Procurement Transformation with Blockchain
The procurement function is ridden with significant complexity caused by a variety of factors, often the result of faster lead time expectations from the customers, customized experiences and expanded products and services. These complex processes lead to data flow inefficiencies and disintegrated systems resulting in the creation of data silos. Most enterprises still have poor visibility in their supply chains despite taking up digital transformation initiatives. Efficient management and enhanced supply chain visibility can have a positive impact on the bottom line of any company. Business leaders today are looking to address important challenges such as revamping outdated supply chains, efficient tracking of the source of the produce, establishing vendor credibility among other things.
Most enterprises find it difficult to address these challenges due to the complex supply chains that they have in place. Technologies like blockchain have the potential to transform the way enterprises manage their supply chains.
Blockchain in Procurement and Supply Chain
According to Don and Alex Tapscott, authors of Blockchain revolution (2016), “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” Essentially, blockchain facilitates the aggregation of records as a ledger for processes involving multiple parties. It is an internet and user-driven database that automatically adds a new record as a digital fingerprint for every 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 of any centralized authorizing agency. The efficiency and security of transactional and logistical data that is usually exchanged between stakeholders in a B2B or B2C environment can be significantly improved using blockchain.
Traditional Supply Chain to Digital Supply Network
In a pre-digital supply network state, information travels in a sequence from development to support. Digital supply networks overcome the delayed action-reaction process of the linear supply chain by adopting real-time data to provide better transparency, enhance supplier collaboration and make informed decisions. The open and digitally interconnected network creates new opportunities for cost reductions and better communication with customers on the status of their orders.
Key benefits of leveraging Blockchain in Procurement and Supply Chain
- Single source of truth
- Data Protection and Visibility
- Shorter lead time and process agility
A supply chain has a variety of assets in motion at any given point of time. Visibility to these assets in real-time is critical for organizations. Blockchain can help in managing these assets by tracking them and providing a single source of truth.
Blockchain is the safe and foolproof method to ensure that the digital identities of parties are correct and transactions that run on this network are completely trust-worthy, never expire, and is invincible.
Blockchain enables extremely streamlined and transparent communication, consequently leading to significantly accelerating the process and facilitating a leaner supply chain.
Blockchain Use Cases in Supply Chain
E-Invoicing using Blockchain:
Blockchain has the potential to revolutionize the invoicing creation to 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 stages, 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.
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 of a trusted third party. The smart contracts 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.
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.
Establishing veracity of materials and vendors:
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 a blockchain. 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.
Container Shipping Giant Adopts Blockchain for Asset Tracking
One of the world’s largest container shipping company has started a venture to streamline ocean freight with a blockchain system which tracks international cargo in real-time. The blockchain-based system digitizes workflows and allows each stakeholder in the supply chain to follow the progress of goods during the transit process. Blockchain technology ensures secure data exchange and a tamper-proof repository for customs documents, bills of lading, and other data, and make them available to the stakeholders.
Procurement functions are undertaking value-added activities that drive agile sourcing, product innovations supported by suppliers, and faster turnaround for customers. Blockchain is fast and has very strong audit trails. Although it is not a panacea for all the supply chain management challenges, it has the potential to significantly turn around the cycle time of supply chain processes and establish a safe and trustworthy supply chain.