Can blockchain revolutionize the procurement process

Can blockchain revolutionize the procurement process

By Shreya Das

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

As technological advances continue to transform the corporate world, organizations that embrace technology in their processes are reaping 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.

According to the 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.

Benefits of blockchain

· Smart contracts – Blockchain can increase the efficiency of the procurement process via electronic tamper-proof smart contracts that are executed automatically with a predefined set of conditions. Smart contracts can be designed to include multiple parties throughout the supply chain, with value and terms incorporated end-to-end. Also, in smart contracts, the execution of the conditions at each step is recorded against the contract and is visible to the next link in the chain. These electronic contracts can also perform a performance check on the given contract and self-execute by releasing payments to the appropriate party.

See also  Blockchain gaming adoption means more options for players

· Automation of standard processes – Blockchain can facilitate manual processes such as order placement and payment processing. Since these are multi-step operations that require significant 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 can be fully automated, reducing the chances of human error.

· Removal of intermediaries – All data and transactions are synchronized across the network and stakeholders have access to shared ledgers. Therefore, the need for intermediaries in the procurement process is eliminated.

· Visibility and traceability – Empowered through blockchain, buyers can now ensure the authenticity and traceability of all goods throughout the purchase cycle. A verifiable audit trail of a supplier’s goods will be established in the system. Furthermore, important supplier credentials, certificates and qualifications cannot be forged or compromised in the system.

· Trusted business relationships – Due diligence is essential before starting new suppliers, and it lays the foundation for a strong business relationship. Due diligence is repetitive and often time-consuming. However, blockchain can speed up the whole process. Blockchain provides access to transaction logs for all parties present on the network, the basis for the parties to analyze relevant facts. Buyers can rate the quality of the goods and services as well as the supplier’s overall performance.

· Data Privacy – Blockchain can provide high levels of security, as an entry cannot be changed. Instead of expensive cloud storage, businesses can opt for shared accounts.

Practical applications of blockchain

Some companies have successfully incorporated blockchain into their supply chain to improve the procurement process. A well-known diamond giant uses blockchain to track the stones from the moment they are mined until they are sold. This provides assurance to end customers that they are buying genuine products. A coffee brand in Ireland has adopted blockchain-based technology to reorganize its supply chain. Blockchain helps 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.

See also  Argo Blockchain PLC announces participation in the investor conference in September 2022

Limitations

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

· Format – Information in the blockchain is only stored in the form of a flat file. Therefore, it cannot be saved in the form of other file extensions. Linking blockchain with other technologies, such as data lakes or the Internet of Things, can remove this barrier.

· Smart contracts – Due to the distributed nature of the blockchain, issues such as conflicting laws, jurisdiction and dispute resolution can arise in smart contracts. Mitigation of such problems will require careful navigation by specialist advisors.

· Data authenticity – Blockchain is limited by the quality of the data. Criminals can hack blockchain-based technologies if there are coding errors or bugs, or the smart contracts are poorly designed. Therefore, experts should be employed to develop such technologies.

Currently, companies are exploring solutions that improve productivity and are cost-effective. The widespread use of blockchain in the supply chain can reduce the need for intermediaries, minimize human error and automate everyday tasks while building security and traceability. Blockchain can also help realize the era of paperless transactions. The procurement community is slowly but surely embracing both the concept and the technology, leveraging many tangible benefits of blockchain throughout the supply chain.

The author is a senior manager, Aranca

Follow us on TwitterFacebook, LinkedIn

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *