Blockchain technology can help organizations transform their procurement functions. It can transform all your digital transations, including procurement and supply chain. The role of CPOs (Chief Procurement Officers) has only empowered beyond reducing the cost to making sure an enhanced supply chain via improved collaboration with suppliers.
Here are the few ways how Blockchain can support the procurement functions to deliver value. Essentially, blockchain facilitates aggregation of records as a ledger for processes involving multiple parties. It is the internet and the user driven database that automatically generates a new record as a digital fingerprint for each new transaction and updates occurring in the supply chain. It is a reliable system of record that every participant can update and inspect, thereby eliminating the need for any centralized authorizing agency.
The capability and security of transactional and logistical data that is normally exchanged between stakeholders in a B2B or B2C environment can be significantly improved using blockchain.
4 Ways Blockchain Advancing Procurement Functions
1. Smart Contracts
These are contracts that are embedded in a program code on the blockchain and handle a variety of process applications. Smart contracts can automatically find, negotiate, and close deals without the need for a trusted third party.
The smart contract will operate based on the predetermined set of conditions specified by both buyer and supplier sides and will automatically trigger an event when these conditions are met. For example: when a payment is received, the delivery can be automatically started. On the other hand, when a condition has not been met – such as timely delivery – a penalty can be triggered automatically.
2. Order & Logistics Management
Blockchain can facilitate enhanced services such as invoicing process, order validation and documentation from request to the receipt, shipment details, returns, and more. In case of any exception, the system will automatically integrate the changes and reduce the completion time. Also, with blockchain, organizations can manage inventory better, get insights on product shelf life, delivery routes, consignment tracking, etc.
[ Also Read: Digital Transformation Journey and Data Protection ]
3. E-Invoicing using Blockchain
Blockchain has the potential to revolutionize the invoicing creation to the pay process. The document on the blockchain network can be visible to all parties in the network. The entire process from receipt until payment to the history of exchanges can be accessed via the network. Though this is still very early stage, it is expected that this technology will eventually be adopted not only for invoice processing but also for other services such as factoring and extending this information to third party financiers to discount bills.
4. Dealing with Security & Trust
Procurement deals with a lot of sensitive data and while cloud storage provides a safe solution, it’s not as secure as digital ledgers provided by the blockchain technology. Blockchain avoids duplication and any sort of compromise of critical information, certificates, and other documents. Blockchain can facilitate access to the transaction logs for all parties present on the network. Buyers can rate the quality of the goods and services provided and the vendor’s performance as well.
Blockchain has a lot to offer for the procurement function in terms of transparency, end-to-end visibility, efficiency, improved trust and security. Blockchain as a technology can embed trust between parties as transactions and agreements become verifiable. The technology enables supply chain to be tracked at every stage and should any mistake happen.
A well-known proverb goes: “If you want to fast, go alone, if you want to go far, go together.”
Enterprises are waking up to the immense opportunities with collaboration – collaboration not only to share learnings and experiences but also share information and conduct collaborative transactions. For instance, for the first time in October 2019, seven leading metals and mining companies joined forces with the World Economic Forum to accelerate responsible sourcing via blockchain solutions.
They intend to significantly accelerate speed to market and improve “industry-wide trust” via this initiative. One of the largest American retailer company is reportedly using food traceability system using blockchain to ensure authenticity and provenance for their products.
Leading procurement organizations are taking additional responsibilities beyond just cost drivers to value added activities that drive agile sourcing, product innovations supported by suppliers and faster turnaround for customers. Given that this technology is fast and has very strong audit trails, it is likely to have a huge influence on the way procurement organizations of the future will look like.