The Rise of Blockchain in Procurement

Explore How to Rise of Blockchain in Procurement Department

PurchTips Edition #430

The blockchain is poised to play a critical role in supply chain and procurement management. Before going into the details of this reality I will like to remind you that the core mission of the procurement function is threefold:

  1. Management of Spending
  2. Support of Operations
  3. Protection of organizations from Risks

The blockchain is ideally a tamper-proof and profoundly high visibility digital ledger. Ledgers in blockchain are continuously reconciled, distributed, and cannot be altered or deleted.

Blockchain in Procurement

Blockchain can improve the procurement process in the following ways:

1.) Reduction of Operational inefficiencies: The traditional supply chain is plagued with inventory builds ups, stockouts, lengthy lead times expedited shipments, delays and significant cost. Most transactions are done using multiple MRP and ERP systems that operate in silos, making effective forecasting and materials management a daunting task. Blockchain in procurement can reduce the Total Cost of Ownership and improve spend management by systems integration and the elimination of most of these issues, by streamlining processes into one high visibility platform. Blockchain can be leveraged with RFID, sensors, and GPS to enhance operational efficiencies.

2.) Reduction of Supply Chain Risk: Blockchain technology has proven to be virtually fraud-proof and contains robust paper trail mechanisms. The stellar visibility provided by the technology is itself a great fraud deterrent. The financial and brand image risks posed by stockouts and supply disruptions is also dramatically reduced by the technology. We are likely to see an increase in the use of blockchain as part of the risk management strategy of many companies.

3.) Improvement of Collaboration: Bullwhip Effect occurs when massive build up in supply chains occur due to the misunderstanding of changes in ordering patterns. This type of situation can tie up huge sums of cash and puts companies at risk of product theft, damage and obsolesce. Blockchain can help to dramatically reduce this occurrence by making it easier to collaborate and share information with heightened materials visibility and tracking.

4.) Enhanced cash flow position: Blockchain has proven to reduce Cash to Cash Cycle Time. Thus, payments to suppliers and collection of payment from customers can be improved, while creating an enhanced cash flow position, profitability and economic profit.

5.) Enhanced Production and Replenishment Triggering: Suppliers can respond to the sale of products with more efficient production and of replenishment inventories, at the right time and quantities. Requisitions to procurement departments can be timely and robust. Blockchain backed up with powerful spend analytics can provide huge benefits to procurement professionals.

6.) Smart Contracting: Contractual language can be encoded into Blockchain technology making the management of contracts streamlined, simplified, cost-effective and utterly efficient. A significant reduction of contractual breaches has been noted to date.

Blockchain, AI and Machine learning are all poised to make a profound impact on the work of supply chain and procurement professionals. These technologies are disruptive and must be met with forwarding thinking and innovation mindsets.

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Copyright 2019. This article is the property of the Next Level Purchasing Association and may not be copied or republished in any form without the express written consent of the Next Level Purchasing Association. Click here to request republishing permission.

By David Millington, SPSM, SPSM2, SPSM3 - Director of Education (Next Level Purchasing Association)

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