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How AI and Blockchain Databases Will Transform Purchasing
 

How AI and Blockchain Databases Will Transform Purchasing

Wednesday Jun 27th 2018 by Mike Vizard

It is already clear that AI and blockchain technologies are about to drive an unprecedented level of disruption across a multitude of business processes, among which purchasing is likely to be the first.

Thanks to the rise of machine learning algorithms and other forms artificial intelligence (AI) technologies that will soon be augmented by “smart contracts” enabled by blockchain databases, the role of purchasing executives within organizations is about to be transformed utterly.

Most of the supply chains that purchasing executives construct are relatively rigid. Terms and conditions involving suppliers typically need to be negotiated up front. Most organizations have multiple suppliers they rely on for any given product or service. But dynamically adding new suppliers is not usually feasible. That can be problematic because suppliers wind up being impacted by events beyond their control. Before most purchasing managers realize, a key component or raw ingredient their suppliers rely on is suddenly very hard to attain because, for example, a natural disaster has made a critical raw material scarce. Not too long after, that shortage winds up impacting all the finished goods that depend on that raw material.

Machine learning algorithms create the opportunity to put an end to those kinds of surprises by applying advanced analytics against immutable data that is stored in a distributed ledger based on a blockchain database. The immutable nature of the data stored in a blockchain database solves a key issue when training AI models based on machine learning algorithms, says Katheryn Harrison, director of global product management for IBM. Early adopters of AI technologies are struggling with data quality issues that an immutable source of data would eliminate, says Harrison.

“It’s the same old garbage, garbage out problem,” says Harrison.

Harrison notes that almost every CEO is already at the very least now aware of the potential of blockchain technologies, which is helping to drive a lot of investments in proof of concepts that include many purchasing use cases.

Assuming the data stored in a blockchain database is immutable, predictive analytics applications leveraging those algorithms would be able to more accurately predict how events will impact the supply chain. Understanding the impact those events might have is only valuable, however, when there is enough time to act on that intelligence. That’s where smart contracts based on distributed ledgers based on blockchain databases come into play. A blockchain database can streamline the purchasing process by eliminating the need to rely on third parties such as a bank to set up a process for processing transactions. Each company would essentially create their own form of a digital cryptocurrency that could then be converted to legal tender once a transaction is completed. That capability will make it considerably simpler to add another supplier whenever changing business conditions warrant.

In effect, AI technologies based on machine learning algorithms provide much needed visibility, while smart contracts provide the foundation for dynamically adding suppliers to the digital supply chain whenever required.

The combined result will have a profound impact on the overall economy as “intelligent enterprises” begin to take advantage of cognitive computing capabilities to transform the global economy, says Barry Padgett, president of SAP Ariba.

“Intelligent enterprises will lead to an intelligent economy,” says Padgett.

Padgett says AI and blockchain databases will not only provide unprecedented levels of visibility into supply chains, they will also enable purchasing executives to define and enforce purchasing policies to promote, for example, sustainability on a global scale. In effect, that means chief purchasing officers will be able to play a more strategic role inside their organizations, says Padgett.

Naturally, as a provider of ERP application software and the operator of a trade network in the form of Ariba, SAP Is watching these trends closely. SAP at the 2018 Sapphire Now + ASUG Annual Conference this month announced the formation of a global blockchain consortium with seven founding members, including Intel Corp., Hewlett Packard Enterprise Co. (HPE) and A3 by Airbus SE. SAP says 65 companies are now participating in an SAP blockchain co-innovation initiative involving technologies such as Hyperledger Fabric and MultiChain.

Blockchain technologies are attracting venture capital investments that have the potential to disrupt existing purchasing networks. In fact, just about every process involving repeatable transactions is about to become a marketplace, says Shidan Gouran, president and COO of Global Blockchain Technologies Corporation, which is an investment company focusing on blockchain products and services.

Machine learning algorithms will provide much needed visibility into the supply chain, while blockchain technologies will be used to democratize electronic transactions, says Gouran.

Gouran says organizations don’t necessarily have to invest in both machine learning and blockchain technologies at the same time, but collectively they are about to enable a raft of new processes that will drive a variety of new business models.

“There will be complete transparency into global supply chains,” predicts Gouran.

As compelling as that may be, however, change at that level of scale tends to come slowly, says Jesse Chenard, CEO of MonetaGo, a provider of software used to construct private networks based on blockchain technologies. In the case of MonetaGo, that means initially focusing on accounts receivable applications tied into banking networks.

Chenard says it’s unlikely blockchain networks, for example will be replacing Ariba purchasing networks that operate at levels of scale a distributed ledger based on blockchain technologies is not going to be able to address any time soon.

“You need to focus on solving the small problems before getting a chance to take on the bigger problems,” says Chenard.

Nevertheless, within a well-defined supply chain, it’s already been proven blockchain technologies can reliably streamline processes in a way that reduces fraud because every recorded transaction is, at least in theory, immutable.

Naturally, it’s still early days when it comes to both blockchain technologies and AI. But it’s already clear that these technologies are about to drive an unprecedented level of disruption across a multitude of business processes, among which purchasing is likely to be the first. After all, not only are organizations of all sizes always keenly interested in reducing costs, the emergence of digital supply chains is also critical to being able to move rapidly into new markets. In fact, the organizations that manage to simultaneously master blockchain technologies in a way that drives first machine and then deep learning algorithms are likely to enjoy a sustainable competitive advantage for years to come.

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