1/22/2018. Agenda. Blockchain for Supply-Chain. Jean-Luc Verhelst, Deloitte Belgium. 1 Evolution of supply-chains

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1 Blockchain for Supply-Chain Jean-Luc Verhelst, Deloitte Belgium Agenda 1 Evolution of supply-chains 2 What does Blockchain mean for Supply-Chain 3 A look at the future 4 The blockchain journey 2 1

Companies are shifting to Digital Supply Networks Companies are shifting to Digital supply Networks that blend the digital and physical environments to manage their increasingly connected products,

chain TOMORROW causing them to collapse into a dynamic and integrated set of Digital Supply Networks Quality Sensing Inventory Traceability Digital Core 3D Printing Sensor-driven Replenishment

2 Companies are shifting to Digital Supply Networks Companies are shifting to Digital supply Networks that blend the digital and physical environments to manage their increasingly connected products, customers, and supply chain and operations YESTERDAY Improvement has traditionally been localized within specific supply nodes TODAY Technologies are now connecting the silos of the linear supply chain TOMORROW causing them to collapse into a dynamic and integrated set of Digital Supply Networks Quality Sensing Inventory Traceability Digital Core 3D Printing Sensor-driven Replenishment Source: Deloitte, The rise of the digital supply Network, 2016, Link 3 Digital Supply Networks require high levels of data integration Digital Supply Networks, which are dynamic, integrated sets of supply networks characterized by a high velocity, continuous flow of information, and analytics Always-On Agility Connected Community Data-Driven Intelligence End-to-End Transparency Holistic Decision Making Source: Deloitte, The rise of the digital supply Network, 2016, Link Source: Deloitte, Supply Chain & Manufacturing Operations, Market Trends as of July

Digital supply-chains could reduce misinformation The lack of a solid digital standard results in counterfeits and irresponsible sourcing Counterfeit goods account for $461 billion in trade annually

3 Digital supply-chains could reduce misinformation The lack of a solid digital standard results in counterfeits and irresponsible sourcing Counterfeit goods account for $461 billion in trade annually 10-30% of medicines sold in developing economies are counterfeits Retailers face rising consumer demands for transparency Factors for a sustainable digital supply chain Visibility Flexibility Collaboration Control Profitability 5 3

4 Internet allows decentralization of information but not of value Valuable and money cannot be copied in order to keep their value BANK? Information is not transferred but copied 7 4

Bitcoin is to money what internet is to information Everyone can now create and move money around digitally BANK Bitcoin is to money what internet is to information

5 Bitcoin is to money what internet is to information Everyone can now create and move money around digitally BANK Bitcoin is to money what internet is to information Today: Information Permissionless communication Tomorrow: Value + Permissionless value exchange Permissionless content creation and fruition 9 Blockchain is skyrocketing 5

6 What blockchain can do for you We will have a look at the first three layers of blockchain Each application serves as the foundation for more sophisticated uses Smart Contracts Program protocols to execute transactions when a set of pre-determined conditions are met Transfer of Value Enable low-cost, near real-time value transfer without an intermediary Expand to transfer of other assets beyond money Record Keeping Create an immutable record without reliance on a trusted third party Improve efficiency of record keeping via automation Greater sophistication And apply them to the supply-chain of a pharma company Sourcing Procurement Manufacturing Distribution End-customer 11 Blockchain Basics & Record keeping 6

Centralized System Decentralized System Public Blockchain Permissioned Blockchain Private

Characteristics of blockchain Blockchain possesses important characteristics to transform

Blockchain is a public record of all transactions which is managed and shared on all nodes and

transact, eliminating the third party verification completely Near real-time Transactions can

institutions as trust is decentralized Disrupt business models focused on extracting value

7 Centralized System Decentralized System Public Blockchain Permissioned Blockchain Private Blockchain Decentralization = No central trusted party + No single point of failure Characteristics of blockchain Blockchain possesses important characteristics to transform existing products / services and enable new innovative solutions Decentralized and Distributed Blockchain is a public record of all transactions which is managed and shared on all nodes and can be viewed by everyone Irreversible and Immutable Blockchain enables two primary parties transact, eliminating the third party verification completely Near real-time Transactions can be verified and settled in minutes as opposed to days Implications Evolving role of institutions as trust is decentralized Disrupt business models focused on extracting value when a transfer in value between parties occurs Shift in customers expectations as competitors set the standard of faster service 14 7

8 Blockchain Transfer of Value What blockchain traceability looks like in action Using a public or permissioned (consortium) blockchain creates a single audit trail for goods from origin to point-of-sale, and allows the qualities of an item like NGO certifications and government approval status to be managed digitally. Coffee Farm NGO / Certifying Organizations Exporter Importer Customs & Border Protection Retailer 1) The coffee farmer creates a new blockchain record for 100lbs of coffee 2) The Fair Trade Organization certifies the coffee record to indicate it was produced ethically and responsibly (note this does not replace the need for 3 rd party audits by certifiers) 3) The coffee farm sells all 100lbs of the coffee to an exporter and transfers ownership of the digital record to the exporter 4) The exporter then ships the coffee to an importer in the U.S. and transfers ownership of the record 5) Customs & Border Protection provide a stamp of approval for their goods to enter the U.S. 6) The retailer receives their shipment of coffee and is passed ownership of the digital tracking record which they can display to the consumer FT FT Blockchain FT FT CBP CBP 16 8

9 What blockchain traceability looks like in action Various players in the C&IP industry have expressed concerns as to the consequences of increased transparency on their business s competitive advantages and security of their supply lines. Blockchain provides balance between security and transparency. Coffee Farm NGO / Certifying Organizations Exporter Importer Customs & Border Protection Retailer FT FT Blockchain FT FT CBP CBP Risk / Concern Competitors being able to see where I am sourcing from Competitors being able to see how much merchandise I am moving Putting my supply chain at risk of attack / sabotage / terrorism Having a 3 rd party own my data Mitigation Strategy with Blockchain The identities of the parties involved in a transaction / the movement of goods are hidden. Only their public keys are visible to the rest of the network. New public keys can be used for each transaction for added security The contents of a tracking record on the blockchain can be encrypted Only select pieces of the complete chain of custody are visible, even to transacting parties. Only necessary information is allowed to permeate through the supply chain (i.e. origin, certifications) With blockchain, it is not required that a 3rd party holds all the information 17 Traceability Use Case Proof-of-Concept for a pharma company 9

Previous Blocks are Viewable Previous Blocks are Viewable 1/22/2018 Pharmaceutical supply chain tracking Blockchain recording begins at the manufacturer, undergoes updates by intermediaries, and can

10 Previous Blocks are Viewable Previous Blocks are Viewable 1/22/2018 Pharmaceutical supply chain tracking Blockchain recording begins at the manufacturer, undergoes updates by intermediaries, and can then be authenticated by the retail pharmacy Record initial drug specifications (e.g. Drug ID) through RFID/barcode/other Establish the drug s supply chain footprint View previous blocks and update the drug s status Add to the drug s supply chain footprint View previous blocks and authenticate that the correct drug was received Finalize the drug s supply chain footprint Blockchain API Software Client Blockchain API Software Client Blockchain API Software Client 1 Block 1 Drug ID: 505 Drug Name: Lipitor 2 Block 2 Drug ID: 505 Update: Stored in warehouse Location: Austin, Texas 3 Block 3 Drug ID: 505 Authentication: Confirmed that drug was received Location: New York City, NY Existing systems and tracking processes can feed blockchain APIs Permissions stipulate which trading partners can access the blockchain Data can be queried to view the drug s full footprint 19 Visibility Flexibility Collaboration Control Profitability 10

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Start-up landscape Using Blockchain for Supply Chain Transparency Provenance exists with a social mission at our core. We exist to help power consumer facing transparency.

Example: When buying meat from a butcher, checking how the meat was handled from where the cow was raised (and how) to how it was packaged.

13 Start-up landscape Using Blockchain for Supply Chain Transparency Provenance exists with a social mission at our core. We exist to help power consumer facing transparency. By using blockchain, Provenance offers complete tracking of the product from its origins all the way to the shelves to keep the consumer informed. Example: When buying meat from a butcher, checking how the meat was handled from where the cow was raised (and how) to how it was packaged. the most effective means we have to fight counterfeit sneakers is social media. But counterfeiters are aware of these sites, too, and they are constantly adapting to give the product the right appearance. By providing a blockchain registry for sneakers, Chronicled offers a way for manufacturers to tie a public key to a shoe, making it possible to track it, forever. Example: When hesitating to buy an expensive pair of shoes, the consumer can take out his smartphone and scan the product to make sure it is not a counterfit. It was obvious [ ] that the blockchain could be used to track objects, and of course, one of the largest pain points that runs through the supply chain is provenance By providing a partially public platform (all diamonds can be cross-referenced on bitcoin s blockchain while sensitive data is kept private), Everledger offers a business-to-business service that bills out on access to its data. Example: Ensuring that a diamond bought was not a conflict diamond or stolen at some point in the past

14 Blockchain Smart-contracts Smart contracts Self-enforceable smart contracts can create automation and trust where there is none People involved People involved SMART CONTRACT Balance Automatic conditional payments Smart contracts are computer software that can be programmed to transfer value under certain conditions Code of the contract If(condition) then{ } Else{ } Signatures of people involved Self-executing code Smart contracts can automatically verify conditions on the internet and execute themselves Censorship resistance Once deployed in the blockchain, a smart contract cannot be modified and will execute itself as programmed 28 14

15 Order-to-Cash Use Case Proof-of-Concept for Oil and Gas client 15

16 Order to Cash: Order Tracking Use Case Current state process and problem statement Problem / Opportunity Statement The order to cash process is a largely complex process involving many different parties between the company service representatives, plants to fulfil orders, shipping parties, and customers. Currently, the customer and company employees have little to no insight into the status of an order that is placed. Obtaining the order status is a manual process that currently requires extensive human intervention. Customer calls company to place an order Current State Process Shipper picks up order Legend Mandatory Action Friction Creator Deficiency Company service representative checks whether the order can be fulfilled as requested Company calls shipper to scheduled order Customer calls company to obtain order status Company calls customer to confirm or change the order Company calls shipper to obtain order status, then calls customer back Shipper delivers order 31 Visibility Flexibility Collaboration Control Profitability Trade Finance Use Case Proof-of-Concept cross-industry 16

17 Current Pain Points Today s processes for Trade Finance relies heavily on opaque documentation and manual and time consuming processes; additionally, the industry has a high cost structure and is a target for fraudulent activities Paper Intensive Documentation with intermediary verifications and checks resulting in errors Manual, Labor Intensive & Time Consuming Processes for contract creation and reviews resulting in high costs and delays Trade Finance Pain Points Constrained Access to Capital for sellers and buyers Siloed Legacy Technology Platforms increases propensity for fraud (e.g., factoring) 33 Difficult Controls Enforcement for AML and other trade regulations Future State Vision Our vision is to create an open, interoperable trade finance blockchain that allows smart contracts to be created and customized in a generalized contract framework irrespective of trade instrument Create Purchase Agreement (Smart Contract) 1 3 Ship Goods and Generate Invoice A buyer agrees to purchase goods from a seller a purchase agreement is created and shared via a smart contract Terms of the purchase are laid out in the smart contract conditions Smart contract is sent to required parties for approval Seller initiates the shipment of goods and updates the smart contract to reflect the shipment Shipper acknowledges receipt and updates the contract in return by providing a Bill of Lading Seller invoices the buyer for the shipped goods; goods are tracked throughout transit using data inputs from IoT devices 2 Smart Contract Approval 4 Both financier and seller reviews the shared agreement and digitally signs the contract upon agreeing with the parties involved and terms of purchase Complete Payment Upon delivery, the buyer will digitally acknowledge receipt of goods and trigger payment Using the provided acknowledgement, smart contracts can initiate / execute / track payments both within the blockchain network and externally 34 17

Mercury Deloitte s Trade Finance Prototype Our Trade Finance prototype Mercury, was built out of our d { }

of smart contracts on the blockchain First MVP release: September 2016, open for demonstration Our Trade

Contracts developed on Ethereum Demonstrates the use of Oracles as external data sources 35 Mercury

18 Mercury Deloitte s Trade Finance Prototype Our Trade Finance prototype Mercury, was built out of our d { } (pronounced dee space ) rapid prototyping lab on an Ethereum based platform, and showcases the potential of smart contracts on the blockchain First MVP release: September 2016, open for demonstration Our Trade Finance Prototype Screenshots Developed on an Ethereum based private blockchain platform Leverages Smart Contracts developed on Ethereum Demonstrates the use of Oracles as external data sources 35 Mercury Deloitte s Trade Finance Prototype Journey Timeline 36 Visibility Flexibility Collaboration Control Profitability 18

Cold Supply-Chains Use Case Concept overview Cold Supply-Chains Use Case Automated insurance for cold supply-chains The challenge Since 2012, $12.

19 Cold Supply-Chains Use Case Concept overview Cold Supply-Chains Use Case Automated insurance for cold supply-chains The challenge Since 2012, $12.5B in fines have been levied against pharma companies for failure of accurately reporting drug safety data and mismarking of drugs. The response The combination of sensors and smart-packaging makes it possible for all users in the supply-chain to detect if a drug has been exposed to inappropriate conditions. Combining IoT sensors and smart-contracts, an insurance claim could be received as soon as one product has been exposed to inappropriate conditions. Actors within the supply-chain could also set contractual agreements on a blockchain defining who is responsible for ensuring the safe transportation of goods and the which party pays in case the safety conditions are not met. An alternative could consist in rewarded each actor having maintained the cold-supply chain when he passes the drug over to someone else. 38 Visibility Flexibility Collaboration Control Profitability 19

20 Start-up landscape Using Blockchain for Supply Chain Transparency Banks don t make much money because there is so much couriering of documents and physical verification of documents, as well as lots of manual work involved. Using the bitcoin blockchain, Skuchain implements smart locks and digital keys to form a smart contract. When the conditions are met, funds are moved automatically on the blockchain. Example: When a container reaches the assigned destination, carry out the payment. Our mission is to eliminate all the paperwork that is involved in an international trade. By developing their own layer of technology on top of the bitcoin blockchain, Wave mimics the industry standard workflows but replaces printed documents by electronic ones stored in blockchain transaction metadata. Example: Trade documents, invoice, packing list, bill of lading. Currently, a bank s ability to detect duplicate financing of the same set of invoices or bills of lading is limited to their own database Ripple envisions an open ecosystem where neutral third parties can participate and verify the authenticity of the trade documents being financed. Example: Banks can convert invoices into digital assets while all participants can access information on the status of invoices seeking financing. 39 Cold Supply-Chains Use Case Automated insurance for cold supply-chains Cold-supply chains Transparency Endcustomer Sourcing Procurement Manufacturing Distribution End-customer Order-to-cash Compliance Automate future price setting 40 20

21 Blockchain A look at the future 21

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23 Self-driving cars are cool self-renting cars are genius!

24 Journey towards blockchain Blockchain is a combination of characteristics having implications beyond the technology Peer-to-Peer Almost real-time No central authority Irreversible Distributed ledger Censure-proof Secure Open source Implications Evolving role of institutions as trust is decentralized Disrupt business models focused on extracting value when a transfer in value between parties occurs Shift in customers expectations as competitors set the standard of faster service 48 24

25 Visibility 1/22/2018 In 2017, Blockchain is topping Gartner s hype-cycle It is time to distinguish myth from reality Gartner Hype Cycle Blockchain technology Technology Trigger Peak of Inflated Expectations Trough of Disillusionment Slope of Enlightenment Plateau of Productivity Maturity 49 Blockchain challenges Like any new technology, blockchain poses questions and challenges Challenges of blockchain technology Regulation Regulators prefer paper trails Challenging governance of decentralized organizations Scalability User friendliness / User Experience Anonymity / Cybercrime Confidentiality / Accessibility Business Case Blockchain not designed for high speed, data storage Need for data minimization Few user friendly interfaces Need to put blockchain under the hood Connect with client facing systems Importance to test thoroughly before deploying on a blockchain Connecting digital world to real world Minimize privacy-sensitive or confidential data on the blockchain, even if it is encrypted Build secure key management / recovery Always ask the question: why use blockchain for this? What are incentives / benefits for all parties? In Europe? Or better fit in developing world? 50 25

26 A typical blockchain journey From ideation to development Strategy Development 2 1 Innovation and Ideation We identify relevant use cases to harvest the benefits of Blockchain technologies Our thought leadership, developed in conjunction with our ecosystem of innovation and Blockchain companies, enables you to make sense of the broad innovation landscape We track over 200 Blockchain companies We lead you to define where to play and how to win We drive business, technology, integration and talent strategy We develop strategies to pilot and implement Blockchain based solutions We define an iterative and flexible approach to match the rapid changes in the ecosystem 4 Product Development Prototyping 3 We mobilize our global practitioners to your organization to reengineer business processes or design new ones We bring our broad set of services, across compliance, technology, talent, operations and tax, to effectively integrate your Blockchain solution We deliver as one team in collaboration with external companies We accelerate prototyping by using our existing technology capabilities and industry experience We have prototypes up and running: Digital Bank, Loyalty & Rewards and Smart Identity We have over 20 prototypes in development Industries where Global delivery we have deep network with 9 business process development knowledge teams Practitioners in our Blockchain community from 30 countries 51 Do you need a Blockchain? The first assessment consists in defining whether a blockchain solution is a good option You need data storage to be immutable No Yes Does it required shared write access amongst multiple participants? No Are writers known and trusted? Yes Yes Are writers interests unified? Yes Don t use blockchain No No Do you want to use a trusted 3 rd party? Yes No A limited number of data has to be stored No Yes The outcome is deterministic and does not required a court in case of dispute Should one entity or group of entities have full control over the data or accesses? Yes No No Yes Private Where is consensus determined? Intra-firm Inter-firm Use a private blockchain Interbank settlement of securities Use a hybrid blockchain Share KYC information between corporations Do participants want messages to be private or public? Yes Public Use public blockchain Crypto-currencies 52 26

Going beyond the technology Mapping the business impact of a blockchain and consider quantitative and qualitative elements Innovation type Quantitative elements Depending on their strategic value,

27 Going beyond the technology Mapping the business impact of a blockchain and consider quantitative and qualitative elements Innovation type Quantitative elements Depending on their strategic value, blockchains solutions can be mapped in three innovation types: Core, Adjacent and Transformational WHERE TO PLAY Create new markets and audiences Transformational Innovation Investment cost Net impact on maintenance cost Net impact on operational process cost Further commercialization / payment models Enter new markets and audiences Adjacent Innovation Qualitative elements Served markets and audiences Core Innovation User Experience Client experience HOW TO WIN Optimise existing Create offerings and extensions, operations enhancements, improvements Build new businesses and structures Data insights Strategic advantage and positioning 53 Going Forward To achieve more transparent supply chain, a blockchain solution needs buy-in from a large number of industry stakeholders including businesses, NGOs, and regulators Talk to your clients! What are your client s traceability needs? What problems do they face? What do they hear from their customers? What are their customers saying about traceability? What regulations added traceability help them address (i.e. FSMA for Food & Beverage)? What are their concerns with increasing transparency in their supply chains? How much effort (time, money, resources) are they willing to invest in a traceability solution? Share your findings with us! The technology has great potential, but it still needs to be designed around industry requirements The technology is only a piece of the puzzle, solving this issue will take significant investment to build the processes to support a global traceability solution 54 27

Stay connected Jean-Luc Verhelst Strategy Consultant & Blockchain expert Monitor Deloitte Stay connected jverhelst@deloitte.

By. Step. People say: "Saved me hundreds of google searches" One of the best structured and most clear introductions I have read so far.

" Learn more: - Inner workings step by step - Buy and store safely - Is it money? Is it currency?

28 Stay connected Jean-Luc Verhelst Strategy Consultant & Blockchain expert Monitor Deloitte Stay connected Paul Delesalle Partner EMEA Supply Chain & Operations Leader Deloitte Learn everything. Step. By. Step. People say: "Saved me hundreds of google searches" One of the best structured and most clear introductions I have read so far. "crystal clear" and "anti-bs" when it comes to content "Acheté hier sur Amazon Kindle - Je dévore le livre. Passionnant et bien écrit." Learn more: - Inner workings step by step - Buy and store safely - Is it money? Is it currency? - Other cryptocurrencies - Machine-2-Machine payments - Blockchain for identity - Blockchain for basic income - Blockchain for democracies Follow blockchain stuff: Jean-Luc Jean-Luc Verhelst Buy it: >> Amazon: 23 >> TODAY:

Blockchain: An introduction and use-cases June 12 th, 2018

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