The role of UBL in disintermediating procurement and transportation processes
June 20, 2017
Disintermediation: the removal of intermediaries in economics from a supply chain, or cutting out the middlemen in connection with a transaction or a series of transactions. (Wikipedia)
¤ : the generic currency symbol meant to represent any currency, either a real fiat currency or virtual cryptocurrency.
Applying the blockchain mindset and implementation to the procurement and transportation aspects of the supply chain enables the transacting of business formally in a fast, open, transparent, decentralized and secure fashion using an internationally-standardized business document format.
As a concept, the blockchain has enabled secure decentralized transactions between parties without the involvement of intermediaries or third parties. When applied to virtual cryptocurrencies, value can be exchanged directly between parties who agree on the worth of tokens being conveyed, with only a simple digital ledger tracking the amounts involved.
This lack of transparency is not suitable in a business context where it is necessary to enforce identity authentication and provide the ability to audit business properties of transactions. Concepts of AML (Anti-Money Laundering) and KYC (Know Your Customer) are front-and-center in efforts to prevent money laundering and the financing of terror. Using an open international standard XML vocabulary to express those business properties of documents such as purchase orders, transportation orders, transportation events and invoices presents and records this information to and for all involved in a manner not biased to any application, vendor or platform.
By cutting out the middle man, that is, by disintermediating the process, a buyer can post to the blockchain an order for goods complete with the payment for those goods, their shipping and the processing of the paperwork. Upon a preconditioned fulfillment expressed as a smart contract, after as few or as many steps as required, the seller and other authorized parties involved in the process can instantly and automatically receive their portion of the payment off of the blockchain.
All parties involved can access the blockchain directly or through their individual representative service provision organizations, but at no time is there any kind of a centralized membership organization, clearing house organization, process execution entity or other third party that might interfere with the swift progress of changes in state of the procurement process. A marketplace of such service providers is anticipated to grow quickly as organizations recognize the business opportunity offering to constituencies of users the service of standardized access to the blockchain for private or colloquial document standards and differing interfaces.
http://bBiller.com project is implementing just such a
process, using the ISO/IEC 19845:2015 OASIS Universal Business Language 2.1
internationally-standardized specification (
for the XML expression of the business properties of procurement and
transportation supply chain documents.
Mr. Holman is an advisor to and financial investor in the
http://bBiller.com project cited in this essay. He also
is the chairman of the OASIS UBL Technical Committee
Technical note regarding rendering this essay
Please note that not all browsers will render embedded SVG images found in an HTML document. Products such as Firefox and Opera successfully present the embedded graphic images in this essay as required.
Table of Contents
1. Historical approach to supply chain processes
The historical business supply chain choreography has been played out over a long history of doing business in an intermediated manner. Manufacturers work through sellers who offer the goods. Buyer’s orders trigger shipments which, in turn, trigger invoices which, in turn, trigger payments. Those payments may take a long while to fulfill. Buyers take the full trade credit period of time while suppliers are out their manufacturing and shipping costs. Sellers take their share and the manufacturer is left with the rest when they finally get their money.
This is the way it has worked for a long time. Expensive EDI (Electronic Data Interchange) systems and networks are available to large companies to ensure the process is performed in a secure and rapid fashion with formalized messages. EDI standards exist for the assembly of such messages, but the messages themselves are as varied as there are users of EDI. And the cost of EDI is often too much to bear for MSMEs (Micro-, Small- and Medium-sized Enterprises), thus keeping a majority of the players out of the dance of formal business electronic commerce.
The Internet provides a platform on which new e-commerce systems are being built in order to better include MSMEs.
For a while, the “single window” concept has been very popular, but it is falling out of favour for newer “open network” system architectures. It helps to briefly compare the two by considering how a document, say an order, goes from the buyer to the manufacturer/seller.
Figure 1. The 3- and 4-corner models of interchange
Single-window implementations are characterized by what is termed a “3-corner model” of the interactions of participants. In such a model a centralized party is the intermediary between the buyer and the seller for both the information interchange and perhaps, even, the payments. It is the centralized party defining, implementing and presenting the single window for all participants to work through. The documents may be open, or they may be proprietary, as the provider doesn’t have much incentive to use open specifications. Inevitably, however, there will be outlier organizations unable to use the single window for a myriad of possible reasons. Perhaps they don’t have connectivity, or perhaps they cannot process the document formats.
Contrast that to the “4-corner model” where all parties access each other through their own respective “access point” service. An example of such a network is http://PEPPOL.eu (Pan-European Public Procurement Online) initially created for European government procurement, but there has long been more business-to-business traffic on the platform than there is for business-to-government and it is growing rapidly. The access point is certified to meet a defined service level agreement incorporating the obligation to use open protocols and open document standards, even if the users they service are not using the same document standards. Where an outlier exists they can buy or build their own access point to the open network precisely because it is open.
The PEPPOL platform can be engaged in many ways for the same business task, based on the needs of users. Two simple examples are “Invoice only” and “Invoice in response to order”. These are considered different “profiles” of the choreography of the supply-chain process, with different choreographies and differing content subsets of the standardized documents. Access point providers must implement the profiles needed by their clients.
Certification and management is still done by a central party, the OpenPEPPOL organization in this example, but that party isn’t an intermediary in the path between buyer and seller. Hundreds of access points are coming to market to service different constituencies of users. And, of course, banks are still involved as intermediaries for payments.
So even if the document exchange can be disintermediated, there are still some intermediaries involved and it is still centralized around the certification of the access points.
2. The evolution of document format standards
There is no obligation on the part of a central provider to use open standards, though of course doing so might open up the access to more parties.
Pertinent to PEPPOL (and similar networks as in Australia) and other national networks (such as in Peru and Colombia for two examples) and in many other countries, work has been done since 2001 to create a family of formalized and internationally-standardized XML-based supply-chain documents for open use over the Internet.
Systems and communities needing to embrace MSMEs by providing lower-cost implementations of the process have adopted the ISO/IEC 19845:2015 specification, developed as OASIS UBL (Universal Business Language) 2.1 https://en.wikipedia.org/w/index.php?title=Universal_Business_Language. There are 65 different XML document types in UBL 2.1 for processes such as procurement (tendering and presentment) and transportation. UBL 2.2 is under development with a total of 81 document types. UBL 2.3 is planned to have yet more document types related to payment to streamline connectivity with ISO 20022-based financial systems.
What UBL brings to the table is a suite of commonly-accepted business semantics in the form of a common library of structured constructs. These business objects are then assembled into document types to represent the collection of information pertinent to a particular need for expression of a business transaction. Such is the objective of anyone designing a document format for the exchange of business information. So having a published and standardized collection of documents precludes the need to create one’s own.
The choice of using XML for the expression of UBL leverages the long-used XML stack of technologies from validation through to publishing. Rumours of XML’s demise are greatly exaggerated. XML is a platform-, application- and vendor-independent format for representing information using semantic labels on marked-up content. No presumptions are made regarding any application’s internal representation of the information in the markup. Such is ideal for arm’s-length interoperability between the known and unknown systems of trading partners. It can be verbose, but in doing so it can be unambiguous when designed properly, as the effort has been made to do so for UBL.
Finally, with the growing acceptance of UBL in a number of public projects and unpublished private uses of UBL within organizations both global and local, the skills for working with UBL are useful to attain and beneficial to leverage. The prevalence of UBL brings these standardized documents to the attention of more people responsible for understanding business messages, such as auditors. Such has always been difficult with colloquial document formats and the endless variant EDI utilizations of its message-building rules.
3. The blockchain difference
For many traditional processes the blockchain provides a new opportunity to decentralize the access and disintermediate the process entirely. Initially such was exploited for the simple but effective peer-to-peer exchange of value. Pertinent to traditional business-related applications, blockchain technology, also known as DLT (Digital Ledger Technology), features open access (a distributed peer-to-peer network), settlement (the instant exchange of value) and immutability of the content (a permanent record).
The security of the blockchain and the appropriateness of the exchange of value using cryptocurrencies are still up for debate and will probably never be accepted by all. Nevertheless, there are people today accepting of the risks and they are enjoying the benefits provided by the technology. And these people want to leverage the blockchain to do business, and in some cases are building their own businesses on top of blockchain technology so that the business can realize the perceived benefits of cryptocurrencies. But people have different paper-trail expectations than business does. The documentation of business has evolved ever since business started being transacted. And, so, for business to properly and effectively work on the blockchain, the documentation of business becomes an incredibly important aspect of the implementation.
Documents can be stored on blockchains in an open or an encrypted fashion for public or private consumption. In turn, a smart contract can act on the content of those documents in order to advance the process through the defined state transitions of different aspects of the process. Payment can be made up front at the start of the process and then released automatically when conditions are met at the end of the process.
Consider an illustrative example of how the blockchain approach would be able to incorporate a number of the UBL documents in a detailed profile choreography:
Figure 2. An illustrative example
The steps of this illustrative idealized profile are as follows, and do not include tendering or catalogue components:
The buyer adds to the blockchain the UBL Order for goods and their cost and the shipping charges as published by the seller, to be released subject to the successful receipt of goods.
The seller needs to determine the shipping logistics and supplier and so issues a UBL Transport Service Description Request with the details.
Logistics providers competitively respond with a UBL Transport Service Description outlining how each will be meeting the request, the UBL Transport Execution Plan describing the details of the shipment process and the UBL Goods Item Itinerary detailing the contents of the shipments and consignments.
The seller selects a logistics provider and responds by adding to the blockchain a UBL Order for freight service and its payment.
The logistics provider posts to the blockchain a UBL Despatch Advice announcing the despatch of the shipment.
At any time the seller may request an aggregated status by posting a UBL Transport Progress Status Request.
The logistics provider responds by posting to the blockchain a UBL Transport Progress Status with the latest information.
Through the transportation process itself, it is possible for participants to post to the blockchain their specific changes in status using the UBL Transportation Status document.
The goods having been delivered triggers a UBL Receipt Advice being added to the blockchain. This could be triggered automatically by the buyer signing for the delivery through a device presented by the shipper, so as not to allow the buyer to delay.
With the shipment made the logistics provider can add the UBL Freight Invoice reflecting the actual incurred costs.
This automatically triggers the freight expense to be released into the hands of the logistics provider and an acknowledgement using a UBL Application Response. Any overpayment would stay in the blockchain.
At this point the seller can issue the UBL Invoice reflecting the cost of the actual goods delivered and the amount of the shipping the seller wants to charge the buyer.
This automatically triggers the buyer’s goods and shipping costs to be released into the hands of the seller and an acknowledgement using a UBL Application Response. Any overpayment would be returned to the buyer.
4. A marketplace for blockchain service providers
The blockchain also opens up a marketplace for service providers to meet the needs of users who want to use the available profiles but don’t have the technology or the know-how to meet the technical requirements.
Figure 3. Blockchain access methods
Focusing on two trading partners, they use different access points to access the system. The access point is responsible for converting the user data (if necessary) to UBL XML as a service to their constituency of users.
The business rule validation step is the face of any such service. It is tailored to the business scenario within which the access points are providing their service. This checks code lists and contents as configured for the business scenario. If anything is amiss the XML is rejected. If everything is acceptable, the XML is posted to a blockchain (by default encrypted but it can be openly legible if desired), translated to the data structures of SOL, the Solidity programming language, and forwarded for execution.
The business process execution is the heart of any such service, with the state machine acting on the content of the business document as it is expressed in SOL. It progresses the process without having to check a lot (if any) of the user tailoring because that has been checked by the business rule interface.
With this separation, different business scenarios can be built on top of the one process engine.
A marketplace of service providers is created as blockchain-savvy companies go to the market to offer their service of connecting their clients to the blockchain. Different communities of users will be attracted to the services of different providers. A user might even implement their own access point to the system if they have the capability and don’t need a service provider. The interface between users and access points is private between the two parties, and it need not be UBL, though it could very well be UBL. When it isn’t UBL the access point would need to perform the appropriate conversions in both directions.
Tasks such as a print rendering of a UBL document can be done from the XML as part of the business customization (with stylesheets, perhaps customized with logos, provided by the access point).
Moreover, leveraging international standards such as UBL will empower and entice to the blockchain any existing service providers already familiar with and implementing UBL in projects such as PEPPOL.
5. An implementation underway
http://bBiller.com project is intended to be released to the public
after a private industry implementation in Australia has proven the assumptions and the
coding of the process. Part of the development is determining the process transitions
available and the documents that need to be used, that is, the detailed specifications
of the profiles.
There are opportunities on the project web site to subscribe to public notifications made by the participants.
There is value in disintermediating the supply-chain process by taking out the middle men of finance and process. There is value in the instant disbursement of payments to all parties involved as and when obligations are being met. Timely reporting of intermediate steps of the process improves all parties’ abilities to plan ahead.
The blockchain and cryptocurrencies already implement an ad-hoc value exchange between sender and receiver without any paper trail (very attractive to many) in a decentralized and disintermediated fashion.
These same benefits from studying and applying the blockchain approach to the supply chain process will be attractive to organizations relying on formal document audit trails of the procurement and transportation process.
Using an internationally-standardized document format such as UBL for that audit trail leverages the investment in other projects that also use the same format, and equips the resources for development of future projects needing the same documents.
And international standards evolve to meet real-world requirements, but only with the active involvement of those who will be served by the work products. Increased participation in the international committees is always welcome by committee members. More hands make for light work. Getting in on the design of document formats opens opportunities to influence the work products published for everyone to use openly and freely.