Greasing the Supply Chain Engine

If industrial supply chains are engines, then payment tech is the motor oil. It reduces friction and enables the engine to work more efficiently.

The eBay/PayPal partnership is the most obvious example of this analogy from recent tech history.

Paypal accelerated eBay’s flywheel by making transactions more seamless. That lower friction translated into faster growth and entrenched network effects.

Industrial supply chains look eerily similar to eBay in one specific way - the struggle to collect and distribute payments on time.

This friction is especially painful in the parts of the supply chain where dollar values are high and margins are low.  Errors or delays in these segments have significantly greater consequences on cash flow.

Imagine being a computer re-seller on eBay in the late 90s (pre-Paypal) that sold 100 computers at $2,500 each, but waits 21 days for payments to clear.

Now take that problem and imagine it's enough concrete to build a major interstate or the bases for 100+ wind turbines and payment takes up to 90 days.

Market participants will often trade margin to minimize payment risk. It’s better to accept the risks you know, from the people you know than shop for better terms or prices.

As a result, any payment platform in these sectors faces the same problem: businesses work with the devil they know. They are uneasy about trying new vendors or using platforms that connect them to vendors they already use.

But, there’s good news.

Money has momentum. Once users start to accumulate trust or currency, within a platform, the friction is lowest to spend it on the platform itself, or with vendors directly linked to the platform.

This is the magic of the oil making the flywheel turn.

Think of the industrial supply chain as an economic engine that has spent the last decade with its service light on because it’s desperately in need of an oil change - except the mechanic in this case could be worth billions.

Subscribe to Kevin Stevens

Don’t miss out on the latest issues. Sign up now to get access to the library of members-only issues.