Blockchain technology is not only related to crypto-currencies, that only scratches the surface of blockchain which has the capability of going far beyond the means of just financial transactions. Even though when thinking about blockchain the first thing that comes into mind is finance, blockchain technology can transform your procurement function too.
Blockchain is revolutionising the procurement process and helps improve your procurement processes and could be the cutting-edge that most procurement departments are looking for in both strategic and operational performance.
The Chartered Institute of Procurement & Supply defines blockchain as ‘a secure ledger system, which in effect will track a product from source, a new ledger entry will be built based on each transaction that takes place with the product or as that product is used as a component to build finished goods.’
Blockchain is reshaping numerous industries and it’s set to refresh the procurement processes. Below we’ll have a look at the ways in which blockchain and procurement meet.
Blockchain can help procurement professionals to develop a more efficient way for the contracting process by having electronic smart contracts which are executed automatically based on a given set of conditions. The smart contract will be able to check the performance or non-performance of the given contracts and execute the terms of the contracts automatically. Gartner estimates that by 2022, smart contracts will be in use by more than 25% of global organisations.
Trust is the key for building a long-lasting business relationship. Some companies may be inclined not to work with new suppliers because of due diligence. While due diligence may be time consuming and repetitive, it is a necessary form of risk mitigation. Blockchain technology can help with that process, it can involve having 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.
Placing orders and processing payments it still is a very manual process for many companies. It involves a multi step operation in order to have every piece of information documented. Some transactions, whether paper based or electronic, are kept in 2 different ledgers on buyer’s and supplier’s side. Blockchain can be used to facilitate this and to have all the information in one place.
Cloud storage is expensive and not as secure as a shared ledger. Having a shared ledger can improve and protect sensitive data.
Blockchain can offer procurement professionals a lot of benefits and opportunities.When integrated with existing processes. it provides transparency, security, efficiency and can improve business relationships. Before taking the decision to implement blockchain technology, organisations should take a calculated decision on the processes they want to improve and the ramifications of implementation.
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