How Blockchain Might Revolutionise the Procurement Process

This guest post comes from Ana Farr, Community Manager at ecommerce-platforms.com and Unblock.net.

Blockchain has made a lot of noise in the digital world, and at this point, it’s almost accurate to say most people know what it is and its impact in the technology sphere. Most industries and organisations such as supply chain, data science, transportation, finance, and healthcare already have pilot blockchain projects in place. We believe this nascent technology can revolutionise procurement as well.

There is a lot that virtually every company can gain from decentralised ledgers (another name for blockchain). For those who are still new to this tech, blockchain is a powerful digital storage system (like ordinary ledgers) that keeps information secure from external tampering. The ledger is maintained by a group of computers (or users) usually referred to as nodes. For a change to happen, over 50% of the nodes have to provide authorisation.

What if I could convince most of the nodes to vote for my interests or even better, have absolute control over them? Right. That is called 51% attack (taking control of over half of the decision makers) and rarely happens as it would require either a massive amount of power and money to pull such a move. The rigid nature of blockchain to tampering makes it the most secure and transparent recording system.

Where Blockchain and procurement Meet

  • Embedding trust

One of the biggest problems procurement professionals deal with is the lack of trust between them and other organisations. When trust doesn’t exist, we tend to avoid suppliers we don’t know (who could actually be a genuine real deal) and push for unfriendly financial terms until the supplier proves a worthy partner. Most companies involve bankers and insurance agents to mitigate risks.

So establishing due diligence can get quite costly and time-consuming as well. However, blockchain puts everything on the table for all to see. While all the details can be viewed, the data cannot be corrupted, edited or deleted. So, both the company and suppliers can see every step of the product and hence anyone who caused a problem can be held accountable.

  • Automation of systems

Placing orders and processing payments is still a manual job for many procurement and finance departments. The job usually involves recording all the finer details of the buyer and seller which includes agreements, receipts, and other documents. To add to that, some records are kept in different offices or companies, and that would necessitate several phone calls and meeting to ensure everything checks out from both sides. This can be tedious, inconvenient and time-consuming.

When blockchain is in play, all the records exist under one roof, and most actions including payment processing can be automated. A smart contract needs to be fed with all the necessary details, and it will take care of everything else. Automation can also help with supplier onboarding since all of them have access to the hiring contract.

  • Streamlined payments

B2B payments tend to get very complex and slow as many details have to be put down on paper. On a normal day-to-day transaction, procurement officers can be involved in drafting contracts, talking to insurance and finance before finalising payment. Such lengthy processes will not only delay the vendor from receiving the cash but might mean another purchase cannot be initiated until the first one is done.

Blockchain’s smart contract system means payments will be dispatched promptly, and intermediaries (like banks and insurance) will not be necessary. A smart contract, as the term hints, is a self-executing programme that initiates a transaction only when all the preset conditions have been fulfilled.

The purpose of a smart contract is to introduce some level of trust amongst transacting parties that do not know each other. Transparency exists as well since everyone can view all the details in the contract.

  • Better security

Just like in healthcare, procurement departments deal with hordes of sensitive data that could cost a company millions if it falls into the wrong hands. Cloud storage provides a safer solution, but it’s not as secure as digital ledgers – and cloud services are getting expensive as data continues to balloon.

You may be wondering what happens to all that data in the blockchain? Blockchain records, once written, become tamper-proof. No one can edit or delete them. With clever cryptography or private blockchain, critical information, certificates, and other documents can remain obscure to avoid duplication or any sort of compromise.

  • Fair and compliant processes

With an end-to-end visibility in place, blockchain can promote fair and compliant practices. Fraud, money laundering, and other unacceptable practices can be detected way before they cause further damage to your business.

  • Improved productivity

One of the biggest reasons why many companies decide to adopt blockchain is to cut costs. If most of the functions are on autopilot through smart contracts, and data is secure, and we have no use for intermediaries, then there is a lot to save. In addition, automating processes increases accuracy while minimising the chances of errors injected through human input.

Bottom line

Blockchain has a lot to offer for the procurement function,  which is why procurement professionals should start to consider its use in earnest. Integrating this tech in a company’s processes will result in transparency, efficiency, improved trust and security. However, before you leap forward, you need to understand that blockchain is still in its early stages and hence suitable for pilot projects only. Additionally, it’s not a good idea to jump in blindly simply because every other article is describing it as the next big thing. You need to have a plan and understand which processes need improvement, and how much you expect to spend.

 

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official position of Spend Matters.

First Voice

  1. Secret Squirrel:

    Try reading this as the counterpoint.

    https://www.theregister.co.uk/2018/11/30/blockchain_study_finds_0_per_cent_success_rate/

    If you think the answer is a Blockchain, you probably don’t understand your problem.

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