Congruent Objectives: Political and Economic Objectives Converge
Around Supply Chains
Transparency requires dataLiquidity is the incentive where
no contractual obligation to
Data-sharing requires incentives provide data exists
Enhancing Africa and Europe’s strategic autonomy through
combining data & liquidity
WHY? WHAT? HOW?
Europe’s way of life Supply chains are the Rebalancing liquidity requires assured security most powerful asymmetry is key to of supply of raw materials, instrument to advance empower Europe’s products, and the single market and to strategic supply chains – technologies that project stability and consequently Europe underpin the Union’s prosperity into Europe’s should pair liquidity with ambitions – but the neighborhood – today, data in order to provide emerging geo-economic however, liquidity incentives for the competition that focuses asymmetry across supply redesign of supply chains on reshaping supply chains inhibits their use that ensure economic chains and security of as a lever of combined efficiency, transparency, supply endangers public-private power resilience and robustness
Europe’s strategic as well as sustainability
autonomy
Objectives Illustrative Use Cases
- Strengthening Europe‘s strategic ► Injecting liquidity to reinvigorate firms autonomy and supply chains ► Stabilizing Europe’s strategic neighborhood
- Shaping Europe‘s post-COVID-19 ► Making development aid more effective recovery and prosperity ► Advancing corporate social responsibility
- Enabling the twin green and ► Providing a reliable backbone to implement digital transition Europe’s data strategy
“The coronavirus crisis has
sharpened the need for Europe to bolster the resilience of critical industrial supplies (…) Thierry Breton said the bloc must review the reliability of its supply chains
“EU industrial supply lines need strengthening, commissioner warns,” Financial Times, 5 May 2020 “The Commission is
proposing a new Strategic Investment Facility to support crossborder investments to help strengthen and build European strategic value chains
Europe’s moment,
COM(2020) 456 final, 27 May
2020, p. 13
| Why Resilient Supply Chains Are African and European Strategic Priorities |
Globalization is all about the unrestricted flow of goods, services, capital, information, and the free movement of people. But the emerging geoeconomic competition threatens to untangle interwoven supply chains and decouple cross-border prosperity flows
1 The complexity of supply chains is not well understood.
Companies know their immediate upstream and downstream partners, and these partners are familiar with their immediate interlocutors. But beyond these immediate relationships, darkness prevails
Understanding contemporary supply chain complexity is paramount as
2 corporate supply chains have become the center of gravity of a new geo-economic grand game
► This grand game emerges around the control of strategic flows such as goods, services, capital, and information as well as the free movement of people. Controlling what is needed to ensure these flows bestows power in the 21st century.
► This geo-economic strive for flow control affects technologies relevant for supply chain management. Access to digital technologies, which constitute the heart of Industry 4.0, is increasingly limited due to dual-use export regimes that restrict the availability of these technologies
► Financial technologies are digital technologies. As they provide transparency related to financial flows, access to and availability of financial technologies is increasingly contested with China and Russia embarking on developing their own technology solutions
3 As a consequence, supply chain finance solutions face a major new challenge that results from competing geo-economic visions and manifests itself at the intersection of the geospatial, technological, and financial dimension of supply chain management
What Needs to be Done to Enhance Strategic Supply Chains
The lack of supply chain transparency triggers a liquidity asymmetry: Smaller supply chain partners lack broad access to liquidity on favorable terms, whereas big companies, the public sector, multinational organizations, and investors have access to liquidity at beneterms
| ► | The lack of supply chain transparency affects corporate resilience and limits effective public policies
► It is very demanding to verify corporate compliance with requirements stipulated in environmental laws or human rights obligations due to the very limited knowledge about the partners involved in respective supply chains ► Development aid and economic support programs cannot be fine-tuned to help specific companies as the proper set up of extended supply chains that cross many different nations is hardly known. This, however, raises serious questions: Are the beneficiaries really those in need of help? Have local entities been properly integrated into supply chains? Are programs really accomplishing what is expected? ► National security can be at stake if dubious organizations are part of strategic supply chains relevant for critical infrastructure providers as well as defense |
| ► | Current supply chain finance solutions reinforce asymmetry
between supply chain partners as available solutions have been designed to meet the needs of prime contractors |
| ► | There is thus a pressing need to reshape supply chain finance. Based on the |
weakest link in the supply chain, liquidity needs to be reorganized in a way that
makes sure liquidity not only benefits the top tier of the
supply chain, but trickles down to all levels of the supply chain
and Power
How a New Approach Should Look Like
An incentive-based approach uses the contract between supply chain partners as an umbrella and combines liquidity with the value of data. Liquidity flows among partners in return for accomplishing specific tasks and exchanging comprehensive data sets
Contract Delivery Data Pay
► The proposed new approach – which is based on ready-to-use technology (see description on pp. 7-8) – pairs liquidity with data in a hitherto underexploited way. In return for liquidity, data must “flow up” the supply chain in order to provide proof of compliance with the respective requirements. Data can be used to provide additional information, i.e. data from the participants in the supply chain. The liquidity-in-return-for-data incentive helps to get data out of existing data silos thereby significantly increasing transparency
► Today, there is no incentive to sharing data in view of advancing supply chain transparency. Instant access to liquidity at favorable terms, by contrast, provides the incentive to do so.
► The major added value of this approach stems from the fact that data has value and is thus treated as a “valuable resource.” Contracts between supply chain partners define the individual requirements to be met and the data sets needed to be shared in order to verify compliance with the respective demands
► This approach creates a database that should be based in the EU and managed by a European entity. This database could also constitute a possible future backbone to implement the EU’s data strategy
| The FLOW-Bill – A Ready-to-Use Solution…. |
Two existing providers for electronic negotiable instruments could be used, creating competition. In addition the underlying IP could be used as a white label solution.
Capital Market
Public Sector
Rating
- All participants in the supply chain receive their payments as soon as the main contractual partner is paid – this is made possible by the so-called “flow bill”, i.e.
a bill of exchange that can be split.
- The payment to the main contractor is made with a discount even before the contractually agreed payment date is reached
payment after 1-3 days
to all parties in the supply chain
SUPPLY CHAIN FINANCE Co.
Buyer TIER 1 Supplier TIER 2 Supplier TIER 3 Supplier
Payment acc. Private CompanyPublic Sector/ (Prime ContractorLarge Corporate ) Medium-Size CompanySub-Contractor (Sub-ContractorrSmall Company )
To payment term
The flow bill (as a bill of exchange with special additional features) enables the benefits of the ECB’s low interest rate policy to be passed on to all (!) participants in the supply chain like no other instrument. Supply chain finance is thus no longer only benefits large companies with corresponding access to the capital market.
- The capital market will finance payments prior to the contractually agreed maturity is carried out by the capital market. The public sector pays in accordance with the contractual payment term. The pre-financing of a public sector payment obligation is particularly attractive for the capital market, as it can be based on the public sector’s rating. The rating of the public sector is not used in this context today!
| Physical Supply Chain |
| Lidquidity Flow | Flow-Bill,
i.e., payment to all parties involved within 1-3 days |
Prime Contractor 1 Sub Contractor 1-n |
| Data Flow | Data flow directly related to the project
No data fragmentation |
Prime Contractor Sub Contractor 1-n
Prime Contractor Sub Contractor 1-n |
….to Pair Physical Supply Chains with Liquidity and Data
Supply chains are embedded in a triangle formed by contracts, payments (and thus liquidity), and data. Liquidity is the glue that binds everything together. By paring liquidity with data in a hitherto underexploited way, data gets out of existing data silos thereby significantly advancing supply chain transparency to further political goals
This Approach Significantly Broadens Africa’s and Europe’s Leeway…
| ► | This approach leverages Europe’s top financial rating and turns it into a powerful means of cooperation by issuing liquidity to strategic partners at rates hard to match by others. This will provide Europe with a lever to stabilize countries and regions that matter for Europe’s security and prosperity |
| ► | The proposed solution also blends nicely with Europe’s connectedness strategy with Asia and empowers Europe to
use infrastructure development projects to tie third countries into Europe’s politico-economic ecosystem |
| ► | Sharing liquidity in return for data will also provide most useful in the field of security and defense where joint technology development programs always run the risk of illicit leakages of technologies and expertise. In this case, non-compliance would instantly show up in the data stream thereby triggering an immediate stop of liquidity transfer |
| ► | The same mechanism would also provide a powerful controlling instrument to advance important development goals as set out in the Agenda 2030 and within Europe’s humanitarian aid programs |
A new supply chain finance approach that bundles
liquidity with data to increase
transparency,
resilience, and
sustainability must be interpreted as a new instrument in Europe’s economic security toolbox.
…While Its Risks Can Be Mitigated
| economy | However, the proposed initiative will adopt a sophisticated governance policy and provide a platform to include all relevant public and private stakeholders to jointly agree on the rules of the game. Everyone with “skin in the game” will have a voice to shape the design and the outcome of the initiative |
You are paving the way for ✔ There is a risk that enhanced levels of transparency created a European command using the proposed initiative could invite political demands to “micro-manage” companies
Companies will loose ✔ No, the proposed solution will use a maturity-based approach command over key data in which favorable rates of liquidity provided through the
mechanism are commensurate with the readiness of all parties involved to share data
Thus every stakeholder would be able to fine-tune the datasets to be retained and to be shared with third parties
Your approach runs the
risk of falling into a digital trap
✔ This approach is not dependent in a single digital technology, but rather uses a multi-technology approach that is scalable and embedded in a multi-stakeholder ecosystem The proposed solution will also leverage existing European initiatives to enhance Europe’s strategic autonomy in the digital domain and thus benefit from concerted efforts aimed at strengthening Europe’s digital technology base
Stakeholders: Relevant roles in an evolutionary data ecosystem
How to get started
High Level Use Cases
Selection of Use Cases
(originated from the GAIA X application)
- Industrial supply chain transparency delivers winwin outcomes that uses “compliance as a profit centre” to incentivise protection of human rights, environmental standards, CO2 emission etc.
- Public Sector: Use of arbitrage between quasisovereign credit rating and small to medium sized credit rating to attract liquidity from capital markets to fund the working capital requirements of local small to medium sized businesses
- Increase supply chain resilience by providing access to capital markets for liquidity (working capital) needs of critical suppliers along the supply chain
- Industry 4.0: Digital working capital to be used to help bill for / pay for industrial machinery – e.g.
based upon a “power by the hour” pricing model.
- Coronavirus special economic stimulus for vulnerable industries, e.g. digital coupons to direct stimulus to targets
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Use Case A: Tomatos from Sicily *
Payment 0 days
SUPPLY CHAIN FINANCE Co.
Retail Corp. Tomato Tomato Grower Payment acc. Wholesaler Sicily
to contract
Data
Data: What do I need to Data: What am I not know? supposed to know?
- Supplier is eligable to receive Not supposed to know
payment (Y/N) what you haven‘t paid for.
- Is harvest labour being fairly In bottom up digital paid in accordance with the integration, the
law? Consumer can efficiently
- Do they have a work permit pay suppliers via product or are they at risk of having premiums for detailed being trafficked? compliance information.
- What is the age of the Farmers can use employee?
differentiated pricing to
- If the employee is under (18? recharge to supermarkets
16? 14?) are they being the cost of monitoring exploited? compliance.
*
High level data requirements related to human rights – other requirements (e.g. compliance with environmental leagisaltion may require different data)
| High Level Use Cases | 2/2 |
Use Case B: Fashion Industry *
Payment 0 days
SUPPLY CHAIN FINANCE Co.
Retail Corp. Fashion Fabric Cotton
Payment acc. Producer Manufacturer Farmer
to contract
Data
Data: What do I need to Data: What am I not know? supposed to know?
- Supplier is eligable to receive Not supposed to know payment (Y/N) what haven‘t paid for.
- Does the number of The supply chain contains
employees match the outputof the farm / the productionsite? (Y/N) substantial amounts ofdata, currently stored insilos. Each tier in the
- Does the amount of salary supply chain pays the tier paid match the number of beneath it for the data it employees according to needs to optimise its minimum wage value contribution. requirements? (Y/N)
- Is the minimum age of Consumers can
employees above X years? (Y/ potentially see, all the way
- N) to the cotton farmer.
*
High level data requirements related to human rights – other requirements (e.g. compliance with environmental leagisaltion may require different data)
Page 14
Use Case C: Construction Industry **
Payment 0 days
Construction Sub- Sub- Sub-
Payment acc. Corp. Contractor 1 Contractor 2 Contractor 2 to contract
Data
Data: What do I need to Data: What am I not know? supposed to know?
- Am I using the right Prime You get to know what you
Contractor? pay for, provided that
- Is my Prime Contractor using information is business the right sub-contractors? related and not private to ✔ Are my Prime Contractors an individual.
paying my sub-contractors Name of the supplier on time?
- Are my Prime Contractors Sales figures using local sub-contractors? Number of employees
- Are my Prime Contractorsusing the money I am paying Origin of employees them for my project? …
- Minimum wages are paid (Y/
** N)High level data requirements related to minimum wage, social security and solvency
Damian Crowe
Your contactsMelbourne
M +61 499 682 648
Damian@obillex.com.au
Carsten Jäkel
Cologne
M +49 151 4237 1889 c.jaekel@zanders.eu
Ibrahim Salifou Auckland
M +64 210 551464 isalifou@obillex.com.au