How Blockchain is changing Procurement

Let’s focus on the wording "Changing". Blockchainis real, it is here and it has started. Blockchainis in the present and isn’t in some distant world.

Ford is using Blockchain solutionsthat have been built by IBM, Australian Beef is controlled by Blockchainand smart contracts are being implemented into the every-day world. It is only a matter of time before solutions such as Smart Contracts are built into the procurement process. 

With the emergence of Blockchain technology over the last decade the world of Procurement has started to take notice. And why would Procurement Professionals and Companies not take notice? Blockchain is going to change the world. There is no doubt about it.

So many people confuse Blockchain with Cryptocurrency. They are different. Blockchain is the platform and the infrastructure. Cryptocurrency sits on top of this platform, utilising all of the benefits of the Blockchain platform to create a currency that is transparent, instant and trusted.

Blockchain has many more benefits than just being used for Cryptocurrency.

How will blockchain change procurement

Imagine a world when you do not have to build up trust of suppliers, where money changed hands between two parties instantly without a bank or government stepping in to be a “trustworthy” party or a world where invoices were a thing of the past.

Seems like a dream. No accounts payable departments (or at least a reduced department), contracts that take ego or wants out of the way and traceability of Purchase Orders without heaps of invoices, emails and paper.

This is what Blockchain is offering.

But what is Blockchain?

It is a world where there is a public record of every transaction ever made. These form blocks and when there are enough blocks, they are entered onto the Blockchain. The analogy of a ledger, that record every transaction is often used. It just happens to be that the Blockchain is this ledger but it isn’t owned by anyone. But the ledger analogy only covers the surface.

This is why it is so incredible. It offers a transparent platform that never misses a transaction and keeps a record of it for eternity. 

Blockchain is a network that is owned by no-one and everyone. You know, a decentralised peer-to-peer network if we wanted to use the proper Jargon.

Blockchain is transparency, traceability and fundamentally different to any system that has ever existed. It is life changing even though many do not understand the fundamental difference it will make to their every day life. But we are focussing on how this will change Procurement.

Traceability within the Procurement world

Let’s come at this from one angle. We will cover off Traceability in the Supply Chain is isolation another time. 

Let's discuss how Blockchain could be implemented into Procurement, from sourcing through to payment.

Transactional Traceability. Whenever a transaction is made, so the exchange of something for another something a block is created on the blockchain.

See where the name comes from. Well if not, I’m sure it is starting to click.

So what comes next? You’ve got it, the chain.

Let’s use the Ethereum Blockchain platform to illustrate briefly how Blockchain works - every 17 seconds new blocks are added to the Blockchain.

Once your transaction is made, it becomes a block, this block enters the Blockchain and then every new block links to the one before it. This is why there is an unprecedented level of transparency. You cannot (at least not very easily) remove a block from a transaction you have carried out. New blocks have formed and linked to it. The Blockchain only gets longer and stronger and therefore far more traceable. It’s almost beautiful when you think about it. 

Why trust in Procurement can come from Blockchain

As we touched on, imagine a world where you do not need to build up trust within your Supply Chain or with your Suppliers.

This might sound a bit sad but it isn’t. It is truly incredible, life-changing and will make everything far more efficient in the world of Procurement.

Every person will be who they say they are.

Every company will be who they say they are.

Transactions will only occur if one party has available funds.

Transactions will only occur where parties know what it is they are purchasing.

Every transaction ever made will be recorded.

Every exchange ever made will be recorded.

Trust is no longer earned with Blockchain. Trust is a given within a Blockchain environment. Just think of how many Procurements at a transactional or even a Strategic level where one, two or all of these concerns have been present. Think of the arduous hours spent ensuring that every party understands this, to the point that a huge contract is enacted to deal with every little thing. This may well no longer be needed.

You simply buy what you believe you are buying with the company/person you believe you are buying from and this is all recorded so that there can never be a dispute. Because the transaction should not have occurred if anything that causes a dispute can arise.

Say goodbye to lengthlyProcurement Processes

Most Businesses use a mixture of paper and software for Procurement. There are those Businesses that exist that use modern, up-to-date procurement systems that are electronic and track just about everything possible and spits it out in copious amounts of detail. This is for the big players.

Blockchain will change this. It will be a fundamental.

Even the smallest of Businesses will be able to access a version of the Blockchain for their Procurement (and wider Supply Chain needs).

There are Companies setting up Blockchain platforms all over the world currently but one thing that does not go with Blockchain are inflated prices.

The ease of entry is minimal.

There will be no excuses.

Once your Business starts using the Blockchain platform it will be able to issue out Purchase Orders on a scale not seen, with legally binding contracts forming when various sets of programmed conditions occur and a direct trail of everything that you have procured is visible instantaneously. You no longer need to worry about counterfeit parts, child labour, poor safety standards. It will all be known instantly with minimal effort.

Your Invoices will become far more simplified. You can process payments without losing track of any money you owe or that is owed to you. The money will change hands as to speak when set conditions occur and title of goods will pass when pre-determined events occur. It will be slick, without the focus on complex legal jargon. The new legal jargon will be code mixed with a dash of what is still in use until something more takes its place.

To say that Blockchain will change Procurement is not enough.

Blockchain will revolutionise the way Procurement operates. 

Is it just hype

The simple answer is no.

Cryptocurrency is hyped. We all saw the huge swell in monetaryvalue of a single Bitcoin and its plummet back down to earth. It was as though Bitcoin became the very embodiment of Ikaros’s plight when he rose to high and sharply plummeted back down to Earth.

Blockchain will fundamentally change the operation of how the Web works. It is Web 3.0. When we fully transition to Web 3.0 is only a matter of time but it will happen. 

Companies do not need to jump in yet. You do not need to change all your processes and software. But be aware. Taste Blockchain, research it, had it to an Opportunity for you Business and take it seriously.