Pinpoint Manufacturing and Parts Sources in Seconds - Not Days Parts and Warranty Validation – Automotive Retail store on the Blockchain Hyperledger Use Case Timothy Leonard, SVP Pinpoint Manufacturing and Parts Sources in Seconds - Not Days

Agenda How Blockchain works? Business Process Key Use Cases Use Case Discussion 2

Since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired or ceased to exist. are vulnerable to disruption within three years 72% expect more competitors from outside their industry 54% of CxOs SOURCE cited in notes 1/3 of the top 20 companies in every industry will be disrupted over the next 3 years EXTERNAL THREATS MKM Rese@rch, "Worldwide Business Start-Ups," Moya K. Mason, accessed February 28, 2017, http://www.moyak.com/papers/business-startups-entrepreneurs.html INTERNAL THREATS Born-on-digital companies that steal market share or rewrite customer expectations New business models that reinvent our industry and change the game altogether Siloed data and systems expand on the wrong platform Gaps in expertise and skills Inability to react quickly

How does blockchain improve processes? It works as a system of record that is shared among participants of the business network, eliminating the need to reconcile disparate ledgers. Each member of the network has access rights so that confidential information is shared on a need-to-know basis. Consensus is required from all network members, and all validated transactions are permanently recorded. No one, not even a system administrator, can delete. Maintain high-resolution photos of each diamond at every touch point along its journey. Track real-time records of every payment transaction. Hold certificates of authenticity. Keep a record of product details like cut, clarity, color, carats, and diamond serial numbers. 4

Agenda How Blockchain works? Business Process Key Use Cases Use Case Discussion 5

Blockchain for business … Shared ledger Smart contract Business terms embedded in transaction database & executed with transactions Append-only distributed system of record shared across business network Ensuring appropriate visibility; transactions are secure, authenticated & verifiable All parties agree to network verified transaction So Blockchain technology comprises these four main blocks, that can lead to increased efficiencies, and cost reduction across the business network. We will “unpack” CONSENSUS PRIVACY & SMART CONTRACT in the next couple of slides. Shared LEDGER has been already covered, and a SMART CONTRACT enables the business rules implied by the contract to be embedded in the Blockchain and executed with the transaction Privacy Consensus … Broader participation, lower cost, increased efficiency

Blockchain addresses “high-friction” processes Problem… Two (or more) parties want to exchange assets, but the process is manual & time-consuming (possibly due to lack of trust, different viewpoints / requirements/ standards/ etc.) and Blockchain Solution: A shared, secure, synchronized and stable record of transactions, called a ledger. This provides: Consensus, assured provenance, immutability 7

What People Want from Technology Solutions Automate Execute Monitor Analyze Optimize Deploy Perform Improve Quality Customer Experience Availability Reliability Performance Scalability Manageability Cost Predefined, prebuilt integrations and solutions. Integrates easily with a wide range of systems, from current and other leading vendors. High-performing, reliable functionality Scales easily and cost-effectively as EDI transaction volume grows. Easy to Manage, with as much Automation as possible Total cost of ownership (TCO) of the solution remains competitive as your transactions grow. Architecture, infrastructure and deployment capabilities keep up with technology for Continuous Improvement

Agenda How Blockchain works? Business Process Key Use Cases Use Case Discussion 9

Blockchain engagements Making blockchain real for business with more than 1800 engagements and multiple active networks Trade Finance Pre and Post Trade Complex Risk Coverage Identity/ Know your customer (KYC) Unlisted Securities/ Private Equity Funds Loyalty Program Medicated Health Data Exchange Fraud/ Compliance Registry Distributed Energy/ Carbon Credit Supply Chain Food Safety Provenance/ Traceability

Blockchain Internal Supply Chain Use Cases Customer Order Mgmt Manufacturing Distribution Customs Offices Customer & Business Partner Logistics Provider & Transportation Order Management Ledger Customs Declaration IBM Sellers, Business Partners Digitally Signed / Encrypted Transactions & Ledger Consensus Algorithm Prevents Double-spend IBM TSS (CHIS, MPI) IBM Manufacturing Beginning of today’s Replicated Ledgers AAS Systems of Record GAM Fixed Asset Accounting STS Blockchain Layer Asset Management 3 12-week iterations for HW to be active, 2 more for SW returning $3M/yr 2 12-week iterations to active returning $2M/yr Smart Contract Configures Smart Contract User Interface IBM Supplier Payment Contractor Submits timesheet Verifies: Configurations against pre-approved options Supplier sign-off Time sheets etc Contract Agreement (via e-sig) Contracted Labor 2 12-week iterations to active, 1 more for returning $3M/yr steady state 11

Use Case – Provenance of Parts, Spares What Manufacturing are complex systems with multiple parts. Tracing provenance of component parts and spares to back to their real origin is difficult In some markets use of counterfeit or end-of-life parts are prevalent How Send details of manufacturer, production date, batch no. and manufacturing machine for each part made to shared ledger Blockchain holds transparent record for easy lookup of part origin, certification and expiry date by manufacturer, airlines and regulators Benefits Reduce usage of counterfeit parts and consequent brand damage Recalls can be "specific" rather than cross fleet Reduced cost of Warranty as parts are easily traceable

Automotive store Store The Problem Tracing quality and accuracy for parts and warranty to automotive retail stores. It can take 21 – 35 days to origination with paper ledgers due to the complex supply chain from the manufacturing to the consumer. For example; the recalls for major automotive dealers have caused major finical and safety issues in the pass. Toyota's Out-of-Control Gas Pedals, 2009 & 2010 Size of Recall: 9 million vehicles Models Affected: 2004-2010 Toyota Avalon, Camry, Corolla, Matrix, Highlander, Prius, RAV4, Tundra, Tacoma and various Lexus models.  What Happened? A few years ago, a combination of manufacturing flaws turned Toyota's fleet of vehicles into automotive runaways. In some cases, the floor mats became lodged under the accelerator, jamming it down. In others the gas pedal would simply stick. After more than 60 cases of runaway vehicles were reported, 30 of which resulted in at least one death, Toyota went into crisis mode and issued two separate recalls in 2009 and 2010 to "reconfigure" the accelerator setup. Company officials have estimated the cost of the blunder will top $5 billion after all is said and done, making it the costliest recall ever recorded. https://www.recalls.gov/nhtsa.html Recall Processing Facility  Distribution Center Automotive store Store Consumer

The Solution Tracking parts from supplier to automotive retail stores to the originating manufacturing can be reduced from 7 days to 2-3 seconds with a blockchain using Hyperledger. All the supply chain participants will append their information to the distributed ledger using their mobile device. The manufactory can even indicate the assemble line where the part was applied. This will allow the automotive supplier and the consumer to trace any part within 2-3 seconds with their mobile device. Supplier Processing Facility  Distribution Center Automotive Store Consumer

Executive Summary - Blockchain Blockchain is a new technology that removes cost and complexity from multi-party transactions using a shared, secure, synchronized & immutable ledger. Best use cases are transferring assets (physical, financial or virtual) where multiple parties are involved, and validation or verification is needed. Benefits are typically shorter cycle times, reduced costs, and increased confidence. In some cases, Blockchain may also enable a significant performance improvement – because it allows a company to completely reengineer the process. Costs to get started are reasonable. Of course, more complex processes with higher performance will require a higher investment. Partners (suppliers, logistics partners, etc.) may be full participants in the Blockchain, or simply interact with the process. Most of their costs are driven by the process, but in some cases they may need to build integration with (or extracts from) their own systems. Inappropriate use of Blockchain may be those situations where an existing solution works well, where no asset is being exchanged, or high-volume/ low-value/ real-time transactions. 15