Here's How Blockchain Technology is Revolutionizing the Procurement Industry

brought to you by WBR Insights

Blockchain has the potential to be one of the most game-changing technologies in the supply chain. Already well-known for sending reverberations throughout the finance industry in the form of cryptocurrencies such as Bitcoin, the technology also has a whole host of innovative applications set to revolutionize procurement.

What is Blockchain?

For the uninitiated, a blockchain is a distributed, digital ledger, which allows transactions to be completed on a peer-to-peer basis, with no centralized authorizing agency. In simple terms, a blockchain can be thought of as a secure, public, and external system of record, which participants can inspect, audit, and update.

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The distributed digital ledger records transactions in a series or "chain" of blocks. This blockchain exists in multiple copies spread across multiple nodes (i.e. computers). Each new block of transactions links to the one before it and after it. All nodes connected to the blockchain network receive updated versions of the ledger as new transactions are made. While users may access, examine, or add data, they cannot change or delete it, leaving a permanent and public trail of information and transactions, which renders tampering practically impossible. Anyone trying to falsify the ledger would have to do so across multiple copies stored across multiple computers at precisely the same moment - and the chances of this happening are negligible. And this is precisely what gives blockchain technology its security and transparency.

Importantly, though the technology has earned its fame in the world of cryptocurrency, a blockchain can be programmed to record not only financial transactions, but anything of value, including contracts, records, and other important information.

Blockchain for Procurement

The security-focused and peer-to-peer nature of blockchain technology offers some unique benefits which can be applied to great effect in supply chains.

Increased Transparency

One of the biggest issues in procurement (and in any supply chain system) is ensuring trust and transparency when multiple agents - or even countries - are involved in the various stages of the process.

With blockchain technology, information at each step of the shipping process is logged in a secure and public database, which cannot be modified by any of the parties involved without it becoming immediately apparent to others. This means, should something go wrong during the shipping process, the supply chain can be traced back to the point at which the mistake occurred. The data which drives this innovation can be taken from manual scanning at shipping centers, or from automatic processes such as temperature sensors within freight containers.

This enhanced transparency not only adds an extra layer of accountability to supply chains, but also mitigates the risks of criminal activity, such as money laundering. As blockchain technology records every single transaction in its ledger, all payments and financial information are available in the public domain. This means any suspicious or malicious transactions are incredibly difficult to hide, and can be flagged and dealt with before they can damage the business - both in terms of revenue and reputation.

Smart Contracts

A smart contract is a set of executable code - i.e. a software program - that runs on top of the blockchain to carry out the contract. Smart contracts are able to automatically find, negotiate, and close deals right across a supply chain, and without the need of a trusted third party.

The smart contract will function exactly as it has been programmed, with terms and conditions able to be specified by both sides, ensuring trust in the enforceability of the contract, and the identity of the counterparty. When certain conditions are met, the smart contract will automatically deliver a result or trigger an event. For example, if a payment has been received, a delivery can be automatically triggered. On the flip side of the coin, if a condition has not been met - such as timely delivery - a penalty can be triggered.

As smart contracts are based on a software program that runs automatically - using information guaranteed by the blockchain to be correct - manual checking of conditions and events by third parties can be avoided, significantly reducing transaction costs and facilitating more advantageous trades.

Examples of Blockchain Being Used in Supply Chains Today

Blockchain provides reliability and integrity in a supply chain - there can be no dispute in the chain regarding any transactions because all parties involved have the exact same version of the ledger. Everyone can see the chain of ownership for each asset, and records cannot be erased.

Blockchain Food Safety Alliance

For example, in the food industry, it's imperative for watertight records to be kept so products can be traced back to their source. In August last year, Walmart teamed up with IBM to use blockchain to keep track of the pork it sources from China. The blockchain records exactly where each piece of meat comes from, where it's processed, stored, and its sell-by-date. Unilever, Nestle, Dole, and five other food giants are also using IBM-built blockchains to improve the traceability of foodstuffs such as chicken, chocolate, and bananas.

The success of the project led to four organizations - Walmart, IBM, Tsinghua University, and Chinese retailer - forming the Blockchain Food Safety Alliance in December. The collaboration aims to improve food tracking in China, and create a standards-based method for collecting data about the origin, safety, and authenticity of food, using blockchain technology to provide real-time traceability throughout the supply chain.

Brigid McDermott, Vice President, Blockchain Business Development & Ecosystem, at IBM, comments: "IBM, Walmart, and Tsinghua University will work together closely, maintaining collaboration and communication, to ensure that JD's solution and IBM's solution have standards necessary for Walmart and JD customers to have a consistent user experience when accessing the food safety and traceability information."

De Beers

Elsewhere, diamond giant De Beers announced in January this year that it would be using blockchain technology to track stones from the moment they are mined right up to the point when they are sold to consumers. The project aims to ensure the company avoids 'blood' or 'conflict' diamonds, and assures customers they are purchasing the genuine article.

Bext360 and Moyee Coffee

Another example is found with bext360 - a traceability Software-as-a-Service (SaaS) platform designed to streamline critical supply chains in emerging economies. The company is using blockchian technology to better track all stages of the global coffee trade - from farmer to consumer. Ireland's Moyee Coffee - a provider of speciality coffees - has been working with bext360 to increase productivity and transparency in the coffee supply chain, and provide a fairer deal for growers.

"This is nothing less than a revolution and the start of a project that will bring an unprecedented level of transparency in a profoundly unfair industry," writes Moyee Coffee in its Medium blog. "The bext360 platform gives all stakeholders - farmers, roasters, and consumers - access to data across the entirety of the supply chain. [...] For consumers, bext360 provides unprecedented levels of transparency around origin and quality; and allowing, for the first time, a coffee drinker in Europe to pull up this data and verify exactly where their coffee was sourced."

Moyee Coffee claims this to be the world's first blockchain coffee project, and aims to have all of its coffee fully blockchain-traceable this year.

Final Thoughts

From smart contracts to increased accountability, fraud protection, transparency, fairer deals, and supply chain integrity, it's clear blockchain technology has exciting applications in procurement and the potential to truly revolutionize many different supply chains the world over. Procurement functions can benefit hugely from the speed and efficiency of blockchain, and its transparency and immutability will embed trust between parties as transactions and agreements become absolutely verifiable. Though wholesale transformations will not happen overnight, organizations should start to explore where blockchain can be introduced to portions of their operations.

Blockchain technology and its applications in procurement are set to be hot topics at ProcureCon Indirect West 2018, taking place at the JW Camelback Inn Resort & Spa in Scottsdale, AZ, this September.

Download the agenda today for more information and insights.

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