How will Blockchain impact Procurement and Supply Chain?
Blockchain is a very fast emerging technology mainly used in the financial services industry and mostly known for Bitcoins or crypto currencies. Blockchain might disrupt entire industry as well as core processes in companies, incl. finance, procurement and supply chain. Per BCG Digital Ventures “No other technology has received more buzz in 2017 than the blockchain. With a record breaking number of ICO’s and a seemingly endless list of potential applications, it remains to be seen exactly which of these use cases will actually come to fruition in 2018.”[1]
What is Blockchain?
Blockchain — a peer-to-peer network that sits on top of the internet — was introduced in October 2008 as part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing currency, transferring ownership, and confirming transactions. Bitcoin is the first application of blockchain technology.[2] Blockchain is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”[3] (seen by anyone) or a permissioned network (seen only by those authorized)[4]. It addresses the supply chain challenge as it’s an immutable or unchangeable record shared among network participants that’s updated in real time and allows for the permanent and immutable transparent recording of data, essentially, and transactions specifically. That can be used to exchange any number of things that have value, whether that’s an actual item [or something else]. It could be tea leaves making their way to the final tea maker. Or it could be me sending you a payment person to person without the need for intermediaries.”[5]
The impact of Blockchain on procurement
Blockchain will provide a deep level of transparency across the entire Source-to-Pay Process and the Supply Chain. There are several use cases for blockchain technology which exist today and bring measurable benefits to procurement and supply chain. One of the biggest issues that companies face right now is tracking and tracing goods before, during and after shipment. All too often, a seller will ship something to a warehouse where it is swapped for a knock off without the buyer knowing. The distributed ledger capability of blockchain provides buyers and sellers with increased visibility and control from shipment to receipt, which ultimately reduces the risk of fraud. [6]
Blockchain Use Case: Palm Oil
Blockchain technology offers the opportunity to track and trace transactions from the beginning of the supply chain (raw material) to the customer (retail). Reliable sources are key for company brands and for consumers. Procurement with purpose is a prerequisite to provide the transparency expected by consumers. Therefore, transparency on tier 1, 2 or 3 supplier is no longer sufficient. Full visibility in the entire supply chain is key.
Only 17% of global palm oil production is certified sustainable.[7] The WWF is working in the Roundtable on sustainable Palm oil (RSPO) to reach to goal of 100% certified palm oil.[8]
Making it work
One of the most important things blockchain does is facilitate greater visibility and trust. Embedding the technology across procurement applications and business networks can accelerate the enablement of supply chains that are smarter, faster and more transparent from sourcing all the way through settlement.
And the benefits of such integration are clear:
Validation and authentication: Identification of interacting parties within existing and new partners can be done automatically and qualification and reliability approvals combined with fair trade identification simplified.
Transparency: All areas of contractual interaction between suppliers, customers and logistic partners are transparent and can be viewed in real-time.
Order Management: Purchase order and good receipt data can be exchanged on the blockchain, enabling companies to track and trace with confidence. In addition, the blockchain can help identify the nearest and most cost-effective vendor within the network, decreasing lead time and workload associated with vendor searches.
Reduce Risk and fraud protection: Fueled by the transparency and reliability of blockchain technology, audit trails will become highly secure.
Twenty years ago, procurement bet big on a fringe technology called the Internet and opened the door to a totally new model for buying and selling. In embracing blockchain, the procurement organization can pioneer the next set of innovations in business-to-business collaboration that will again change the game.
Sources
[1] https://pollen.bcgdv.com/3-tech-trends-defined-2017-ai-iot-blockchain/
[2] https://hbr.org/2017/01/the-truth-about-blockchain
[3] https://hbr.org/2017/01/the-truth-about-blockchain
[5] https://www.mckinsey.com/industries/high-tech/our-insights/what-next-for-blockchain
[6] https://www.ariba.com/about/news-and-press/sap-ariba-gets-in-blockchain-game
[8] http://awsassets.panda.org/downloads/wwf_palm_oil_scorecard_2016_1.pdf
About the authors
Marcell Vollmer holds a PhD in politics, is Chief Digital Officer at SAP Ariba and based in Frankfurt, Germany
Dr. Fabian Simoneit (MBA) holds a PhD, is Director Global Delivery at SAP Ariba and based in Munich, Germany
