Season 1, Episode 2
IoT in the Smart Grid
Energy industry expert Doug Houseman joins host Vaughn Amann for a discussion surrounding IoT applications in the Smart Grid.
The IoT Wavelength Podcast
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The Internet of Things, along with increased demand and renewable energy sources, is changing the way electrical grids around the world are structured and operated, and that’s what we examine in this episode with energy industry expert Doug Houseman.
Hosts & Guests
Vaughn: There are several emerging enabling or umbrella technologies related to the Internet of Things such as artificial intelligence, machine vision, and the topic of today’s discussion, distributed ledger technology, or as it’s more commonly known, blockchain. My guest today has been involved in varying degrees with several projects and applications of blockchain technology spanning multiple vertical markets.
He frequently gets to deal with both developer groups and with customers. So he’s in a great position to understand and discuss many of the intersections of the internet of things with blockchain. So let me introduce my guest, who’s a business development executive of blockchain solutions with IBM. Mr Eric Bergeman.
Erik: Thank you, Vaughn. I appreciate it.
Vaughn: Thanks for joining us. So how did you get started in the blockchain business?
Erik: Ooh. So, I’ll take a little step back and talk about much of my career at IBM has been focused on. What I’ll [00:01:00] call wave one technologies. I came into IBM in the late nineties kind of at the beginning of the dotcom boom as we were trying to figure out how to create this thing that we called eBusiness, which was not e-commerce per se, but.
But really, you know, more focused on how do enterprises do business together and how do they leverage the, this new thing, the internet to be able to do that. So I participated in that. And, and throughout my career, I’ve kind of focused, as I said, on these wave one technologies. So as we were doing eCommerce and B2B commerce and marketplaces, and, and then we went through a kind of a period where we acquired , several different things, and we called it smarter commerce as, we began to inject intelligence and back in the the mid thousands, if you will. Um, we began to take a real [00:02:00] hard look at a set of technologies, which subsequently now is called internet of things technologies. At the time, we were looking at RFID and, Oh, how could we use near field communication technologies to solve business problems?
Vaughn: Machine to machine
Erik: Yeah, exactly. So machine to machine, what we call in, in the, in the business and the old, the business world, we call it an instrumentation. So we needed to instrument the physical world and whatever, since we could do so, and be able to do that. Now it’s, it’s obviously called the internet of things technologies.
And then about a little over a year ago I had been. Involved in and primarily focused on the retail and the consumer industry. And I had an opportunity to become a part of a group inside IBM that was focused on what we called platforms and the creation of industry specific platforms. And so [00:03:00] I, once again remade myself and, and joined what is our blockchain in supply chain, solutions organization platform group.
And, and have been applying both my industry expertise and having covered the retail and consumer industry for many years in this new kind of startup business where we, IBM decided to make a significant investment and operationalizing this thing called blockchain. And creating these trusted networks of business partners that we could then collect the data, do it in such a way that we were not violating the principles of owning your own data and kind of be the, the trusted facilitator of these, of these network relationships and really kind of amp up the digitalization of certain technologies, certain functional capabilities like supply chain in particular,
Vaughn: Right, [00:04:00] so it’s not just blockchain by itself. There’s also augmenting that with the trust ed networking and, and things of that nature that IBM supplies.
Erik: Right, for us, it’s not a matter of doing blockchain for blockchain’s sake. Blockchain, it does nothing else except leverage a kind of technology that underpins the businesses working in operating more efficiently, so…
Vaughn: A piece of the puzzle.
Erik: Yeah, exactly. And, and so when I, when I look at these platforms that IBM has been investing in platforms like TradeLens, which is for the container shipping business, platforms like food trust, which is targeted and focused on creating trust in the, in the food supply chain, kind of end-to-end.
We have an opportunity to, to underpin that with blockchain technology so that everybody that’s participating knows. [00:05:00] Okay. If you put something up there, it can’t be changed. Right? This whole concept of immutability, and I know there are a lot of debates in the marketplace about it, well, blockchain is Bitcoin and or not, or is it really immutable?
You know, is it enforceable? You know, self-sovereign versus, I mean, there’s a whole lot of debates about all of that. And and for us, it’s more about how do we, how do we do something in a more trusted way than what exists today and in a way that people can comprehend without having to, you know, worry about different people not playing by the rules or not playing in the right way, and in an enterprise scalable. sustainable way.
Vaughn: I met you at a blockchain meetup here in Austin, and you were discussing the international shipping application that you’re working on currently, and it had a lot of, [00:06:00] a lot of tentacles, if you will, into other markets. So that was, that was really interesting to me.
Erik: Well, I mean, you think about it, and a lot of people don’t realize this, but. The biggest ships that are out there carry 24,000 containers. Most people are not. Most different companies that are moving containers across the ocean aren’t moving more than one or two or three on average. You know, three or four at the most.
So you’re talking about something like 20,000 different companies that are represented by those 24,000 containers on that one huge mega ship that just landed at a port, that by the way takes sometimes weeks to unload. So the ability to apply these new technologies to the market in a way that drives efficiency around.
Not just the movement of the goods, but all of the documentation in order to get those 24,000 [00:07:00] containers on that ship. It may have had to stop many, many places, and every time it stops, um, more would get loaded on or, or what we call transshipment points in, in some of the hub ports around the world.
So a lot of goods coming out of Asia may stop in Spain, for instance, before, you know, before coming to the East coast, or, you know, or vice versa. So there, there’s a lot of, you know, not just, not just understanding. And, and a lot of different participants that take place. But there are other technologies that we’re beginning to see applied, like for instance, internet of things, technologies.
So one of the things that IOT is being used at in the container business. And then I have another example that I’ll share, um, that I think is relevant as well, is making smart containers. If I have a ship that has some kind of cellular service on it. And I have [00:08:00] 24,000 containers on that ship that each have some kind of of sensor that says, Hey, here it is.
You know, I have a, a new ability to understand where my goods are at any moment in time. And I think what a part of what has happened is there is this expectation. In you and I, because we use it, Every time we go to a new city and we pick up a phone and we, and we bring up the Uber app, we know exactly where the vehicle is that’s going to come pick us up.
And so these businesses are, are kind of asking the question of everybody involved in moving their goods. Why can’t I do that? And so the, the application of. You know, IOT for kind of real time tracking and understanding where things are is one thing. But you know, moving goods is not just physically where the goods are because there are many steps along the way and there are many things that have to [00:09:00] happen on both sides of the ocean.
in order for that container to even be put on a ship or taken off a ship. So it’s, it’s not just physically where is that container and what goods are in that container, but it is, where is the documentation for the import process or the export process. In, in the overall process so that I can do a better job understanding why is that container sitting there doing nothing.
Vaughn: So you mentioned before that there was a lot of, <TAG> efficiency that could be gained
through that process.
Just understanding how the paperwork is flowing through the system, but there’s also trust and, you know, you’d need to know where certain things are at certain times, and then the provenance behind those things.
You need to know where they were. And incorporating the IOT into things. You mentioned that some of the smart sensors would be able to give you the provenance of were they frozen at one point or where they thought accidentally at one point?
[00:10:00] Erik: Exactly. So one of the solutions that we have in the marketplace is called IBM food trust and IBM food trust.
It was a solution that we brought to market with a consortium of retailers and consumer packaged goods companies. And it was all about the worldwide food supply chain. Because, it’s no longer, everything is no longer grown, you know, regionally, like it used to be many, many years ago.
You know, you look at olive oil for instance, or you look at lettuce, lettuce comes from all over the place. Strawberries are grown year-round in hot houses, and you and I as consumers, we don’t really care where it came from. We, we were more interested that it is there and it’s not only available in the
You know, spring or in the fall, which is what we used to expect when we were going to our local farmer’s market, [00:11:00] or even early on in grocery stores, grocery, you know, grocery stores now look at demand. And when that demand comes in and they, and they have to source that good wherever it is, if they can source it locally, they’ll source it locally.
If it’s not available locally, they’ll source it from some other part of the world where it’s maybe summer instead of, you know, the winter. And if they can get that produce in, in such a way and be able to do it when that demand is there, then they’re going to make more money. And everybody’s got, their customers are going to be more happy.
And so it’s just, the world has changed a lot. So
Vaughn: Definitely a worldwide market now.
Erik: Yeah, exactly. So one of the, one of the most exciting examples, I think that. I have of this convergence of different technologies that are out there of the blockchain of IOT, of sensors, and of artificial intelligence in particular is one that we did around fresh meat, hamburger meat.
Um, and I won’t tell you specifically the [00:12:00] names of the companies, um, although they have published it in the marketplace. So it’s not like it’s any super big secret. They’ve been on stage with us to do it. But the basic premise was instead of using frozen hamburger patties, they wanted to use fresh hamburger patties.
Well, when you freeze hamburger patties and meat. The, the temperature sensitivity because it’s frozen and the patties are stacked together in there altogether is not quite as, it’s not quite as sensitive to changes in temperature or lack of being at a particular temperature. It’s still important to keep the goods frozen kind of along, but.
Temperature, up and down really doesn’t matter all that much. So in order to maintain freshness, so we were working with the company that both produced the fresh hamburger patties and the company that was using those hamburger patties in a restaurant in order to feed those to the, to the consumers. And so.
we combined all the different technologies that you’ve [00:13:00] heard about. You know, one thing we did was as soon as those hamburger patties came into the plants and they were created and they were put into a package, into a box, we put an RFID tag on the box, and then we could track what happened to that box from every step in the process all along the way.
And then we used IOT sensors in that particular package had to go through a series of, of refrigerated locations, right? Went through, you know, trucks. It went through coolers in the distribution plant of the manufacturer. It went through coolers in the back of a restaurant. And so we kind of create, you know, with now with the temperature sensor capabilities that we have, we could, every time there was a place that it, that that product was in a place that needed to be cooled.
We could monitor the temperature of that [00:14:00] environment. So if it was in a truck, we had a sensor in the truck that said, okay, this truck is that, you know, 40 degrees, or whatever, and we could sample that as often and as frequently as we wanted to. And so we were able to know exactly where the good was because there was RFID tags on the products itself.
We were to note, we were able to know what the temperature was of that product at all times because we had sensors in all of the environments that that product sat in. And then finally we were able to work with the restaurant itself to say, okay. Based on the journey of this particular fresh hamburger Patty.
We knew how long a, that particular hamburger Patty could stay kind of in circulation before it was consumed. Um, and so that’s kind of where AI came in. So we could look at all of the data. We could look at the journey of that hamburger Patty. We, we knew how long it had lasted, and we knew [00:15:00] where it was in the back room, in the cooler of the store.
And we could create a set of alerts to the people operating the, the, the restaurant to say, Hey, you’ve got something that is going to go bad in four days. So you need to make sure you use this box of hamburgers today. And we could, we could give that information to the people operating the store because people want to do the best they can.
They want to save money, especially the people that are managing and operating the store, because that makes a huge difference to their bottom line
Vaughn: With such a complicated supply chain though, there’s so many things that could go wrong at each step. Exactly. And I guess each step is recorded in the blockchain, right?
Vaughn: So that at the end of the day you have the provenance
Erik: So the temperature. You know, because there are multiple enterprises involved. It’s not just one or two enterprises. In some cases, they had outsourced the logistics and the [00:16:00] transportation of this, these products to other third party companies, depending on what, you know, you’re talking, we’re talking about a nationwide restaurant.
And so they don’t always own all of the parts and the pieces and everything that they do. And so they wanted to make sure everybody. Was fair. Everybody did what they said they were going to do, and nobody cheated along the way. So we were able to use the immutability of blockchain to say, okay, we’re going to connect this temperature sensor directly to the blockchain, and it’s gonna.
Communicate without anybody participating. So machine to machine, as you talked about, and you know, all the sensor did was say what the temperature was, not what else was going on or anything else.
Vaughn: it’d be hard to manufacture the records.
Erik: Exactly. It’s impossible because the temperature is registered.
I mean, the sensor is registered, and so unless you’re going to spoof the sensor, which [00:17:00] theoretically could be done, but there are lots of mechanisms in place that we have. In these technologies like, like IOT technologies and IOT networks and device management for IOT that prevent that from happening.
So, you know, each sensor is signed, each sensor is secured, each sensor has its own kind of identity, and we’re keeping that identity somewhere else so that we know to validate that identity so that we’re not getting that coming from some other Chinese or or Russian IP address somewhere else, trying to spoof, you know, trying to spoof what’s going on.
Not that they care about the hamburger patties, I mean, I don’t want to create that, but the reality is every one of these technologies can stand alone. And I think what’s unique about what w what we have done in this sense of these companies working together, is it’s [00:18:00] multi enterprise.
It’s a business network. It’s secure. And it allows us to solve a real business problem, and it allows us to improve the operations of everybody concerned. So there’s business value to kind of everybody.
Vaughn: Yeah. For the end user, I mean, you reduce spoilage and you also are able to prove that your product is pure and when it gets to the end user, and there are a lot of benefits to that.
Erik: And there are certain certain industries where that critical. So, you know, one of the other things that we’re doing specifically with, with food trust is around there’s been a lot of problem. A lot of people have gotten sick. Because of lettuce in the last five, 10 years, and the ability to very rapidly in literally 2.2 seconds, pinpoint exactly where the lettuce came from, which particular farm that came from.
And you know, it’s [00:19:00] not to harm the farmer, but to say, okay, farmer, what practices are you doing that’s causing, you know, this lettuce to be contaminated with e-coli? Let’s figure that out so that you can continually do business and we can be safe in our food supply, which is a critical factor. So it, you know, it’s not always, Oh, well, big brother wants to monitor you, big brother wants to know what you’re doing so that you know we can harm you. It’s, it’s really more a situation of how do we up the safety of the whole thing.
Vaughn: Right. Everybody works better together.
Erik: Yeah, exactly.
Vaughn: That’s another point though. In order for all of this to work, you have to have sort of a consortium together of all of these different entities along the supply chain that are working in concert.
So I know that you’ve been involved with some of that in the past, but you do really have to put together a industry standard body to develop [00:20:00] all the interconnections between the interfaces between all these different companies for the entire supply chain to work.
Erik: Yeah, exactly. And you know, and we think about that along a couple of different dimensions, right.
So. What we’re doing with blockchain is what we call permission trusted blockchain, where we know the members that are participating, and this whole concept of distributed ledger means that different people will monitor and maintain nodes on the network where this virtual ledger, distributed ledger exists across these nodes.
and where we have consensus methods where we all agree that, okay, this is a valid transaction, so let’s put it on the ledger. But there’s a couple of things that we’re doing that are different than what may have been done in some other places. So one of the things that we’re doing is we’re [00:21:00] using concept of channels within the distributed ledger.
So while you may be validating that this is a valid transaction, you may not know what the actual transaction, the data of the transaction is. You may just be validating that the person that is submitting that transaction has the right to submit it and, and, and is appropriate to be able to do that.
And then, as you said, one of the things that we’re doing is, is these consortium members, they may operate a node on the blockchain. And they may operate a node on this kind of multi enterprise business network, but not everybody has to operate a node. Not everybody can afford to operate a node when you’re looking at, you know, something as broad as a supply chain. So I’ll give you a specific example. One of the things that, we ran early on in a food pilot, in our food trust, [00:22:00] network was a pilot where a very large retailer that’s a global retailer was acquiring pork from very small farms in China.
So rather than force a small farmer in rural China from operating a blockchain node, which is not something even within their comprehension at all. You know, we had a trusted, a trusted party that could work with the Chinese, and would have a, and would operate the node on behalf of all the Chinese farmers.
And all they needed was a, basically a cell phone, and they would take pictures of their pigs and they would say, here’s the pictures of the pigs. And they would put the, they would push a button and that would have been then be uploaded to the blockchain. So the beauty of the advancement of all of these technologies at the same time, like mobility and mobile apps and [00:23:00] Android and, and iOS, and all of these mechanisms, is that you can extend these business networks in a trusted way. So yes, the pig farmer has to register, but the pig farmer has to register with the retailer anyway if the, if the retailer is going to buy the product from them. And so we have added these mechanisms where they can go through the registration process and just instead of the pig farmer happened to be able to know how to do EDI, which they don’t, or having somebody else do it or have them go to a very kind of arcane process on a website.
It’s a very simple mobile app that we can create that the retailer can then give to the, to their suppliers for free. We credentialize the, you know, the people so that we know we’re getting it from somebody who’s legitimate, but in terms of [00:24:00] the UI and what the farmer needs to know, it’s not all that difficult.
They already know how to take their phone and take pictures and they already know how to use apps on their phone and push that. So there’s, there’s been a democratization of technology to such an extent that we can begin to leverage it for the benefits of these multi enterprise business networks.
Vaughn: Sure. So the parties that are benefiting the most from the financial benefits of using this technology are the ones that are responsible for the most amount of payment into it, but they’ll still come out with a net positive.
Erik: Right, exactly. So they are the ones, yeah. So the big retailers are the big.consumer packaged goods are the big food processors that are doing it on behalf of these larger retailers and other large retailers, right? So it’s not just one retailer, but you know, the way supply chains work is there are intermediaries that are adding value in the middle of the supply chain that are doing [00:25:00] things like processing food or taking the pigs and slaughtering them.
And then, you know. Making the cuts and then creating the cuts that are then packaged and given to the retailers and sold to multiple retailers. So kind of we’re taking a, who can afford to have a node and to participate in the blockchain and for instance, the transportation companies to look, here’s a, here’s a sensor technology that we can all use to, you know, do the IOT.
And then. You know what you’ve got. So for instance, in the containers business, a lot of the big ocean carriers that get the most benefit as you talk about, are investing in some startup technologies for smart containers. So there’s four or five of the big ocean carriers that have put their money and said, okay, I’m going to start.
It takes time, but I’m going to start over time having these smart containers, and [00:26:00] I’m going to begin to work those smart containers into my entire container population, and containers live five, six, eight years before, you know, so it’ll be another five, six, eight years before we get to the point where all of the containers are smart containers.
And even even at that, the old containers basically end up being sold on the open market to people who want to use containers. And sometimes they’re used in people’s backyards. And you know, sometimes they’re used to ship things around. You know, because I want to own my own containers. Cause at the end of the day, you know, a lot of containers are leased.
And if I’m a beneficial cargo owner or somebody that’s shipping some goods I have to pay rent on that container. So it may be a little more cost effective for me to buy a used container. Right. You know, just like buying a used car instead of, you know, instead of taking an Uber.
Vaughn: But you wouldn’t know all these things if you weren’t documenting it in the first place.
Erik: [00:27:00] Exactly.
Vaughn: And you mentioned some, in the particular vertical that you were talking about initially was the international shipping vertical. You mentioned some cost benefit numbers, and there was a percentage that you mentioned in the meeting in Austin, and what was it somewhere in the neighborhood of 10% or?
Erik: Well, so, you know, think about it and they’re there are
a couple of different key things that we’re seeing as we’re going through digitalization of the supply chain and benefits that our clients are achieving. And in one sense the efficiency of moving can be thought about in terms of both time and in terms of money. Right? So there was a study that was done a couple of years ago, and actually back in 2018, and it was done by an academic [00:28:00] institution. And basically what they found is that the average container has 27 participants in the movement of that container from a foreign country into the United States, or, you know, from point to point a across borders, 27 different entities that have to have to participate in that process, 36 different documents and 240 copies of those documents that have to get shared around. And a lot of that is done today with paper. It just is. That’s the way it works. And because of that, there is a rather significant amount of time where containers are just sitting around, not moving. In one pilot that we did from avocados of East Africa to Europe we were able to show that by digitizing all of the documents that were necessary between the two points that we were doing business, we were able to actually shave about 20% off of the total transit time [00:29:00] from the time that the goods were packed until the time they were unpacked.
So that’s, that’s truly how long it is
Vaughn: And reduce spoilage at least.
Erik: Exactly, exactly.
So, you know, if I can reduce 20% out of that time versus pre digitalization versus post digitalization. Then as you say, there are so many benefits that can come in, to doing that spoilage. You know, the ability to move goods more efficiently, more effectively, I can, I can do a better job anticipating what they’re going to do. I can sell more because I have less. Spoilage is a double edged sword. Part of it is, Hey, it’s costing me money, but part of it is I’m not selling it because it’s not as fresh when I get it there. Right. Um, so it’s, it’s kind of a double whammy in terms of the benefits that get created there.
So that’s one thing. You know, the, the [00:30:00] ability to reduce that total transit time is important. And then one of the other things that we did, we did a study with a client where, you know, they looked at this very inefficient global process where they’re moving stuff all around. So they, they both import and export, and they’re moving stuff from one country to another country.
They’re moving stuff into the United States. They’re moving stuff out of the United States, They are a United States based company. But at the end of the day. When they looked at their cost for logistics, for moving these goods around, what they found was that about 40% of the time, there was an inaccuracy in what they should have paid.
So in the invoice that they got from their transportation provider, and remember there’s 27 different entities involved in moving goods, so there’s a lot of those that are transportation providers and they’re only looking at their little piece. Lots of room for [00:31:00] error, lots of room for error.
And, and, you know, we kind of went through that process with them, kind of re-engineered that process, and basically found that somewhere between 5% and 8% of the logistics cost in moving a container through those 27 entities from point to point, on average we could reduce. So somewhere in between 5% and 8% reduction just in the invoice logistics costs.
So that has nothing to do with what’s inside the container. It has everything to do with what you’re getting charged to move that container. And, and that’s significant when you’re talking about tens of thousands or hundreds of thousands of content containers that get moved, or even, you know, some of the largest companies that move containers might move as many as a million containers, right?
You take five to 8% out of that cost and, or 6%, I think an average, whatever. It’s huge. [00:32:00] It’s, it’s a huge thing.
Vaughn: definitely worth their while for the participants to at least investigate doing this.
Erik: Absolutely. Absolutely.
Vaughn: And then the other one you already mentioned before about are layering artificial intelligence on top of this. So once you have all of that in place, then you can put AI in place and maybe increase the efficiency of loading your ships or…
Erik: yeah, exactly.
Vaughn: Lots of different possibilities at that point.
Erik: Better or more transparent data. I’m working with a customer right now that is in the container leasing business.
And one of their biggest challenges is they have both leasing business, which are kind of longterm leases where they work with the carriers and then they have sales where they’re taking containers that, you know, it’s like used cars right after a container lives its life. It’s been on a lease for long enough they get the money out of it. Now it’s time to turn around and sell it and, you know, turn that back into capital so that they can fund that back in [00:33:00] and build new containers. You know, so it’s a, it’s a kind of the life cycle of a container. And one of their largest challenges, biggest challenges is they have no idea when they’re leasing it to a particular ocean carrier.
And they manage about, they have under management with ocean carriers, about three and a half million containers. They have no idea where those containers are until the carrier says, well, this containers too old and I want to get rid of it. Can you take it back? And they’re like, sure, where is it? You know? But if they want to manage their business more effectively, they need to know where those containers are and be more proactive in saying, Hey, you know, I’ve got a particular area of the world where they like to buy containers. And so if, when I get containers there, if I can say, mister ocean carrier can I take container back?
You know, let me take that. At least I’ll put a new container into circulation for you so that [00:34:00] you know, so that I maintain my lease revenue with you. Um, but then I take that old container and I say, okay, it’s, it’s lived its life. And let’s sell it in this area. So as soon as I get those containers in that particular area, let me figure out what the container ID is.
You know, it’s tough when you’re talking about three and a half million containers. So the ability to look at that and do better forecasting of their demand for sales and their location of containers and when and where locations are when they’re in motion and when they might be there. I can be much more proactive and I can turn up the crank on my sales and I can turn up the crank on my lease revenue to be able to do that.
Because if it’s an older container and it’s all beat up. When, when it’s in a yard somewhere and a yard manager looks at that container and says, oh, I don’t want to give that to my good customers, cause they won’t ever, you know, they, they’ll quit leasing containers from me, you know, or this is beat up.
Or it’s gonna cause a loss of value of their goods [00:35:00] because it’s, it’s got leaks in it and water’s going to come in and all of those kinds of things. So, you know, it becomes a kind of a virtuous cycle of really, truly being able to leverage optimization capabilities and AI capabilities and do better forecasting and better utilization of the assets in the whole thing.
Vaughn: Right. So there’s lots of room for optimization and, and economic benefits from those that each step, Just being, having the ledger there.
Erik: Yeah, exactly. And you know, one of the other things, and we hadn’t really talked about this much, but one of the other things that we’re seeing some significant benefits with our customers, and it’s not just on the logistics side of things, it’s on the actual business side of things is.
the automation of, accounts payable processes now that I have this more transparent [00:36:00] understanding of what’s going on. So in a business to business, relationship, there are frequently issues with, discrepancies. I may think one thing, you may think something different. And so as a result of that, there’s a lot of money that currently is being tied up in business in disputes. So we have one client that, did about $21 billion worth of importing direct imports. And at any point in time, they had somewhere around $120 million in working capital tied up in disputes, right? So they said, okay, here’s an order for 100,000.
And the supplier would, you know, send that order, and maybe they only had 95,000. And so maybe they even only charged them for 95,000 instead of 100,000. And then that didn’t match. And so they said, well, you know, I have a policy that says, if you don’t [00:37:00] fulfill on time in full, so if you don’t give me, if I order 100,000, you don’t give me 100,000, I’m gonna find me a $10,000.
And when you’re a big, when you’re a big retailer, then you can do that and your suppliers will take it.
Vaughn: That’s the benefit of the distributed ledger though, right? Everybody can see what’s in there at any given time.
Erik: Exactly. And so the challenge was not that there were fines or there were not fines or they were in full or not in full.
The challenge was that. You know, the retailer would say, okay based on what happened. And by the way, half the time, the retailer really wasn’t sure what happened because the documentation takes a long time to catch up in many cases. And so one of the things that we’re doing with this distributed ledger technology is we’re creating these smart contracts between the retailer and the supplier.
And we’re saying, okay, we’re, we’ve got now good information. [00:38:00] of exactly what happened. We have all of the trade documentation. We have the commercial invoice that you use to import and export. We have the packing slips, we have all of that stuff, and we can put it all on a blockchain, and we can create a smart contract that says, if I ordered 100,000, and you sent 100,000, and I wanted it at $10 an item, and you charge me $10 an item, and everything’s great, I can have a smart contract that will execute the accounts payable automatically, right?
So I can add what I’ll call intelligent automation. In that mix of, you know, artificial intelligence with intelligent automation, with blockchain, with IOT. So the IOT and the blockchain are ways to track what really happened. Whereas artificial intelligence and intelligent automation are there to either give you insights about anomalies, right?
That’s [00:39:00] one of the things that artificial intelligence does really well. Oh, something weird happened. So we need to take a better look at this. And conversely, in that happy path where 95% of the time, everything is perfect, then I can automate that. So that, you know, with confidence, I can say, okay, everything happened according to the contract that’s been created.
And we can go do that. And then when disputes happen, that’s where they can look, have all this stuff on the blockchain. And you know, one of the big benefits is, is taking about 90% out of that dispute time. So and this is something that IBM learned in using AI and blockchain on its own contracts, is that we were spending about 45 days, which is on average when two companies disagree,
two big companies disagree, that’s about how long it takes to resolve it, to get all the documentation that has been done manually. So moving from [00:40:00] a manual process to a digitized process, we were able to cut that from 45 days to five days. And that’s exactly what we saw with this big retailer and their suppliers as well, is in the dispute resolution.
They went from 45 days. And by the way. If you’re a, if you’re a legitimate company and you get a bill, you have to take that capital aside and set it aside because you have a, you know, what is a legitimate company and an a legitimate bill, and you’re just saying, wait, I’m not going to release that cash, but I’ve got to set that cash aside so I can’t use it for anything else.
Vaughn: It’s, it’s in payables until it gets resolved.
Erik: Exactly. And, and when you look at, you know, financial metrics, and you look at the payables or something that is in. Right? It’s, it’s one of the line items on your financial metrics that you have to report
Vaughn: taking your money out of circulation and that can be used.
And so, you know, the opportunity there is to free up that working capital and use it for something else. And
Vaughn: resolution time is lawyer time too which is not cheap.
[00:41:00] Erik: which is not exactly because it’s because if you don’t agree, you know, it’s can certainly get to the point where. You know, you’re, you’re, yeah, you’re eroding, those business relationships and, and worsening those business relationships.
And when you do that, that’s not good for anybody. It’s not good for you. Even though you might get your pound of flesh right. As, as a retailer to your supplier. That supplier’s gonna going to start looking for business elsewhere where it’s easier to do business.
Vaughn: But in the long run the transparency that’s provided by the distributed ledger is really good for everybody
Erik: Exactly. And, and the, and the reliability of the data that’s generated by IOT devices, you know, on that ledger is it’s hard to automate what’s not instrumented. So all of these different technologies work together. So [00:42:00] the, the, the distributed ledger, IOT creating, instrumented, you know, instrumenting the physical world and, and digitizing that physical world, applying AI to find anomalies and deal with disruptions.
And then when you don’t have disruptions automating with things like smart contracts and other intelligent automation techniques. It doesn’t have to be smart contracts that just happens to be how they’re doing it. All of that makes, makes a much more frictionless environment between business partners. And to me, that’s good.
You know, that’s, that’s good for everybody
Vaughn: And reduces overhead for everybody.
Erik: Exactly. Yeah. You reduce overhead, then you’re able to keep your prices low and the consumers like it and, you know, you continue to get good for everybody, consumer demand.
Vaughn: So but just riefly, there were a couple of other verticals that you mentioned, like one was medicine that would be definitely applicable to this kind of technology.
Erik: You know, there’s, there’s another big concept out there called [00:43:00] provenance when in other words, you know, we’re, we’re talking about food safety and tracking the food back to the farm. But, um, there are other verticals like, the airline industry where, for instance, spare parts, you need to understand the provenance of those spare parts.
Automotive industry is the same thing. You want to understand the actual factory that those parts came from because. In the end, if that vehicle has a defect and there is some liability associated with that, you’ve got to very rapidly be able to track where that came from so that you can either address that liability or share that liability depending on your particular business model.
And then the other thing is,, within other regulated industries like the pharmaceutical industry, with the FDA involved in the United States, they have created a distributed ledger solution where they want to know where that [00:44:00] particular pharmaceutical was manufactured. In some cases, they’re beginning to want to know where the raw materials that came from, in that manufacturing process.
Right now it’s kind of between there, they’re just tracking the finished drugs. But I think very quickly like we did with food, with food trust, I mean, it was one thing to know. It came from a plant in California that processes for a hundred different retailers and it gets a lettuce from 500 farms in the Valley, in California.
It’s another thing to know exactly which farm it was, so that you don’t have to pull all the product off the shelf. So the ability for in the, in the pharmaceutical supply chain for, you know, not just class two drugs and opiates and, and things like that, and an amphetamines and things like that, but any drug that you’re putting in your mouth to maintain the efficacy, to maintain the, you know, the lots.
[00:45:00] to be able to track where that stuff is coming from is a critical, critical thing. And the ability to put that on a blockchain where it’s immutable. And you know, and I say this all the time, it’s not that people can’t cheat with blockchain, it’s just that if you cheat. They’re going to figure it out.
You’re going to be able to, there’s an audit trail. Go back and find out, and human nature is, if I’m gonna get caught, I’m much less likely to do it than if I, if I’m not going to get caught.
Vaughn: Like you said too, if there’s a layer of AI above that looking for anomalies, then your chances of getting caught are, higher.
Erik: That’s exactly right. Once it’s digitized, AI can be applied to find those disruptions or define those anomalies or to be able to kind of look at a system and judge and say, Hmm, you know, there’s a particular pharmacy that is doing 10 times the number of opiate prescription fills than any other pharmacy, you know, in the world maybe that’s a pill factor. And, and, and I don’t mean [00:46:00] that in a negative sense, but let’s say you’re talking about a retailer that actual runs a pharmacy. Wouldn’t you want to know that as the operator of that retailer, especially if you know that there are potentially tens or hundreds or millions of dollars worth of fines that can be created by doing that.
And so I’ve got a bad apple in that particular, location, and how do I, how do I go address that before it becomes a problem?
Vaughn: Well, there are a lot of other applications I’m sure that we could discuss today, but we’re kind of out of time at this point. So if I was a CIO or a developer and wanted to know more about how I could apply these technologies that we were talking about to my particular situation, where would we go?
Erik: Sure, well the number one place to go, I would say, is www.ibm.com. And then once you hit that site, they’re kind of two different places that I would recommend. There is a, a marketplace where you can, as a CIO, for instance, you can go kind of, understand the [00:47:00] ecosystem of solutions around blockchain, around Internet of Things, around AI.
And then the same thing goes if you’re a developer and you want to go learn more about. You know how we’re applying these technologies. You can even get free to licenses to some of these. You can get code sets to be able to do that. You go to www.ibm.com and you go to developer and under developer are different key developer ecosystems that are out there.
Vaughn: So you can set up a sandbox to test
your application and prototype.
Erik: Yup. So there are lots of different opportunities for being able to do that with IBM and with our, our ecosystem partners. Cause it’s not just IBM technology in many of these cases. We’ve got other partners that are participating with us.
Vaughn: Okay. Perfect. We’re going to have the transcript of this podcast up on the IOT wavelength website, and we’ll add the links to some of the resources that you just [00:48:00] mentioned on there as well. So for our listeners, you can go to the IOT wavelength.com website and get all of that information. Plus you can sign up on the web site to get notifications of future podcasts.
My guest for this episode has been Mr Eric Bergeman, Business Development Executive of Blockchain Solutions for IBM Industry Platforms. Eric, thank you very much for joining us today.
Eric: Absolutely Vaughn. Thanks for having me. I appreciate it.
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