Procurement Applications using Blockchain Technology

Procurement is a critical business function.  The efficiency and effectiveness of procurement have a direct impact on a supply chain’s performance.  Therefore, it is crucial for procurement professionals need to have a reliable and trusted system to support all their procurement decisions. Some of the common challenges faced by procurement are record traceability, data security and privacy, data integrity and fraud prevention.  Blockchain technology has great potential to tackle these challenges by enhancing visibility of transactions, data integrity, automating smart contracts and fraud detection.  However, blockchain technology is costly to implement and integrate with existing systems.  Existing IT infrastructure must be scalable as blockchain consumes significantly more computing resources as the ledger grew with more transactions.  New processes must also be able to comply with existing legal and regulatory requirements.  Procurement staff must also be trained and upskilled.  Management must weigh its costs to benefits carefully to derive optimum value from this revolutionary technology. This article discusses the use of blockchain technology for procurement applications.

Supply Chain Transparency

Blockchain Technology offers a clear and transparent record of all transactions in one place. Greater transparency and communication help to break down silos and facilitates cross-functional work.  Integration with enterprise resource planning (ERP) system and linking third parties through electronic data interchange (EDI) with blockchain technology offers new opportunities and advantages.  The benefits include increased customer trust, improved brand loyalty, builds supplier trust which supports stronger industry collaboration and partnerships.  Blockchain also enhances supply chain visibility by proper recording of all activities e.g. inspection and audit reports, safety tests and non-compliance.  Transparency also builds trust and can reduce inspection and assurance costs by avoiding the need for expensive third-party verification systems.  This facilitates seamless workflows in the organisation and improves both efficiency and effectiveness. Blockchain technology provides a transparent record of all transactions in one place. It also safeguards trust and transparency when multiple agents are involved in various stages of the supply chain process. It can also be used to empower the buyer by ensuring the traceability of all goods throughout the purchasing cycle.

Data Sharing and Collaboration

Blockchain technology provides a secure method of tracking transactions from sourcing, acquisition and payment.  This technology has innate security and reliability due to its decentralized ledger.   Blockchain allows shared and synchronized digital databases maintained by consensus algorithms and stored on multiple ‘nodes’ that these nodes have access to. Whenever there is a change in the ledger, the node makes the change visible to all users. Upon change approval, the transaction data will be time-stamped, cryptographically signed and added as a new block in the existing blockchain ledger.  No further change or alteration by any party is allowed, making blockchain a great choice for peer-to-peer sharing and record-keeping. Back in the day, file transfer methods often rely on central servers, which can be susceptible to single points of failure and potential security breaches. Security is ensured since most nodes will not accept a change, should anyone try to edit or delete an entry.

Contract Management

Blockchain-based smart contracts provides businesses with a new level of transparency by creating unique digital records of all the transactions. This greatly enhances contract management by providing an accurate and updated view of contract performance, credits or rebates. A contract management system capable of smart, self-executing contracts with predefined rules and conditions is one of the key benefits blockchain technology. Efficiency is vastly improved by automating various aspects of contract execution and enforcement to reduce manual effort.  This minimizes human errors, delays.  Blockchain technology in procurement supports transparency at every stage of the supply chain lifecycle. It can keep a tamper-proof record of every single transaction that has occurred. This real-time visibility streamlines communication and decision-making and enables timely updates and notifications to relevant parties. All stakeholders are kept informed about the status of a contract, leading to faster contract cycles and improved collaboration. Blockchain offers a more secure way to monitor a product or transaction from procure to payment.