’s significant uncertainty about its ability to handle the massive amounts of data a global enterprise supply chain generates daily. Never mind that it’s completely unregulated, with no global standard. There’s also a critical global shortage of experts who can explain emerging technologies like blockchain, the IoT, and machine learning to nontechnology industries and educate organizations in how the technologies can improve their supply chain processes. Finally, there is concern about how blockchain’s complex algorithms gobble computing power—and electricity (see “Blockchain Blackouts”).

Blockchain Blackouts

Blockchain is a power glutton. Can technology mediate the issue?

A major concern today is the enormous carbon footprint of the networks creating and solving the algorithmic problems that keep blockchains secure. Although virtual currency enthusiasts claim the problem is overstated, Michael Reed, head of blockchain technology for Intel, has been widely quoted as saying that the energy demands of blockchains are a significant drain on the world’s electricity resources.

Indeed, Wired magazine has estimated that by July 2019, the Bitcoin network alone will require more energy than the entire United States currently uses and that by February 2020 it will use as much electricity as the entire world does today.

Still, computing power is becoming more energy efficient by the day and sticking with paperwork will become too slow, so experts—Intel’s Reed among them—consider this a solvable problem.

“We don’t know yet what the market will adopt. In a decade, it might be status quo or best practice, or it could be the next Betamax, a great technology for which there was no demand,” Lonser says. “Even highly regulated industries that need greater transparency in the entire supply chain are moving fairly slowly.”

Blockchain will require acceptance by a critical mass of companies, governments, and other organizations before it displaces paper documentation. It’s a chicken-and-egg issue: multiple companies need to adopt these technologies at the same time so they can build a blockchain to exchange information, yet getting multiple companies to do anything simultaneously is a challenge. Some early initiatives are already underway, though:

  • A London-based startup called Everledger is using blockchain and IoT technology to track the provenance, ownership, and lifecycles of valuable assets. The company began by tracking diamonds from mine to jewelry using roughly 200 different characteristics, with a goal of stopping both the demand for and the supply of “conflict diamonds”—diamonds mined in war zones and sold to finance insurgencies. It has since expanded to cover wine, artwork, and other high-value items to prevent fraud and verify authenticity.
  • In September 2017, SAP announced the creation of its SAP Leonardo Blockchain Co-Innovation program, a group of 27 enterprise customers interested in co-innovating around blockchain and creating business buy-in. The diverse group of participants includes management and technology services companies Capgemini and Deloitte, cosmetics company Natura Cosméticos S.A., and Moog Inc., a manufacturer of precision motion control systems.
  • Two of Europe’s largest shipping ports—Rotterdam and Antwerp—are working on blockchain projects to streamline interaction with port customers. The Antwerp terminal authority says eliminating paperwork could cut the costs of container transport by as much as 50%.
  • The Chinese online shopping behemoth Alibaba is experimenting with blockchain to verify the authenticity of food products and catch counterfeits before they endanger people’s health and lives.
  • Technology and transportation executives have teamed up to create the Blockchain in Transport Alliance (BiTA), a forum for developing blockchain standards and education for the freight industry.

It’s likely that the first blockchain-based enterprise supply chain use case will emerge in the next year among companies that see it as an opportunity to bolster their legal compliance and improve business processes. Once that happens, expect others to follow.

Customers Will Expect Change

It’s only a matter of time before the supply chain becomes a competitive driver. The question for today’s enterprises is how to prepare for the shift. Customers are going to expect constant, granular visibility into their transactions and faster, more customized service every step of the way. Organizations will need to be ready to meet those expectations.

If organizations have manual business processes that could never be automated before, now is the time to see if it’s possible. Organizations that have made initial investments in emerging technologies are looking at how their pilot projects are paying off and where they might extend to the supply chain. They are starting to think creatively about how to combine technologies to offer a product, service, or business model not possible before.

A manufacturer will load a self-driving truck with a 3D printer capable of creating a customer’s ordered item en route to delivering it. A vendor will capture the market for a socially responsible product by allowing its customers to track the product’s production and verify that none of its subcontractors use slave labor. And a supermarket chain will win over customers by persuading them that their choice of supermarket is also a choice between being certain of what’s in their food and simply hoping that what’s on the label matches what’s inside.

At that point, a smart supply chain won’t just be a competitive edge. It will become a competitive necessity. D!

About the Authors

Gil Perez is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Tom Raftery is Global Vice President, Futurist, and Internet of Things Evangelist, at SAP.

Hans Thalbauer is Senior Vice President, Internet of Things and Digital Supply Chain, at SAP.

Dan Wellers is Global Lead, Digital Futures, at SAP.

Fawn Fitter is a freelance writer specializing in business and technology.

Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.



The “Purpose” Of Data

Timo Elliott

I’ve always been passionate about the ability of data and analytics to transform the world.

It has always seemed to me to be the closest thing we have to modern-day magic, with its ability to conjure up benefits from thin air. Over the last quarter century, I’ve had the honor of working with thousands of “wizards” in organizations around the world, turning information into value in every aspect of our daily lives.

The projects have been as simple as Disney using real-time analytics to move staff from one store to another to keep lines to a minimum: shorter lines led to bigger profits (you’re more likely to buy that Winnie-the-Pooh bear if there’s only one person ahead of you), but also higher customer satisfaction and happier children.

Or they’ve been as complex as the Port of Hamburg: constrained by its urban location, it couldn’t expand to meet the growing volume of traffic. But better use of information meant it was able to dramatically increase throughput – while improving the life of city residents with reduced pollution (less truck idling) and fewer traffic jams (smart lighting that automatically adapts to bridge closures).

I’ve seen analytics used to figure out why cheese was curdling in Wisconsin; count the number of bubbles in Champagne; keep track of excessive fouls in Swiss soccer, track bear sightings in Canada; avoid flooding in Argentina; detect chewing-gum-blocked metro machines in Brussels; uncover networks of tax fraud in Australia; stop trains from being stranded in the middle of the Tuscan countryside; find air travelers exposed to radioactive substances; help abused pets find new homes; find the best people to respond to hurricanes and other disasters; and much, much more.

The reality is that there’s a lot of inefficiency in the world. Most of the time it’s invisible, or we take it for granted. But analytics can help us shine a light on what’s going on, expose the problems, and show us what we can do better – in almost every area of human endeavor.

Data is a powerful weapon. Analytics isn’t just an opportunity to reduce costs and increase profits – it’s an opportunity to make the world a better place.

So to paraphrase a famous world leader, next time you embark on a new project:

“Ask not what you can do with your data, ask what your data can do for the world.”

What are your favorite “magical” examples, where analytics helped create win/win/win situations?

Download our free eBook for more insight on How the Port of Hamburg Doubled Capacity with Digitization.

This article originally appeared on Digital Business & Business Analytics.


Timo Elliott

About Timo Elliott

Timo Elliott is an Innovation Evangelist for SAP and a passionate advocate of innovation, digital business, analytics, and artificial intelligence. He was the eighth employee of BusinessObjects and for the last 25 years he has worked closely with SAP customers around the world on new technology directions and their impact on real-world organizations. His articles have appeared in publications such as Harvard Business Review, Forbes, ZDNet, The Guardian, and Digitalist Magazine. He has worked in the UK, Hong Kong, New Zealand, and Silicon Valley, and currently lives in Paris, France. He has a degree in Econometrics and a patent in mobile analytics.