Blockchain = Trust and Automation in Your Partner and Vendor Ecosystem

By Warren Linscott, SVP of Product Strategy and Dmitri Tyles, Senior Director of Engineering, at Deltek.

Earlier this year, this Forbes post highlighted how the lack of a legally enforceable trust mechanism between partners, vendors, and suppliers inhibits an ERPs ability to automate business processes across enterprises. The post, authored by Dmitri Tyles, a Senior Director of Engineering at Deltek, shares how blockchain can be used with ERPs and how this emerging technology could fit into the partner and vendor ecosystem.

The ability to break that invisible trust barrier is what makes blockchain technology so transformational. If an electronic trust mechanism is established, the sky is the limit as far as use-cases which can be automated or streamlined and cost savings which can be achieved by our customers, their partners and auditors. In this blog, we will focus on the use-cases and potential value add which a trust mechanism established through blockchain technology can bring to Costpoint ERP.

How Would Blockchain and Costpoint Work Together?

Let’s start by clarifying a few basic things. Blockchain technology effectively provides a distributed digital signature solution, with each member of the blockchain having its own “node” that stores a copy of the digital ledger. So what does this look like in the context of Costpoint deployment? If blockchain were deployed as part of the Costpoint product installation, each Costpoint customer – whether on premise or in the Deltek Cloud - would have their own blockchain node that would store their copy of the ledger. But what about those suppliers within our customers’ ecosystem who do not own Costpoint?

For smaller participants who lack the desire or resources to maintain their own nodes, an independent 3rd party (usually a Cloud provider) would be selected as a custodian to manage those nodes. In the case of Costpoint, a natural option for the 3rd party custodian would be the Deltek Cloud. Effectively, Deltek would be offering a blockchain node as part of a Costpoint installation, which could be on premise along with another complimentary node in Deltek Cloud to store a copy of digital signatures on behalf of vendors working with that Costpoint customer. This way, if there were ever a disagreement or legal dispute, a vendor who doesn’t use Costpoint can obtain digitally signed proof of the transaction from a copy of the ledger stored securely in the Deltek Cloud.

Is Blockchain Right for You?

Now, let’s look at a business use-case where establishing trust in electronic transactions with blockchain technology would be relevant. First, it’s critical to establish a scenario where we can identify two business entities who want to work together, but naturally do not trust each other due to conflicting business objectives. A typical mistake in applying blockchain technology is the assumption that it’s simply a next generation super secure database. As such, it can be applied to any scenario where we deal with valuable information that will become secure and immutable simply by being placed into a blockchain. A good litmus test would be to ask yourself questions, such as “Are there any legally bounding documents involved in that transaction?”, “Is it possible that one party in the transaction could sue another party in case of a disagreement?” If there are no “two parties” to the information that you want to store, then use of blockchain is likely unjustified.  

An example which comes to mind that deals with intercompany transactions is the Costpoint Supplier Portal and subcontractor management. The goal of Costpoint’s Supplier Portal is to automate the negotiation process between what we call a prime contractors and suppliers, and give them the ability to reach a business agreement through software. Subsequently, both the prime contractor and the supplier can execute the transaction and review or approve invoices and payment information. The challenge here is how to get to the point where suppliers or subcontractors, who do not control the Supplier Portal, would have complete trust in doing business with the prime contractor in a completely electronic manner - eliminating the need for separately signed/faxed documents or manual processes.

How Would Blockchain Create Trust in Your Transactions?

How could suppliers feel confident that in the case of a disagreement they will have their own untampered version of electronic transactions, which the prime won’t be able to dispute, alter, or delete? This is where blockchain technology comes in - to establish mutual trust and assurance between a prime contractor and a supplier that both want to work together, but do not inherently trust each other. Trust is a personal commodity and is gained through a pattern of authenticity and delivery on promised actions between people but between companies it isn’t so simple  especially in the government contracting industry, where one day you may be partners and the next you’re in a competitive bid.  This is the divide we are trying to bridge with a combination of technologies that allow efficient transparency and agreement from both parties.

Creating such trust could streamline the business processes that the Costpoint Supplier Portal aims to automate. Once the existence of a mutually signed transaction is established through Costpoint, we can start designing further business rules that Costpoint can automatically execute or enforce transactions on behalf of both parties.

In addition, an interesting point to note here is that a Costpoint instance belonging to a prime contractor could actually enforce business transactions on behalf of a subcontractor, potentially more effectively, and certainly much faster, than anything a subcontractor could do through a legal system. Imagine if a subcontractor sent serially tracked items to the prime contractor (each item shipped has a unique identifier), and both parties agreed that the prime contractor couldn’t bill for the overall assembly including those parts until the supplier was paid. Costpoint could actually enforce that arrangement on behalf of the supplier and automate payment by the prime contractor before approving a bill for the overall assembly, all without the supplier needing to manually request payment.   

Another practical example is the use of blockchain by large multi-national, multi-company organization is testing a new blockchain-based solution for automating intercompany receivables. Through this effort they would expect to save time and money by eliminating the need for the corporate office to reconcile ledgers between business entities. This is relevant to Costpoint users because the solution supports multi-company functionality and intercompany receivables and would be another opportunity for blockchain integration.

One final area where blockchain technology could optimize resources is in end-to-end automation between the prime contractor and the subcontractor. Typically transactions entered into the Costpoint Supplier Portal or a contractor’s time collection systems are one way. Not much of the information flows back to the subcontractor and the subcontractor is left to recreate both the time entries and the transactions in its own system. If one were to leverage a distributed digital ledger, then it could be possible for the subcontractor to take that information and use it to automate the creation of transactions in its core systems, time entries, accounts receivable, and GL transactions, and in doing so creating a closed loop around the transaction, thereby eliminating waste. 

These are just a few examples, but there are a myriad of other scenarios where ERP systems could leverage blockchain technology to streamline business operations with third parties.

Join the #DeltekProjectNation at Insight

Interested in learning more about blockchain technology and exploring how your project-based business could leverage Costpoint in your partner and vendor ecosystem? Join us at Deltek Insight 2019 in Orlando, FL from Nov. 18-21!

Registration is still open. Don’t miss out on the exciting keynotes, product sessions and networking at this year's #DeltekInsight event.