Blockchain Technology Could Revolutionize the Procurement Industry

Ever since the Bitcoin phenomenon took the financial world by storm, blockchain has been a hot topic in many circles.

Blockchain, of course, is the technology which makes cryptocurrencies such as Bitcoin and Ethereum possible. Essentially the technology consists of a decentralized public ledger which keeps a record of all steps in a transactional process. Any manipulation of the data is made immediately apparent to all parties.

Blockchain's main selling points are its lack of a central authority (such as a bank), its security despite this, and its transparency.

It's those last two points (security and transparency) which make blockchain attractive to companies operating outside of the finance industry. Many are now starting to posit ways to use it to make their own businesses more secure and transparent.

Procurement is no exception.

Blockchain for Procurement

"If business is about creating customer value, then the supply chain is about delivering that value to the customer in the most efficient and effective manner," writes Vice President for Global Supply Chain at Lenovo, Renee Ure. "We work with numerous component manufacturers and suppliers to produce our servers. We enter into an agreement with each of them to ensure transparency, visibility, and accountability for the business transacted. Then, we trust each other to follow the terms of our agreement. Trust is at the center of any supply chain process. The efficiency and effectiveness of a supply chain relies on it."

Blockchain's much-vaunted security can be deployed to strengthen the supply chain with more effective and efficient processes. By removing intermediaries, the technology can create a significantly faster and more streamlined payment. Many procurement departments are still relying on archaic business practices such as paying by check, which can clearly cause a significant slowdown in getting purchases authorized.

If these companies discarded archaic pay-to-procure systems and instead switched to a blockchain-based process, significant time could be saved. Transactions could be authorized instantly, with the decentralized ledger acting to secure the process. It would take much of the guesswork out of when to place a procurement order as the instant authorization would facilitate last-minute ordering.

"Blockchain technology strengthens the supply chain by hardcoding that trust with security, bringing reliability with better asset management, and optimizing manual work - by saving hours of labor spent on reconciling accounts and settling disputes," said Ure. "People want to know where their servers were built, understand what components are in those servers and how those components were manufactured. What blockchain does is to wrap the information in a security blanket so that no one can hack, alter or destroy it. If a customer wants to check it after 20 years, the integrity of the information will be sound."

Contracts and other documents could also be exchanged through blockchain, with all parties connected to one another and able to electronically sign and authorize the same document. Complete with self-verification and automated execution, these smart contracts can be disseminated to everyone in the supply chain with a full and transparent record of every step taken.

With end-to-end visibility such as this in place, blockchain technology can help promote fair and compliant practices. Fraud, money laundering, and other unacceptable or illegal activities can be detected and eliminated long before they cause further damage to businesses. In the increased regulatory environment, which now exists post-Cambridge Analytica, GDPR, etc., the need to find ways to remain compliant while maintaining efficiency is paramount.

Final Thoughts

From compliance and transactional processing to the signing and dissemination of contracts, blockchain has the potential power to cause serious disruption to the procurement industry. However, with few (if any) proof-of-concept test cases out there, much of it is theory right now. We can't wait to see what happens, though.

"At our conference this year, we held a super session dedicated to blockchain," said Ure. "These developments tell me acceptance for the technology is on the rise. There's far less ambiguity surrounding the application of blockchain. Blockchain and your supply chain are a perfect partnership with a bright future."

Blockchain is set to be a hot topic at ProcureCon Direct 2019, taking place in July at the Rancho Bernardo Inn, San Diego, CA.

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