Blockchain technology is set to revolutionise how we work in many industries, however, at times it can be a struggle to understand the potential role and impact it presents.
Many associate the term ‘blockchain’ with the rise of crypto-currencies, however, this association is quite literally just one side of the coin. Despite being originally devised for the digital currency Bitcoin, the tech community is now finding many other potential uses for the technology.
So, what actually is blockchain and how can we harness the power of this emerging technology within procurement?
Quite simply, blockchain is a form of digital trust which aims to deliver security, transparency, and efficiency in transactions. It is a secure ledger system, made up of a distributed database that holds tamper-proof records of digital transactions. Blockchain technology can allow a product to be tracked from its source, with new ledger entries being built based upon each transaction that takes place with the product or product that is used as a component to build finished goods.
Where blockchain technology is so valuable is related to how records are added to the database. A network of computers stores and verifies every new record that is created, resulting in the blockchain becoming more robust than a single record, as would be found in more traditional database systems. Each transaction is linked to the previous one, thus creating complete traceability and preventing any data alteration.
The blockchain is comprised of a decentralised system in which several computers are linked and shared among parties in a peer-to-peer network. This means that there is no authority deciding the rules, thus ensuring blockchain’s impartial nature. Blockchain and its associated uses could welcome in a new era of supply chain efficiency, and it is clear that there is huge potential within procurement processes for considerable innovation and cost savings by harnessing this technology.
Blockchain technology offers new levels of trust and transparency to supply chains, as well as enabling the procure-to-pay process to capitalise on huge operational benefits. Through this strengthened trust, new types of cooperation between machines and between humans that were once limited by a lack of trust can now be realised. This technology also provides transparency in which strong audit trails can be forged, as well as adding efficiency and reach to global financial markets where current processes are unable to handle the sheer volume and speed of data analysis that is required in day-to-day operations. Furthermore, blockchain processes can also aid in the reduction of resource consumption and waste generation.
Within procurement domains especially, blockchain-based innovations hold enormous promise with a huge array of applications. Some examples include:
- Disruption of Purchase-to-Pay Processes – This could potentially provide huge operational benefits related to speed, improved security and reduced workload by facilitating the exchange of information
- Smart Contracts – The use of tamper-proof smart contracts that automatically implement terms of multiparty agreements
- Real-Time Payments – Real-time settlement of payments for blockchain-based contracts and orders that could automatically trigger pre-agreed payments on completion of transaction cycles
- Transaction Automation – Automation of transactions provides opportunities for enhanced purchase order management including order validation and approval, invoice processing, multi-way matching, and the entire request-to-receipt process
- Buyer Empowerment – Blockchain technology empowers the buyer with the means to ensure the authenticity and traceability of all goods throughout the purchasing cycle. Such traceability allows for verifiable audit trails of suppliers’ goods
As with all emerging technologies, organisations should still make an informed decision about testing blockchain before fully investing to ensure its fit with their specific business needs. Blockchain is still a relatively new technology, and in addition to understanding the potential it holds, organisations also need to fully evaluate the limitations and risks.
However, blockchain currently holds the potential to transform businesses through digitisation of transaction workflows and may be the key to re-imaging many business processes within the global marketplace.
This is an article from: Insight & Innovation: Issue 1 – click here to read the whole newsletter.