Blockchain in Procurement — The Ultimate Guide of 2022
Many professionals, especially rookies in procurement, are not familiar with blockchain. So what really is blockchain in procurement?
For this article, we will discuss what blockchain is. We will explore how it can be applied in procurement and the supply chain.
After reading this article, you will have a deep knowledge of the role of blockchain in procurement. You will also know its benefits and importance as digital transactions grow rapidly.
We know that you have heard this word due to the popularity of cryptocurrency nowadays. Blockchain is greatly associated with cryptocurrency and non-fungible tokens (NFT). However, there is more to it.
Blockchain is defined by CIPS as an encrypted network that stores records of transactions and communicates or disseminates this to other node points within the network.
The first blockchain technology was created in 2008 to support Bitcoin. It is a technology that makes a decentralized record of transactions in a network that can be managed by its participants.
Blockchain technology works by confirming transactions in the network independently by a third party.
All nodes that are connected in the blockchain network receive an updated version of the ledger as new transactions begin. However, the users cannot change it. This leaves a public trail of information and makes all tampering impossible.
Hackers who intend to falsify the ledger would need to do the same to multiple computers at the same moment. This makes blockchain technology secure and transparent.
Blockchain is a revolutionary shift not just in procurement but in all industries. It has the potential to become the main figure in business-to-business (B2B) transactions.
It has the capability to change the ways of digital transactions in procurement and the supply chain.
Blockchain in procurement is the secure method for tracking products or transactions from sourcing to obtaining and paying the materials.
Blockchain technology allows the integration of innovations in the procurement process and supply chain management.
Utilizing blockchain technology will provide transparency across the entire source-to-pay process and the supply chain.
We all know that one of the problems that many companies face is tracking products before, during, and after shipment. Blockchain allows the visibility and control of shipment that reduces procurement fraud.
Benefits of Blockchainin Procurement
1. Utilization of smart contracts
Using smart contracts will definitely benefit blockchain in procurement. Smart contracts are tamper-proof documents where your agreements are stipulated. It can be concluded by two or more parties and it can execute itself if it meets all the pre-set terms and conditions.
Smart contracts are capable of verifying themselves, checking their own performance of their own condition, and ensuring that the terms in the contracts are fulfilled.
Additionally, it can automatically release payment to your supplier if the contract is completed.
Smart contracts are able to cover end-to-end transactions between multiple parties in the whole supply chain. Also, the terms of the transaction are visible and integrated with all parties.
2. Transparency and tracking
Blockchain in procurement can ensure the authenticity of the goods at the source. Additionally, it can track its movement throughout the supply chain process.
Suppliers need to establish audit trails of goods that can also be tracked from source to delivery. The transparency of the distributed ledger in the blockchain network means that certifications and other requirements cannot be forged.
3. Builds trust
Blockchain technology allows trust and business relationships to develop further. Due diligence is necessary for you to mitigate the risk between unknown companies.
Blockchain technology offers open access to the ledger for all the parties that will participate which makes due diligence faster and simple.
Through blockchain technology, you can immediately determine the quality of products or services that you can get. Additionally, you can rate their performance based on how the supplier provides for your needs.
4. Streamlining procurement processes and systems
You can use blockchain to enhance purchase order management as transactions are visible. Many organizations still use a manual process in terms of invoice and payment processing. The whole process of invoicing could be greatly streamlined if blockchain technology is integrated into your system.
Blockchain smart contracts are tamper-proof. All confidential information and payments are secured with encryption on the distributed ledger that is cheaper and more secure than cloud storage.
Is It The Real Thing or Just a Hype?
According to predictions made by Gartner, blockchain is still 5 to 10 years away from what they call the “plateau of activity”. All we see in procurement are prototypes that are just starting their way into practical applications.
However, many organizations see the huge impact of blockchain in procurement and the supply chain. They see the potential of blockchain to revolutionize the flow of information, finance, security, and materials through the supply chain.
IBM blockchain enables the trusted data exchange and workflow beyond the boundaries with distributed ledger technology.
Technical innovators switch to the IBM blockchain platform because of its fast process. Additionally, it leads businesses to a new era of collaboration and innovation.
QLDB is a fully managed ledger database that provides businesses with a transparent, immutable, and cryptographically verifiable transaction log.
Its cryptographic verification allows third-parties validation of data changes. Additionally, it tracks and maintains a sequenced history of every change in the application data.
AkaChain is based on the hyperledger fabric with an end-to-end, permissioned, and multi-chain network.
It is powered by FPT Software which is the blockchain for business platforms. AkaChain offers a unique approach to security and consensus. This allows transparency, and trust, and preserves the data privacy that businesses demand.
+ What is blockchain in procurement?
Blockchain in procurement is the secure method of acquiring materials or services through blockchain technology.
+ Is blockchain safe?
Blockchain technology is secure because it is distributed and decentralized.
+ Are we ready for it?
Blockchain is still in its early phase. However, many organizations can now see its potential in revolutionizing procurement and supply chain processes.
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