Blockchain in Procurement Explained

Besides digital currencies, the scope of blockchain technology is huge. It is widely employed in several industries across the world. The main reason why it is quickly adopted in almost all industries is its potential for secure business-to-business transactions. It uses a unique blend of techniques such as immutable smart contracts, distributed digital ledger, asset tokenization, and more to make it trustworthy and incorruptible which most industries are seeking nowadays. 

Now blockchain has sparked a significant transformation in procurement. It appears to tackle the major challenges found in procurement. However, it is quite hard to grasp how to implement this innovative technology with dynamic innovations. But in this blog, we have discussed how blockchain is used in procurement, what are its benefits, and what impact it could bring to procurement. Let’s explore this in detail. 

Blockchain in Procurement

Blockchain in procurement provides complete data visibility and keeps product information updated in a single shared ledger. It helps businesses track their product's status and location at any time and make secure B2B payments. It creates a new set of blocks to record every step of the process that protects it from delays, tampering, fake products, and compliance violations. 

The procurement sector has been struggling with transparency issues. Procurement processes generally involve sourcing, purchasing, and paying for goods, services, or products businesses require through tendering and bidding process. It involves a network of distributors and middlemen right from tracing the progress of a product right from its raw form to when it is bought and paid for. 

However, this innovative technology blockchain has the potential to change the way procurement processes have been done. It allows for the integration of innovations that offer complete transparency across the entire procurement process. Especially while sourcing goods from overseas markets that involve numerous middlemen, blockchain can help with data management, accurate tracking, and automating tasks. 

How is Blockchain Used in Procurement?

Blockchain is a secure network that maintains a shared and immutable record of transactions and communicates independently with other node points of the network. It makes the entire procurement process transparent and offers complete control of shipments. 

Smart Contracts 

Smart contracts are self-executing contracts that automatically initiate procurement processes when specific terms and conditions are met. It automatically creates purchase orders, checks supplier credentials, monitors shipments, and initiates payments without manual intervention resulting in reduced errors and smooth process execution. 

Decentralized Ledger 

Blockchain offers a decentralized distributed ledger that allows businesses to access the same version of procurement activities. It allows all the involved parties to easily verify, audit, and access procurement data. This enables the smooth sharing of information with enhanced transparency and traceability.  

Cryptographic Techniques 

Blockchain employs sophisticated cryptographic techniques including Symmetric/Asymmetric key cryptography, hashing, digital signatures, and more to improve procurement data security. These security measures help keep data safe against cyberattacks and unwanted access, making it difficult to alter the records. 

End-To-End Traceability 

Blockchain helps in end-to-end product traceability which is more crucial in procurement. It helps trace the product right from its origin to the final destination easily. It helps check how authentic the products are and monitor the quality standards under which they are made. This embeds trust among the involved parties. 

Secure Payments 

Blockchain makes transactions possible without the need for middlemen like banks. It minimizes errors and fraud since it enables all parties to verify the payment data. Payments are made directly between parties and funds are released only when the pre-determined conditions are fulfilled. 

Benefits of Using Blockchain in Procurement

Businesses profit greatly by using blockchain technology in procurement. It helps them from tracing products to enabling a secure way of processing payments. Let's explore all the benefits blockchain could bring to procurement. 

Increased Transparency 

Blockchain offers an auditable record of procurement transactions. It makes it easy to trace products right from their source to delivery. Moreover, it assists in verifying the authenticity of products. 

Reduced Costs 

Using blockchain in procurement be it for documentation or payment processing, there is no chance for human error. It keeps a note of every single transaction and ensures everything is going on at its time. Businesses need not spend money on third parties or expensive tools for supervision, thus reducing costs. 

Streamlined Procurement Process

Blockchain helps businesses automate procurement processes that have been done manually such as invoice generation and payment processing. This could result in streamlined processes with reduced paperwork and delays. 

Robust Security 

As we have seen earlier, blockchain uses various cryptographies such as digital signatures and encryption that add an extra layer of security to procurement payments. The data is accessible only to authorized individuals which helps prevent fraudulent activities. 

Improved Trust 

Blockchain allows all the involved individuals to be aware of what is going on with their products and check their quality when they get them. This helps build trust between business parties.

Operational Efficiency 

Businesses need not go for manual labor while they have this robust technology to automate manual procurement processes such as tracking purchase orders, transactions, and invoices. This accelerates the entire procurement process, saving time and resources.

Applications of Blockchain in Procurement 

Blockchain has the potential to revolutionize traditional procurement operations. It supports various stages of procurement including source-to-contract and requisition-to-pay processes. Let's explore them in detail. 

E-Sourcing 

Blockchain-powered e-tenders and e-auctions use smart contracts to automate RFx procedures such as information requests, bid procedures, proposals, and quotes. It automatically verifies and handles supplier documents. It also stops accepting bids once the deadline of the bidding period is met. 

Contract Management 

Using blockchain, smart contracts can be created with rules that help gather contracts from various sources such as document management systems, employee emails, and more, and input them into an authentic, centralized digital ledger. 

Supplier Management 

Storing data related to suppliers such as their performance and compliance in a blockchain-powered digital ledger helps businesses access them whenever needed to streamline supplier management. 

Purchase Order Management 

Purchase orders contain many transaction-specific details such as price, quantities, and ship dates. Using blockchain, those records are digitized through cryptographic hashing which makes it easy to record and verify purchase orders. 

Logistics Management 

Blockchain helps maintain an indelible record of blocks that contain identity-based encryption, timestamps, and payment authentication. This helps with both domestic and cross-border transactions. encoding predefined terms regarding shipping conditions on smart contracts and push notifications during unusual cases, resulting in better logistics management.  

Invoice and Payment Processing 

Generating invoices and processing payments manually not only takes time but is also prone to data-entry errors and vulnerability issues. But smart contracts automate invoice validation and trigger requests for payment approvals. Also, a Shared digital ledger allows all the authorized parties to access and handle e-invoices. 

Steps Involved in Building Blockchain Solutions for Procurement 

Building and implementing a blockchain-based procurement solution is a meticulous process that needs technical capabilities and a thorough understanding of navigating the complexities associated with various blockchain platforms. Here we have listed down the steps following which one can build effective blockchain solutions for procurement.

Evaluate Your Procurement Process 

Before going digital or automating, it is essential to evaluate your current procurement process. Based on the review, we can easily identify the problems and pain points that blockchain can easily resolve. 

Identify The Suitable Use Case 

Next, we must gather the requirements needed to build the blockchain solution. It involves choosing the suitable use case and what type of smart contracts, security, and data are required for blockchain implementation.  

Pick A Blockchain Platform

Once the requirements are gathered, next we choose an appropriate blockchain platform out of various options available such as Ethereum, EOS, and Binance Smart Chain. It is better to go with the one that suits your use case and resolves your problem.

Develop A Blockchain Solution

With a blockchain platform chosen, we can proceed with developing a blockchain solution for the procurement process. If we first build a prototype with essential features and functionalities, it will help you test its feasibility before deployment. If it works out, we can move on to its complete development with all the features. 

Testing 

Before integrating the blockchain-based procurement solution with existing systems, we need to ensure it is free from all kinds of bugs and performs well. To do this, we must test the solution in various testing environments and address the technical issues if arise. 

Implement The Solution

Now, it's time to implement the blockchain solution into the already existing procurement process. We need to pick up the right integration points to enable seamless implementation and data transfer. 

Build Your Procurement Blockchain Solution Today

As we started embracing the revolutionary blockchain technology in many industries, now is the time to implement it in procurement. It offers numerous transformative benefits and practical applications for procurement processes. Whether you are just starting your procurement business or looking to improve your existing operations, then approach Maticz, the top blockchain development company. 

We provide specialized blockchain services and solutions for diverse business sectors. Our blockchain developers have great expertise in working with various blockchain networks and advanced technologies. We also develop feature-rich procurement management software that could change your procurement management into a competitive edge. Contact us today to get detailed information.