Beyond the Hype: The Practical Benefits of Blockchain in Procurement

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It’s been a few years since the loud buzz around blockchain quieted down, but that doesn’t mean interest and development of this advanced technology has faded. In fact, the global blockchain procurement market is on track to expand at a compound annual growth rate (CAGR) of nearly 88% over the next six years, Grandview Research reports. 

“Data traceability and transparency, trust and accountability, decentralization, and immutability are driving the market growth,” the firm points out. “Blockchain has brought a paradigm shift in procurement, supplier management and supply chain with the innate ability to transform all sorts of digital transactions.”

What is Blockchain?
By definition, blockchain is a group of processes that join forces to provide instant, shared and transparent information stored on an immutable ledger that’s only accessible to authorized members. The blockchain provides a trusted and reliable platform for procurement, ensuring that transactions are fair, efficient and secure.

Here’s how it works:

• An authorized participant inputs a transaction.
• The technology authenticates it. 
• The transaction is recorded as a block of data. 
• The block is sent to every computer node in the network. 
• The authorized nodes corroborate transactions and add the “block” to the blockchain. 
• The transaction is finalized based on an “update” that’s distributed across the network.

In “How to use blockchain and smart contracts in procurement,” Marcel Deer discusses the prevalence of highly manual, scattered, inefficient and complex procurement processes. He says blockchain can address all of these issues by making those processes faster, more organized and more affordable.

For example, buyers use a lot of contracts, agreements and documents like purchase orders, invoices and delivery notes. “Many of these documents might be paper-based, and processes can be manual or involve multiple software systems,” Deer writes. This leads to errors, delays and other issues that can make the procurement process highly inefficient.  

The Benefits of Blockchain in Procurement
Adding blockchain to procurement starts with finding the most beneficial entry point and then putting the right technology in place to support it. Once that happens, companies can start realizing benefits like:

Automation that eliminates manual delays and inefficient paperwork. For example, procurement managers will no longer have to “check” a delivery notice and release an invoice for payment. Instead, a smart contract (a computer program that automates procurement contracts) can perform these tasks. 

Streamlined contract management. Companies can use digital contracts to automatically execute and enforce the terms of an agreement once predefined conditions are met, without the need for intermediaries. “Smart contracts offer immutable records and transparency, significantly reducing the chances of fraud or disputes,” Wis Amarasinghe writes in “Unlocking New Potential in Supply Chain Efficiency with Blockchain and Smart Contracts.” 

Better and faster dispute resolution. “If there is a disagreement,” Deer writes, “a supplier or a company can quickly check blockchain records for the status of a shipment or payment.”

Tamper-proof transaction records. This is a particularly important benefit for procurement professionals, who often face challenges in tracking the authenticity and origin of goods. “With blockchain, every transaction from the source to the final delivery can be recorded in an immutable ledger,” Amarasinghe points out, “providing complete visibility and accountability throughout the supply chain.”

Here's a Good Starting Point  
Companies that are just getting their procurement blockchain and/or smart contract initiatives can start by conducting a blockchain pilot project focused on tracing high-value or critical goods. “Platforms such as VeChain or IBM Blockchain offer tailored solutions for supply chain traceability,” Amarasinghe recommends, “[and help] procurement teams ensure that goods are ethically sourced and suppliers adhere to contractual obligations.”