Blockchain in Procurement

Blockchain in Procurement

Although the term Blockchain is mainly associated with Bitcoin or cryptocurrencies (and for a good reason), this revolutionary technology is quickly emerging as a potential game-changer in the world of B2B relationships, especially Procurement and supply chain services.

What is Blockchain?

Blockchain represents a simultaneously distributed database across a huge network of computers which is difficult or impossible to change, hack, or cheat. As a write-only structure with no permissions for editing or deleting, it’s focused on recording and validating data via a chain of blocks which represent added records of data with timestamps and unique fingerprints of each preceding block in the chain. Each time a new record is made has to be authenticated and validated across the entire network of computers before it is actually recorded as a new block.

Records and transactions are transparent (or permissioned), locked, and secured through encryption. Because past entries never get deleted, the Blockchain is continuously growing.

The impact of Blockchain on procurement

Peer-to-peer nature of Blockchain offers some of the high-end advantages that can be applied to procurement, supply chain services, and strategic sourcing in general.

Blockchain-procurement

Having said that, the most evident benefits of using Blockchain technology in strategic, tactical, and operational procurement include:

a) Strategic Long-Term Procurement Benefits

Overall cost reduction

There are many examples where Blockchain implementation can reduce costs like no other solution before it. Some of them include cutting the intermediaries, better purchase tracking and control, as well as significantly improved forecasting abilities.

Cutting out the middleman

Blockchain provides transparency, visibility, and control that can provide easy access to information for each partner in the network. It synchronizes all data and transactions, allows stakeholders to verify them, and completely removes the need for intermediaries.

b) Tactical Procurement Benefits

Transparency, visibility & control

Blockchain advantages that can be leveraged include transparency across all sourcing processes, as well as the availability of tracking or tracing options during the entire supplier-customer loop, from sourcing to settlement.

Validation of parties involved

The interaction of parties involved in a transaction is automated, reliable, and highly simplified with series of approvals.

c) Operational Procurement Benefits

Purchase Management

Order management, invoicing, payments, or anything related to quick and easy transactions is the field where Blockchain can show its full potential.

Smart Contracts

Blockchain offers the ability to automate actions where predetermined conditions are met. By allowing this type of relationship, rules for each transaction can be pre-defined and enforced automatically (e.g. Digital keys).

Time management

Blockchain significantly reduces the total time to complete each transaction.

Fraud Management

By being transparent and prone to high levels of control, Blockchain has become a reliable solution for assessing the risk of fraud.

Conclusion

While there’s an increasing interest for embracing Blockchain in procurement areas such as streamlining payments, improving productivity, reducing costs wherever possible, and enhancing collaborations, time will tell how the entire business model and its efficiency benefits will unfold. Many factors can influence its implementation. One of them is that it’s still experimental, so testing is recommended before the actual application. Others include higher costs at the very beginning or simply a lack of knowledge and skills that can hold everything back.

Possibly the biggest upsides of Blockchain in procurement lie in building long-term trust, a foundation for transparent and easier business management.

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