Is Blockchain the Future of Your Procurement Strategy?

Is Blockchain the Future of Your Procurement Strategy?

Innovative technology blockchain has increasingly been making the news recently with the rise and fall of cryptocurrency Bitcoin. While Bitcoin grabs the headlines, blockchain often finds itself wedged casually into reference paragraphs of news articles like a forgotten cousin.

As we all desperately rush to pretend we understand what Bitcoin really is, and how it works, it’s the underlying architecture of blockchain that’s potentially opening up a world of global business potential. So what is blockchain, and what does it mean for your procurement strategy?

How does blockchain work?

Blockchain is a shared digital ledger technology. Fundamentally it is a secure digital transfer of trust in the form of a transaction.

This transfer of trust is built on the back of a ‘block’ – essentially the record book of transactions undertaken as part of a chain. What makes blockchain uniquely powerful is the way this record is shared. Each time a transaction takes place, the ledger is updated across every user in a network. That new ‘block’ of data is then verified by all members of a network and added to the chain. There is no need for a trusted middleman, since the data itself becomes the vehicle of trust.

As the data is encrypted, and crucially every user on a network has a record that must be updated, it is virtually impossible to forge or trick this ledger.  You would have to somehow hack an encrypted transfer of data, then hack every single computer on a network simultaneously to fake a blockchain ledger. That means seamless transparency across a distributed global network.



A concept that’s fit for procurement

While the description above is simplified, you can perhaps now begin to see the huge opportunity blockchain presents for procurement? Analysts Gartner predict the value-add of blockchain technology for businesses globally will reach US$3.1 trillion by 2030. The good thing is – you don’t have to understand the technical foundations of the technology to reap the rewards.

It’s clear that the concept of blockchain could offer a power opportunity for procurement. But the graveyard of innovation is littered with great concepts that failed to deliver. Is blockchain likely to be joining them?

What does blockchain mean to procurement in practice?

Blockchain offers a potentially radical tool to enhance our procurement transactions and deliver supply chain transparency. Tracking and processing transactions through the digital ledger of a blockchain could help tackle fraud, improve supply chain risk management and greatly improve our operational business intelligence.

U.S. retail giant Wal-Mart is already working in partnership with IBM to implement blockchain in its own supply chain. In a simple test to understand the complexity of modern global supply chains it took almost 7 days to establish the origin of a Wal-Mart product using traditional methods. That same insight was revealed in just over 2 seconds using integrated blockchain technology.



Blockchain allows us to track everything from raw materials to end products in a way that we can trust. That means understanding where in a network an item originated from, where it is going, and how far along the path it might be. One day it could well spell the end of frantic phone calls to exhausted suppliers trying desperately to work out where there shipping container went wrong. I’m sure we’d all celebrate a solution which delivered on that promise.

What is the future of blockchain in procurement?

The example above offers the simplest exploration of the most direct impact Blockchain could have on procurement. The truth is this is still a technology in its infancy, and while its potential is clear, the realisation of that potential may be a long way off for many businesses. Trailblazers like Wal-Mart have a significant first-mover advantage by the sheer scope of the resources they can bring to bear on exploring this opportunity, but like many innovations, disruption down to the grassroots is almost certain to follow.

As the technology matures, and the industry develops ways to complement and integrate with the huge opportunity already presented by the likes of e-procurement, we’ll start to see more evidence of the benefits. As that evidence piles up, so too will the queue of procurement professionals knocking on Blockchain’s door. The good thing is – we’ll have a record we can trust when we get there.

Here are other related articles you may be interested in