Can Blockchain Revolutionize the Procurement Process?

Technology continues to change the way businesses operate, bringing in efficiency, improving productivity, and reducing errors. Among several technologies, blockchain has seen acceptance in various aspects of a business, including the procurement process. Due to its many advantages, organizations across the world are now adopting blockchain to streamline their supply chain. Blockchain has many benefits, such as creation of smart contracts and removal of middlemen, due to which it can add immense value to the procurement process.

As technological advancements continue to transform the corporate world, organizations that embrace technology in their processes reap the benefits. Blockchain is one such technology that is revolutionizing the procurement process across companies globally. Organizations that have adopted blockchain have a more dynamic and interconnected supply chain and are establishing a digital future for procurement.

As per its definition, “Blockchain is a technology that creates a digital and decentralized record of all transactions in a network. The participants who have access to the network can authenticate transactions independently of a third-party intermediary. Through cryptography and advanced security, blockchain creates a “secure digital ledger” of transactions without the need for a central trust authority.”

Advantages of blockchain

• Smart contracts – Blockchain can increase the efficiency of the procurement process via electronic tamper-proof smart contracts executed automatically with a predefined set of conditions. Smart contracts can be designed to include multiple parties across the entire supply chain, with the value and terms incorporated from end to end. Moreover, in smart contracts, the execution of the conditions at each stage is recorded against the contract and is visible to the next link in the chain. These electronic contracts can also conduct a performance check of the given contract and self-execute by releasing payments to the appropriate party.
• Automation of standard processes – Blockchain can facilitate manual processes such as order placement and payment processing. As these are multi-step operations that require considerable documentation, blockchain can make these processes systematic and efficient. Steps such as approval, invoice processing, multi-way matching, and the entire request-to-receipt process could be completely automated, thus reducing chances of human errors.
• Removal of intermediaries – All data and transactions are synchronized across the network and stakeholders have access to shared ledgers. Hence, the need for middlemen in the procurement process is eliminated.
• Visibility and traceability – Empowered through blockchain, buyers can now ensure authenticity and traceability of all goods throughout the purchasing cycle. A verifiable audit trail of a supplier’s goods will be established in the system. Moreover, crucial supplier credentials, certificates, and qualifications cannot be forged or compromised in the system.
• Trustworthy business relationships – Due diligence is essential before onboarding new suppliers, and it lays the foundation of a strong business relationship. Due diligence is repetitive and often time-consuming. However, blockchain can expedite the entire process. Blockchain provides access to transaction logs of all parties present on the network, basis which the parties can analyze pertinent facts. Buyers can rate the quality of the goods and services, as well as the vendor’s overall performance.
• Data confidentiality – Blockchain can provide high levels of security, as an entry cannot be changed. Instead of expensive cloud storage, companies can opt for shared ledgers.

Practical applications of blockchain
Some companies have successfully incorporated blockchain within their supply chain to enhance the procurement process. A well-known diamond giant is using blockchain to track the stones from the moment they are mined to the point they are sold. This gives assurance to the end customers that they are buying genuine products. A coffee brand in Ireland has adopted blockchain-based technology to reorganize its supply chain. Blockchain is helping the brand increase productivity and transparency while providing fair deals to growers. Apart from these companies, prestigious brands including Unilever, Walmart, and Ford are currently adopting this technology to streamline their supply chain.

Limitations
Blockchain has certain limitations, which should be considered while implementing the technology:

• Format – Information in blockchain is stored only in the form of a flat file. Therefore, it cannot be stored in the form of other file extensions. Coupling blockchain with other technologies, such as data lakes or the Internet of Things, could remove this barrier.
• Smart contracts – Due to the distributed nature of blockchain, issues such as conflicting laws, jurisdiction, and dispute resolution, may arise in smart contracts. Mitigation of such issues would need careful navigation by specialist advisors.
• Data authenticity – Blockchain is limited by the quality of its data. Criminals can hack blockchain-based technologies if there are errors in coding or bugs, or the smart contracts are badly designed. Hence, experts should be employed for developing such technologies.

Currently, businesses are exploring solutions that improve productivity and are cost-effective. The wide adoption of blockchain in supply chain can reduce the need for intermediaries, minimize human errors, and automate mundane tasks while building security and traceability. Blockchain can also contribute toward realizing the era of paperless transactions. The procurement community is slowly but surely embracing both the concept and the technology, and it is leveraging many tangible benefits of blockchain across the supply chain.