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This guest post comes from Ana Farr, Community Manager of ecommerce-platforms.com and Unblock.net.
Blockchain has made a lot of noise in the digital world and, at this point, it is almost correct to say that most people know what it is and its impact on the technological sphere. Most industries and organizations such as supply chain, data science, transportation, finance and health care already have blockchain pilot projects. We believe that this nascent technology can also revolutionize purchases.
There is a lot that virtually every company can get from decentralized registers (another name for blockchain). For those who are still new to this technology, blockchain is a powerful digital storage system (like ordinary registers) that keeps information safe from external tampering. The ledger is managed by a group of computers (or users) usually referred to as nodes. In order for a change to happen, over 50% of the nodes must provide authorization.
And if I could convince most of the nodes to vote for my interests or even better, have absolute control over them? Right. This is called 51% attack (taking control of over half of the decision makers) and rarely happens because it would require a huge amount of energy and money to make such a move. The rigidity of the tamper blockchain makes it the safest and most transparent registration system.
Where they meet Blockchain and procurement
One of the biggest problems purchasing professionals face is the lack of trust between them and other organizations. When trust does not exist, we tend to avoid suppliers we do not know (which could actually be a real bargain) and push for unfriendly financial terms until the supplier demonstrates a worthy partner. Most companies involve bankers and insurance agents to mitigate risks.
So establishing due diligence can also become very expensive and time-consuming. However, blockchain puts everything on the table so that everyone can see it. While all the details can be viewed, the data can not be damaged, modified or deleted. Thus, both the company and the suppliers can see each phase of the product and therefore anyone who has caused a problem can be held responsible.
Making orders and processing payments is still a manual job for many purchasing and finance departments. The work usually involves recording all the finer details of the buyer and seller that includes agreements, receipts and other documents. To add to this, some registers are kept in different offices or companies, and this would require several phone calls and meetings to ensure that everything controls on both sides. This can be boring, inconvenient and time consuming.
When the blockchain is in play, all records exist under one roof and most actions, including payment processing, can be automated. An intelligent contract must be fed with all the necessary details and will take care of everything else. Automation can also help with suppliers onboarding as everyone has access to the employment contract.
B2B payments tend to become very complex and slow since many details need to be put on paper. In a normal daily transaction, procurement managers can be involved in drafting contracts, speaking with insurance and financing before finalizing the payment. Such lengthy processes will not only delay the seller from receiving liquidity, but could mean that another purchase can not be started until the first one is executed.
The intelligent Blockchain system means that payments will be sent promptly and that intermediaries (such as banks and insurance companies) will not be required. An intelligent contract, as the term suggests, is an auto-executable program that initiates a transaction only when all the preset conditions have been met.
The purpose of an intelligent contract is to introduce a certain level of trust between the parties who make transactions that do not know each other. Transparency also exists because everyone can see all the details in the contract.
Just like in the healthcare sector, procurement departments manage hordes of sensitive data that could cost millions of businesses if they fall into the wrong hands. Cloud storage offers a more secure solution, but it's not as secure as digital registers and cloud services are becoming expensive as data continues to swell.
Could you ask yourself what happens to all that data in the blockchain? Blockchain records, once written, become tamper proof. Nobody can modify or delete them. With intelligent encryption or private blockchain, critical information, certificates and other documents may remain obscure to avoid duplication or any kind of compromise.
- Fair and compliant processes
With end-to-end visibility, blockchain can promote correct and compliant practices. Fraud, money laundering and other unacceptable practices can be detected before they cause further damage to your business.
One of the main reasons why many companies decide to adopt blockchain is to cut costs. If most of the functions are on autopilot via smart contracts, and the data is secure, and we have no use for brokers, then there is much to be saved. In addition, process automation increases accuracy by minimizing the chances of errors injected through human input.
Bottom line
Blockchain has a lot to offer for the procurement function, which is why purchasing professionals should start considering its use seriously. Integrating this technology into a company's processes will result in transparency, efficiency, increased confidence and security. However, before taking a leap forward, it is necessary to understand that the blockchain is still in its early stages and therefore only suitable for pilot projects. Also, it's not a good idea to just blindly jump because every other article describes it as the next big thing. You must have a plan and understand which processes need improvement and how much you expect to spend.
Disclaimer: the opinions and opinions expressed in this article are those of the authors and do not necessarily reflect the official position of Spend Matters.
